Table Of Content

Table of Contents Title Page Copyright Page Foreword Dedication Acknowledgments Abbreviations and acronyms Disclaimer Part I - Overview, historical returns, and academic theories Chapter 1 - Introduction 1.1 HISTORICAL PERFORMANCE 1.2 FINANCIAL AND BEHAVIORAL THEORIES: A BRIEF HISTORY OF IDEAS 1.3 FORWARD-LOOKING INDICATORS 1.4 VIEW-BASED EXPECTED RETURNS 1.5 GENERAL COMMENTS ABOUT THE BOOK 1.6 NOTES Chapter 2 - Whetting the appetite: Historical averages and forward-looking returns 2.1 HISTORICAL PERFORMANCE SINCE 1990 2.2 SAMPLE-SPECIFIC RESULTS: DEALING WITH THE PITFALLS 2.3 FORWARD-LOOKING RETURN INDICATORS 2.4 NOTES Chapter 3 - The historical record: The past 20 years in a longer perspective 3.1 STOCKS 3.2 BONDS 3.3 REAL ASSET INVESTING AND ACTIVE INVESTING 3.4 FX AND MONEY MARKETS 3.5 REAL RETURN HISTORIES 3.6 NOTES Chapter 4 - Road map to terminology 4.1 CONSTANT OR TIME-VARYING EXPECTED RETURNS? 4.2 RATIONAL OR IRRATIONAL EXPECTATIONS FORMATION? 4.3 RETURN MEASUREMENT ISSUES 4.4. RETURNS IN WHAT CURRENCY? 4.5 RISK-ADJUSTED RETURNS 4.6 BIASED RETURNS 4.7 NOTES Chapter 5 - Rational theories on expected return determination 5.1 THE OLD WORLD 5.2 THE NEW WORLD 5.3 DETOUR: A BRIEF SURVEY OF THE EFFICIENT MARKETS HYPOTHESIS 5.4 NOTES Chapter 6 - Behavioral finance 6.1 LIMITS TO ARBITRAGE 6.2 PSYCHOLOGY 6.3 APPLICATIONS 6.4 CONCLUSION 6.5 NOTES Chapter 7 - Alternative interpretations for return predictability 7.1 RISK PREMIA OR MARKET INEFFICIENCY 7.2 DATA MINING AND OTHER “MIRAGE” EXPLANATIONS 7.3 NOTES Part II - A dozen case studies Chapter 8 - Equity risk premium 8.1 INTRODUCTION AND TERMINOLOGY 8.2 THEORIES AND THE EQUITY PREMIUM PUZZLE 8.3 HISTORICAL EQUITY PREMIUM 8.4 FORWARD-LOOKING (EX ANTE OBJECTIVE) LONG-TERM EXPECTED RETURN MEASURES 8.5 SURVEY-BASED SUBJECTIVE EXPECTATIONS 8.6 TACTICAL FORECASTING FOR MARKET TIMING 8.7 NOTES Chapter 9 - Bond risk premium 9.1 INTRODUCTION, TERMINOLOGY, AND THEORIES 9.2 HISTORICAL AVERAGE RETURNS 9.3 ALTERNATIVE EX ANTE MEASURES OF THE BRP 9.4 YIELD CURVE STEEPNESS: IMPORTANT PREDICTIVE RELATIONS 9.5 EXPLAINING BRP BEHAVIOR: FIRST TARGETS, THEN FOUR DRIVERS 9.6 TACTICAL FORECASTING—DURATION TIMING 9.7 NOTES Chapter 10 - Credit risk premium 10.1 INTRODUCTION, TERMINOLOGY, AND THEORY 10.2 HISTORICAL AVERAGE EXCESS RETURNS 10.3 FOCUS ON FRONT-END TRADING—A POCKET OF ATTRACTIVE REWARD TO RISK 10.4 UNDERSTANDING CREDIT SPREADS AND THEIR DRIVERS 10.5 TACTICAL FORECASTING OF CORPORATE BOND OUTPERFORMANCE 10.6 ASSESSING OTHER NON-GOVERNMENT DEBT 10.7 CONCLUDING REMARKS 10.8 NOTES Chapter 11 - Alternative asset premia 11.1 INTRODUCTION TO ALTERNATIVES 11.2 REAL ESTATE 11.3 COMMODITIES 11.4 HEDGE FUNDS 11.5 PRIVATE EQUITY FUNDS 11.6 NOTES Chapter 12 - Value-oriented equity selection 12.1 INTRODUCTION TO DYNAMIC STRATEGIES 12.2 EQUITY VALUE: INTRODUCTION AND HISTORICAL PERFORMANCE 12.3 TWEAKS INCLUDING STYLE TIMING 12.4 THE REASONS VALUE WORKS 12.5 DOES THE VALUE STRATEGY WORK IN EQUITIES BEYOND INDIVIDUAL STOCK SELECTION ... 12.6 RELATIONS BETWEEN VALUE AND OTHER INDICATORS FOR EQUITY SELECTION 12.7 NOTES Chapter 13 - Currency carry 13.1 INTRODUCTION 13.2 HISTORICAL AVERAGE RETURNS 13.3 IMPROVEMENTS/REFINEMENTS TO THE BASELINE CARRY STRATEGY 13.4 WHY DO CARRY STRATEGIES WORK? 13.5 CARRY HERE, CARRY THERE, CARRY EVERYWHERE 13.6 NOTES Chapter 14 - Commodity momentum and trend following 14.1 INTRODUCTION 14.2 PERFORMANCE OF SIMPLE COMMODITY MOMENTUM STRATEGIES 14.3 TWEAKS 14.4 WHY DOES MOMENTUM—SUCH A NAIVE STRATEGY— WORK? 14.5 MOMENTUM IN OTHER ASSET CLASSES 14.6 NOTES Chapter 15 - Volatility selling (on equity indices) 15.1 INTRODUCTION 15.2 HISTORICAL PERFORMANCE OF VOLATILITY-TRADING STRATEGIES 15.3 TWEAKS/REFINEMENTS 15.4 THE REASONS VOLATILITY SELLING IS PROFITABLE 15.5 OTHER ASSETS 15.6 NOTES Chapter 16 - Growth factor and growth premium 16.1 INTRODUCTION TO UNDERLYING FACTORS IN CHAPTERS 16–19 16.2 INTRODUCTION TO THE GROWTH FACTOR 16.3 THEORY AND EVIDENCE ON GROWTH 16.4 ASSET MARKET RELATIONS 16.5 TIME-VARYING GROWTH PREMIUM 16.6 NOTES Chapter 17 - Inflation factor and inflation premium 17.1 INTRODUCTION 17.2 INFLATION PROCESS—HISTORY, DETERMINANTS, EXPECTATIONS 17.3 INFLATION SENSITIVITY OF MAJOR ASSET CLASSES AND THE INFLATION PREMIUM 17.4 TIME-VARYING INFLATION PREMIUM 17.5 NOTES Chapter 18 - Liquidity factor and illiquidity premium 18.1 INTRODUCTION 18.2 FACTOR HISTORY: HOW DOES LIQUIDITY ITSELF VARY OVER TIME? 18.3 HISTORICAL EVIDENCE ON AVERAGE LIQUIDITY- RELATED PREMIA 18.4 TIME-VARYING ILLIQUIDITY PREMIA 18.5 NOTE Chapter 19 - Tail risks (volatility, correlation, skewness) 19.1 INTRODUCTION 19.2 FACTOR HISTORY 19.3 HISTORICAL EVIDENCE ON AVERAGE ASSET RETURNS VS. VOLATILITY AND CORRELATION 19.4 THEORY AND EVIDENCE ON THE SKEWNESS PREMIUM 19.5 VERDICT ON WHY HIGH-VOLATILITY ASSETS FARE SO POORLY 19.6 TIME-VARYING PREMIA FOR TAIL RISK EXPOSURES 19.7 NOTES Part III - Back to broader themes Chapter 20 - Endogenous return and risk: Feedback effects on expected returns 20.1 FEEDBACK LOOPS ON THE DIRECTION OF RISKY ASSETS 20.2 FEEDBACK LOOPS ON LESS DIRECTIONAL POSITIONS 20.3 AGENDA FOR MARKET-TIMERS AND RESEARCHERS 20.4 NOTES Chapter 21 - Forward-looking measures of asset returns 21.1 POPULAR VALUE AND CARRY INDICATORS AND THEIR PITFALLS 21.2 BUILDING BLOCKS OF EXPECTED RETURNS 21.3 NOTES Chapter 22 - Interpreting carry or non-zero yield spreads 22.1 INTRODUCTION 22.2 FUTURE EXCESS RETURNS OR MARKET EXPECTATIONS? 22.3 EMPIRICAL HORSE RACES FOR VARIOUS ASSETS 22.4 CONCLUSIONS 22.5 NOTES Chapter 23 - Survey-based subjective expected returns 23.1 NOTES Chapter 24 - Tactical return forecasting models 24.1 INTRODUCTION 24.2 WHAT TYPE OF MODEL? 24.3 WHICH ASSETS/TRADES? 24.4 WHICH INDICATOR TYPES? 24.5 ENHANCEMENTS AND PITFALLS 24.6 NOTES Chapter 25 - Seasonal regularities 25.1 SEASONAL, CYCLICAL, AND SECULAR PATTERNS IN ASSET RETURNS 25.2 MONTHLY SEASONALS AND THE JANUARY EFFECT 25.3 OTHER SEASONALS Chapter 26 - Cyclical variation in asset returns 26.1 TYPICAL BEHAVIOR OF REALIZED RETURNS AND EX ANTE INDICATORS THROUGH THE ... 26.2 TYPICAL BEHAVIOR OF REALIZED RETURNS AND EX ANTE INDICATORS ACROSS ... 26.3 NOTES Chapter 27 - Secular trends and the next 20 years 27.1 CONTRASTING 1988–2007 WITH 1968–1987 27.2 REVERSIBLE AND SUSTAINABLE SECULAR TRENDS 27.3 THE NEXT 20 YEARS 27.4 NOTES Chapter 28 - Enhancing returns through managing risks, horizon, skill, and costs 28.1 INTRODUCTION: HOW CAN INVESTORS ENHANCE RETURNS? 28.2 RISK 28.3 INVESTMENT HORIZON 28.4 SKILL 28.5 COSTS 28.6 NOTES Chapter 29 - Takeaways for long-horizon investors 29.1 KEY TAKEAWAYS FROM THEORY 29.2 EMPIRICAL RETURN SOURCES 29.3 MY TAKE ON KEY DEBATES 29.4 KNOW THYSELF: LARGE LONG-HORIZON INVESTORS’ NATURAL EDGES 29.5 INSTITUTIONAL PRACTICES 29.6 NOTES Appendix A - World wealth Appendix B - Data sources and data-series construction Bibliography Index

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Expected Returns is a one-stop reference that gives investors a comprehensive toolkit for harvesting market rewards from a wide range of investments. Written by an experienced portfolio manager, scholar, strategist, investment advisor and hedge fund trader, this book challenges investors to broaden