John Y. Campbell is the Morton L. and Carole S. Olshan Professor of Economics at Harvard University. He has published over 100 articles and books on finance, including The Econometrics of Financial Markets (with Andrew Lo and Craig MacKinlay, 1997), Strategic Asset Allocation: Portfolio Choice for Long-Term Investors (with Luis Viceira, 2002), The Squam Lake Report: Fixing the Financial System (with the Squam Lake Group, 2010), and Financial Decisions and Markets: A Course in Asset Pricing (2018).
Campbell has served as President of the American Finance Association, as Chair of the Harvard Economics Department, and as a board member of the Harvard Management Company, and he is a founding partner of the asset management firm Arrowstreet Capital.
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. Be sure to stay tuned until the end to hear John’s beautiful
answer to the question: “What is your definition of success?”.
Key Points From This Episode:
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John Y. Campbell — https://scholar.harvard.edu/campbell/home
‘Who Should Buy Long-Term Bonds’ — https://www.nber.org/system/files/working_papers/w6801/w6801.pdf
‘Inflation Bets or Deflation Hedges? The Changing Risks of Nominal Bonds’ — https://scholar.harvard.edu/files/campbell/files/campbellsunderamviceira_20160523.pdf
‘Growth or Glamour? Fundamentals and Systematic Risk in Stock Returns’ — https://scholar.harvard.edu/sites/scholar.harvard.edu/files/campbell/files/gorg20090319_copyedited.pdf
‘Bad Beta, Good Beta’ — https://scholar.harvard.edu/sites/scholar.harvard.edu/files/campbell/files/bbgb_2004_nberw9509.pdf
‘An Intertemporal CAPM with Stochastic Volatility’ — https://scholar.harvard.edu/sites/scholar.harvard.edu/files/campbell/files/cgpt_volatilityrisk20170123final.pdf
‘Global Currency Hedging’ — https://scholar.harvard.edu/sites/scholar.harvard.edu/files/campbell/files/globalcurrencyhedging_20090128_manuscript.pdf
‘Biases in long-horizon predictive regressions’ — https://www.sciencedirect.com/science/article/abs/pii/S0304405X21004013
‘What Drives Booms and Busts in Value?’ — https://scholar.harvard.edu/sites/scholar.harvard.edu/files/campbell/files/cgp_valueboomsbusts_20230311.pdf
‘Household Finance’ — https://scholar.harvard.edu/sites/scholar.harvard.edu/files/campbell/files/householdfinance_jof_2006.pdf
‘The Cross-Section of Household Preferences’ — https://scholar.harvard.edu/sites/scholar.harvard.edu/files/campbell/files/calvetcampbellgomessodini_20221027.pdf
‘Restoring Rational Choice: The Challenge of Consumer Financial Regulation’ — https://scholar.harvard.edu/sites/scholar.harvard.edu/files/campbell/files/elylecture_march2016.pdf
‘Down or Out: Assessing the Welfare Costs of Household Investment Mistakes’ — https://www.journals.uchicago.edu/doi/abs/10.1086/524204
‘A Model of Mortgage Default’ — https://scholar.harvard.edu/sites/scholar.harvard.edu/files/campbell/files/mortdefault13022014.pdf
‘Household Risk Management and Optimal Mortgage Choice’ — https://scholar.harvard.edu/campbell/publications/household-risk-management-and-optimal-mortgage-choice
‘Predicting the Equity Premium Out of Sample: Can Anything Beat the Historical Average?’ — https://www.nber.org/papers/w11468
‘An Asset Allocation Puzzle’ — https://www.nber.org/papers/w4857
