In today’s world of markets, few relationships are better studied than the yield spread of risk free bonds with different maturities. The Funds rate vs. the 2 year, the 2 year vs. the 10 year , the 10 year vs. the 30 year, all constitute spreads that market participants find highly instructive in gauging macro variables like growth and inflation. Many academics have contributed to shining a light on the information content of the yield curve, and as a Ph.D. student at the University of Chicago in 1986, Campbell Harvey made one of the earliest and most important contributions. Over the course of his impressive career, Campbell’s research interests have been vast and his curiosity has led him to all corners of finance including derivatives, emerging markets, the time variation of risk premium, politic risk and how to measure luck versus skill.
Our conversation focuses on his current work as an Investment Strategy Advisor at Man Group where he has done work on the idea of crisis alpha: strategies that can effectively offset portfolio losses suffered during risk-off events. Campbell and his colleagues find that both time-series momentum as well as a long/short portfolio focused on the quality factor both have insurance-like characteristics and can be valuable overlays for equity portfolios. He also shares his work on rebalancing, where he sees alpha destruction if done in traditional form, but the opportunity for much greater efficiencies by incorporating some of the findings on time-series momentum. Lastly, we discuss Campbell’s new book, “DeFi and the Future of Finance”. As the title may imply, he’s bullish on the breathtaking pace of innovation in the financial services industry. I hope you enjoy this episode of the Alpha Exchange, my conversation with Campbell Harvey.