The Rational Reminder Podcast Prof. Eugene Fama (EP.200)
01:07:33
Market Efficiency Defined
- Efficient markets mean prices fully reflect all available information.
- Active management rarely beats risk-adjusted market returns after fees.
Momentum Challenge to Efficiency
- Momentum was a major empirical challenge to market efficiency.
- However, momentum profits are short-lived and costly to exploit.
Active Management’s Role
- Active management doesn't always improve market efficiency.
- Informed traders offset uninformed traders who make bad bets.
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Introduction
00:00 • 5min
Market Efficiency
04:33 • 2min
The Biggest Challenge to Market Efficiency?
06:48 • 2min
Do You Think the Inelastic Markets Hypothesis Changes Anything for Market Efficiency?
08:39 • 2min
The Capems of the Capital Ase Pricing Model
10:28 • 2min
The Three Factor Model Doesn't Explain the Differences in Returns
12:14 • 2min
Is the Five Factor Model Still an Empirical Model?
13:49 • 2min
Is the Cue Factor Model Really Valuable?
15:21 • 2min
How Important Is the Theoretical Work?
17:11 • 2min
What Are the Unknown State Variables?
18:58 • 3min
Do Long Term Investors Think About Returns as Random or Predictable?
21:49 • 2min
Is There a Single Optial Portfolio for All Investors?
24:10 • 2min
Is the Cap Waited Market Portfolio a Good Starting Point for Investors?
25:43 • 2min
Is It a Jest Taste?
27:34 • 2min
Canadian Investes Are No More Volatile Than Global Stocks
29:10 • 2min
Is There Any Way to Find Theistoriom?
31:03 • 2min
What Assets Are Hedges Against Expected and Unexpected Inflation?
32:47 • 4min
Can the Federal Funds Rate Be Raised?
36:41 • 2min
Can the Fed Cause Inflation?
38:24 • 2min
The Biggest Challenge in Translating Your Academic Work Into Live Investing?
40:15 • 2min
Should Value Stocks Carry a Risk Premium?
41:52 • 2min
What Have You Learned From Working With Dimensions?
43:38 • 2min
Did Not Know What a Big Deal This Would Be?
45:32 • 2min
Do You Think Anything Useful Has Come Out of the Behavior of Finance?
47:06 • 2min
How to Predict the Endings of Markets
49:17 • 1min
Does Machine Learning Make It Easier to Earn Alpha?
50:46 • 2min
Cryptocurrency
52:58 • 4min
Bitcoin Has No Real Value
56:45 • 2min
The Supply Is No Longer Fixed by Anyoneuh?
58:25 • 2min
Do You Need a Fixed Supply for the Dollars?
01:00:33 • 2min
How Many Hours Per Day Do You Think the Brain Can Handle?
01:02:29 • 2min
How Do You Defind Success in Your Life?
01:04:31 • 3min
We are so happy to bring you all our 200th episode, and who better to have on the podcast on this auspicious occasion than the legendary, Professor Gene Fama? This is one of the most jam-packed episodes we have ever recorded, with Gene providing concise and thought-provoking answers to our many, many questions. After delving into the foundations of Gene's work and philosophy, covering market efficiency, and its competing theories, Gene entertains our queries about a wide range of ideas and models, and generously shares the decades worth of wisdom that he is so widely known for. We also find time to talk about retirement plans, inflation, cryptocurrencies, and the influence of machine learning. Towards the end of our conversation, our guest touches on some more personal ideas about productivity, his career, his partnership with Ken French, and what success means to him at this point. For a landmark episode, with a true hero of the evidence-based approach to investing, make sure not to miss this.
Key Points From This Episode:
- The basics of market efficiency and its main implications for investors. [0:04:49]
- Limitations of the efficient markets model for explaining specific cases. [0:08:02]
- Gene's perspective on the inelastic markets hypothesis and his interest in it for the future. [0:09:36]
- The anomalies that brought down the capital asset pricing model. [0:10:26]
- Unpacking the three-factor and five-factor asset pricing models that Fama and French created. [0:11:43]
- Thoughts on the Q-factor model, factor premiums, and data dredging. [0:15:43]
- Gene's reflections on building data sets dating back to the 1920s. [0:17:13]
- The best way to estimate expected returns and expected factor premiums according to Gene. [0:19:52]
- Structuring portfolios and how different investors should approach this. [0:24:10]
- Considering international diversification for investors in Canada. [0:29:05]
- Further thoughts on asset pricing models. [0:32:47]
- The assets that are hedged against expected and unexpected inflation. [0:33:31]
- Gene illuminates the role of the Fed in relation to inflation. [0:36:43]
- Advice for typical retirees from Gene. [0:38:22]
- The challenges that Gene has experienced translating theory into practice. [0:40:16]
- Lesson from Gene's work with Dimension Fund Advisors. [0:43:47]
- Gene's reflections on his impact and having his theories implemented in practice. [0:45:32]
- Weighing the value and impact of behavioral finance. [0:47:53]
- Technology and active managers; is it any different for those aiming to achieve alpha in the current context? [0:50:46]
- Gene weighs in on cryptocurrencies and how his perspective might have shifted. [0:53:08]
- A look at the people who have had the biggest influence on Gene's career. [1:03:05]
- Thoughts on productivity and making the most of periods of clear thinking. [1:03:39]
- Our guest's personal definition of a successful life. [1:06:17]