Lasse Heje Pedersen

Lasse Heje Pedersen holds a PhD in economics from Princeton University and is both an academic professor at Copenhagen Business School and NYU Stern, and a Principal at AQR Capital Management — a rare dual identity in finance. His academic research has been exceptionally influential in both theory and practice. Working with Clifford Asness, Andrea Frazzini, and others at AQR, Pedersen co-developed the betting-against-beta (BAB) factor — an empirical strategy of going long low-beta securities and short high-beta securities that generates significant risk-adjusted returns in contradiction to the standard Capital Asset Pricing Model. The BAB factor has been documented across asset classes and geographies and is widely attributed to leverage constraints that prevent investors from obtaining sufficient equity exposure through direct leverage, causing them to bid up high-beta assets instead. Pedersen also developed the liquidity-adjusted CAPM, a theoretical model incorporating funding liquidity constraints that explains why assets with greater liquidity risk require higher expected returns. This work, with Markus Brunnermeier, provided a theoretical foundation for liquidity risk premia. His book "Efficiently Inefficient" (2015) provides a practitioner-oriented tour of major hedge fund strategies, making sophisticated concepts accessible to a broad audience. It has been widely used in graduate finance courses and by asset allocators evaluating alternative investments.