The Rational Reminder Podcast Prof. Ken French: Expect the Unexpected (EP.100)
4 snips
May 28, 2020 Prof. Ken French, a leading finance scholar from Tuck School of Business, shares invaluable insights into asset pricing and passive investing. He discusses the pitfalls of active management, citing reasons why it often fails to outperform. Ken reflects on market volatility, urging investors to rethink their allocation strategies, particularly during crises. He emphasizes the importance of a good financial advisor and explains his own reliance on one. Sustainable investing raises fascinating dilemmas on pricing and returns, making this conversation a must-listen for financial enthusiasts.
AI Snips
Chapters
Transcript
Episode notes
Expected Premiums Can Be Overwhelmed By Noise
- Even with a positive expected equity premium, realized outcomes can be negative because unexpected returns dominate.
- Over 20-year draws (1963–2016) about 8% produced a negative equity premium historically.
Don't Judge Performance From Short Windows
- Don't draw firm conclusions from short windows like five years; they're too noisy to reveal true premiums or manager skill.
- Expect to need much longer horizons to assess asset class or active manager performance reliably.
Value's Out-Of-Sample Signal Is Noisy
- The value premium was weaker post-1991 but statistical noise prevents confirming a true decline.
- Combining long samples supports a positive value premium, but out-of-sample inference remains imprecise.