Oct 14, 2021
For this week’s episode (our longest to date), we get together
with the legendary Professor Campbell R. Harvey and take a deep
dive into a diverse range of topics that draw on his incredible
breadth of knowledge and extensive research. Campbell is the
Professor of International Business at Duke University and is also
a Research Associate at the National Bureau of Economic Research.
In 2016 he served as the President of the American Finance
Association, and from 2006 to 2012 he occupied the incredibly
demanding role of Editor for the Journal of Finance. One of his
earliest achievements was identifying the inverted yield curve’s
ability to predict a recession, a highly regarded metric that is
near-ubiquitous in its implementation. For the first half of our
conversation, we focus on his research in areas like skewness and
emerging economies. We cover specific topics like the factor zoo,
why it’s problematic, and how Campbell, along with his student Yan
Lui, found through their research that approximately half of the
published empirical research in finance at the time was, in fact,
false. We also unpack his most downloaded paper entitled The
Golden Dilemma and get into the intricacies of why gold is an
unreliable inflation hedge. For the latter half of our
conversation, we hear about Campbell’s latest book DeFi and the
Future of Finance along with his most recent research.
Discover how Campbell first became interested in the topic several
years ago and decided to put together a course for his students. We
also delve into the rise of decentralized finance (DeFi) and how we
can expect it to shape global finance, trading, and the future of
the internet. Join us today for this essential episode on
everything from the pitfalls of academia, to emerging markets, to
Bitcoin, and much more!
Key Points From This Episode:
- Introducing this week’s guest Professor Campbell Harvey.
- How Campbell’s research brought him to Chicago's Ph.D. program.
- How Campbell identified that an inverted yield curve had
preceded the past four recessions and could be a reliable economic
- Hear about Campbell’s research on skewness, as opposed to
simply mean and variance, which is often the focus of portfolio
- Why it’s surprising that skewness is still largely disregarded
in favor of mean and variance. [00:16:42]
- Why mean and variance are insufficient for measuring risk when
comparing a concentrated portfolio with a more diversified
- Some of the special considerations that Campbell prioritizes
when assessing emerging markets in context and managing an overall
- Observations on the cost of capital being higher before
integration and liberalization. [00:25:11]
- The implications that Campbell’s research on emerging markets
has on asset allocation. [00:26:51]
- Dynamic asset allocation, Campbell’s research in emerging
markets, and how those lessons can be applied when investing in
emerging markets at a time when the cost of capital is high.
- The factor zoo, why it’s problematic, and how it is caused by
data mining. [00:32:26]
- How Campbell and his student Yan Lui estimated that half of the
published empirical research in finance was false and how this has
occurred in other industries due to data mining.
- How economic incentives from the investment industry inform
- The important distinction between academic research and
practitioner research, and asset management.
- The extent to which asset management research could be
considered to be more reliable than academic research.
- Some of the mistakes that investors make when they pursue these
factor premiums that have been identified
- Machine learning and its impact on investment decisions for
retail and institutional investors.
- Whether the benefits of potential alpha from machine learning
will be passed on to investors or remain within a firm as their
scale increases. [01:00:22]
- Campbell’s research on traditional active management within the
context of a firm’s ability to continue delivering alpha in the
future, and how that incrementally decreases as their asset base
- The arguments in favor of allocating gold to a portfolio,
especially at times of higher inflation, and whether it holds up to
- How technological changes can affect the real expected return.
- Why gold can be a valuable asset in diversifying your
- How Campbell became interested in DeFi, cryptocurrency, and
blockchain technology. [01:19:19]
- How digitized finance cuts out the inefficiency of having a
middle person and fosters inclusion and financial democracy.
- Harvey’s thoughts on how cryptocurrencies facilitate criminal
and fraudulent activity. [01:31:07]
- How DeFi could disrupt traditional asset management and how to
prepare for those changes. [01:36:43]
- How to invest in DeFi even though it’s decentralized.
- How companies can increase their revenue by using
cryptocurrencies in their transactions.
- Why the current wave of FinTech will be replaced by DeFi.
- Why it’s important to have a very diverse portfolio when
investing in DeFi. [01:51:22]
- How DeFi will allow people to monetize their content and
disrupt the money that Google and Facebook make from their users’
- Some of the risks of DeFi and investing in cryptocurrencies.
- How Campbell defines success: positively impacting the world.