Expected Returns: An Investor's Guide to Harvesting Market Rewards

Acknowledgments

I have been a student of expected asset returns for over 20 years while wearing many different hats: buy-side bond portfolio manager in the Finnish central bank, Ph.D. scholar at the University of Chicago (UofC), bond research analyst at Salomon Brothers, sell-side strategist and prop trader at Salomon/Citigroup, and hedge fund trader and strategist at Brevan Howard. I have also advised various institutional investors on their long-term investment strategies—most regularly for Norway’s sovereign wealth fund in semiannual expert panel meetings. It is mainly this last experience that has inspired this book.

OK, that was too mildly put. I confess: I have been obsessed with expected returns. The passion for the topic arose in as different places as the Bank of Finland in Helsinki and the UofC campus in Hyde Park.

I earned my finance doctorate at the University of Chicago Business School (now the Booth School of Business) in the early 1990s, with Professors Eugene Fama and Kenneth French as my dissertation chairmen. In many minds this background puts me squarely in the efficient markets’ camp. However, we Chicago finance students were not taught a dogma. Instead, we were given a lifelong desire to learn more about financial markets with the emphasis on an empirical approach: let ideas compete freely and let data be the judge. The EMH paradigm gave a very useful framework for understanding and analyzing markets, but few of us became EMH purists. Indeed, many of the ...