Owen Lamont, Senior Vice President at Acadian Asset Management, brings his wealth of knowledge in behavioral finance and market anomalies to the table. He compares the low equity correlation of today’s markets with the 1990s tech bubble, exploring how large-cap growth stocks remain disconnected from the broader market. Owen raises concerns about excessive corporate spending in AI and its impact on market valuation, emphasizing the complexities of growth versus value stocks and the historical significance of equity issuance and short-selling.
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Contrasting Economic Schools
Owen Lamont contrasts the "saltwater" (MIT) and "freshwater" (Chicago) schools of economics.
MIT accepts market inefficiencies and bubbles, while Chicago embraces market efficiency.
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Leaving Academia
Owen Lamont left a tenured position at Yale in 2007 to work at a hedge fund.
This poorly timed decision coincided with the 2008 financial crisis.
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Rationalizing Bubbles
Some academics argue that events like the tech bubble are consistent with market rationality.
They point to the emergence of successful companies like Microsoft and Apple as justification.
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Now a Portfolio Manager at Acadian Asset Management, Owen Lamont has had a long career in both the markets and in academic research on them. Earning a PhD in Economics from MIT in the 1990’s and then teaching at the University of Chicago shortly thereafter, Owen makes the point that these two storied institutions approach empirical finance from vastly different perspectives, with the MIT approach to explaining market anomalies utilizing behavioral finance and Chicago embracing market efficiency.
Our conversation is about some of Owen’s current work, starting with the observation that equity correlation has been exceptionally low, owing to the manner in which large cap growth stocks are disconnected from the rest of the market. As part of this, we explore the original tech bubble of the late 1990’s, contrasting it to present market leadership. Here, Owen makes the point that the original internet stock craze had dramatically more equity issuance than we see today. Owen puts equity issuance and short interest in a category of factors that have particular significance from an information content perspective, calling both firms and short-sellers smart money.
We talk further about the AI trend in markets and Owen’s concern that the massive corporate spend may be overdone. He points to research in the academic literature that shows that high capex firms have some history of underperformance and offers competing theories on why. He gravitates to explaining excess investment in AI from the lens of over-optimism among both investors and companies.
Among the other topics we cover is Owen’s take on the “min vol” factor – that is, the empirical finding that low volatility stocks outperform the market on a risk-adjusted basis. In a manner similar to the tech stock craze of the late 1990’s, the underperformance of the low factor over the past 5 years owes to the incredibly strong performance of the riskiest stocks during this time frame. On a going forward basis, Owen is optimistic that low vol stocks can deliver better risk adjusted returns.
I hope you enjoy this episode of the Alpha Exchange, my conversation with Owen Lamont.
Alpha Exchange