Prof. John Y. Campbell: Financial Decisions for Long-term Investors | Rational Reminder 250
Тәжірибелік нұсқаулар және стиль
*Due to minor technical issues with the Zoom call between Ben, Cameron and Professor Campbell, there are portions of audio that were not picked up throughout the interview.*
Navigating the world of finance and investing is undeniably complicated, sometimes unnecessarily so. And all too often the people who end up making the most costly financial mistakes are those who can least afford to do so. But what exactly needs to change in order for more people to make wise and well-informed financial decisions? And how do we go about implementing those changes? Joining us today to help us unpack this topic and the many decisions involved in the world of investing is John Y. Campbell, a British-American economist, professor of economics at Harvard, and founding partner at Arrow Street Capital, a systematic asset management firm based in Boston. John has published hundreds of articles on a range of topics including fixed income, equality valuation, portfolio choices, and household finance, all of which we explore in today’s expansive conversation. We kick things off by discussing utility theory, why it’s so important to the study of finance, and what it can teach us about risk aversion, before delving into portfolio structure, asset allocation, and hedging. John also expands on the study of household finance, the mistakes that households typically make, why household behaviour tends to differ from theoretical predictions, and how to bring theory and behaviour into alignment. We wrap things up by discussing how financial literacy, education, and regulation can improve outcomes for households before hearing John’s advice on selecting an optimal mortgage contract along with an overview of the type of risk that mortgage contracts expose you to. Today’s episode is jam-packed with information and insights from a profoundly knowledgeable figure in academia.
Timestamps:
0:00 Intro
3:33 What asset pricing theory aims to accomplish
8:24 How John estimates how risk averse an investor is
11:01 How utility and risk aversion are applied to portfolio choice over a single time period
16:33 The implications of CAPM pricing for portfolio choice
24:00 How asset pricing changes when moving from a single-period to multiple periods 28:51 How return predictability changes portfolio advice for long-term investors
34:40 The risk-free asset for a long-term investor
40:14 What drives the covariance between stock and bond returns
43:10: Impact of labor income on optimal portfolio choice
47:03 How intertemporal asset pricing explains the differences in returns of value and growth stocks
53:08 What drives the booms and busts seen in value stocks
1:01:14 How long-term equity investors should approach foreign currency hedging in their portfolios
1:06:17 The questions the study of household finance aim to answer
1:13:39 Mistakes that households make
1:22:08 Whether financial literacy education or regulation has the most potential to improve outcomes for households
1:30:40 The different types of risk that mortgage contracts expose people to
1:33:45 John defines success in his life
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Extra references can be found at: rationalreminder.ca/podcast/250
Пікірлер: 33
Due to minor technical issues with the Zoom call between Ben, Cameron and Professor Campbell, there are portions of audio that were not picked up throughout the interview.
@christopherknight5526
Жыл бұрын
Didn’t use Microsoft Teams lol
@penelopecarson5068
Жыл бұрын
@AndrewGill73
Жыл бұрын
I'm a buyer, this is not what I'm experiencing. All the best properties are selling. Tried to offer on one yesterday and it was sold.
This conversation is mind blowing. I understand the value premium better than ever before.
"expected future real returns on stocks declines when the level of the stock market goes up." The amount of people I meet who are oblivious to this is just jaw dropping.
@j.s.9981
Жыл бұрын
Since real rate of returns on equity investment merely adjust for the impact of inflation and taxes on the nominal return, I assume what they are at talking about in this presentation is the law of diminishing returns? The law of diminishing returns states that as investment in a particular area increases, the rate of profit from that investment, after a certain point, cannot continue to increase if other variables remain at a constant. I suspect many investors do recognize this principle when it is stated as such.
@ajitkirpekar4251
7 ай бұрын
I think that's right but the mechanism is one of risk tolerance.
a worthy episode nr. 250!
John Campbell is a Genius! And interviewers ask great, informed questions, as usual.
3rd time I'm watching this phenomenal interview... learned a lot have to say.
Wow !!!! Incredible episode covering such an array in finance. Really well done . Great guest as usual. Ben if you could share the best place to locate these papers by Dr. Harvey I would appreciate it.
Thank you all so much.
I hold a masters of (mathematical) finance. This interview is 2 years of material ! Of course you are only hearing the conclusions but nevertheless WoW
There are a couple occasions that the voice of Prof. Campbell are missing. Like, 19:20-24, 22:43-47, 22:58-23:00.
John gives one of the best answers to how to the "how do you define success in your life" question. It might actually be the best answer given yet.
@muffemod
Жыл бұрын
Yea especially the part about business serving the clients and the employees.
This was one of the best episodes in a while. Thank you for sharing it with us.
One of the most educational episodes!
As a Value tilter this episode confused me slightly. Why is the risk associated with value equities considered "bad beta"? If cash flows are generally higher for value I'd assume that's good. Is hedging against discount rate shocks(such as right now with rising interest rates) really considered bad? I guess what I'm asking is, what does value being considered "bad beta" mean to a long term investor regarding portfolio allocation?
Thank you amazing episode as always !
Excellent conversation! The most interesting and informative guest in a very long time. Great job guys! P.S: I think he meant that the total amount of the mortgage would increase, not the interest rate, by buying point. (1:28 or so).
@armin5500
Жыл бұрын
I was confused by this as well; what he describes sounds like the opposite of typical mortgage points (i.e. "discount points"). Turns out there's something called "negative mortgage points" which align with his description. I think he messed up the terminology.
What an incredible episode. Thanks!
Incredible episode! Thank you
On Currency Hedging, how should one consider the USD JPY pair where, whilst Prof. Campbell puts USD and JPY in the same basket as moving against the market, the cross rate has changed from 76 Yen to the Dollar in 2009 to 150 at the highest in 2022, and is now floating around 136, which before 2022 was last seen in 1998, with 150 going back to 1990?
Where is the long tail video? Though you might share some gold nuggets info
The US just solved the mortgage issue by making fees for good credit scores higher than for bad credit scores. Complexity solved
@j.s.9981
Жыл бұрын
Leave it to the government to always make the wrong decision out of a binary even money bet. They are batting a 1000 in that respect.
Prep of questions amazing, did JC have Qs in advance?
@rationalreminder
9 ай бұрын
He had them in advance.
Biggest problem with this entire episode is that variance isn’t a good representation of risk. People only care about the downside risk. No one ever complains about upside risk. The entire model is flawed when you build everything off variance when half of that variance is desirable. It’s an academic model that doesn’t match reality.
@rationalreminder
5 ай бұрын
You may have misunderstood. John Campbell is one of the leading academics on describing why variance is not a good measure of risk for long-term investors. -Ben