Cliff Asness, co-founder of AQR Capital Management, shares his origin story, detailing his academic background at the University of Chicago, where he was influenced by prominent figures like Eugene Fama, who encouraged him to explore momentum investing although Fama did not think it could possibly work. Asness recounts his transition from portfolio manager at Goldman Sachs to co-founder and principal research at AQR Capital, one of the best-known investment management firms in the world. He reflects on the tumultuous market period after AQR’s founding in 1998, when the nascent firm almost went out of business.

The conversation addresses market efficiency, with Asness presenting his views on the "Less Efficient Market Hypothesis." Despite advancements in technology and data availability, he says, the processing of information has not necessarily improved, leading to inefficiencies in the market. Asness discusses the impact of passive investing on market dynamics and the challenges of generating alpha in a landscape where traditional value investing has performed poorly. The episode concludes with Asness sharing insights on the role of machine learning in quantitative finance, emphasizing its potential to enhance research and signal generation while maintaining a balance with economic theory.

Roger G. Ibbotson, Professor Emeritus at Yale School of Management and chairman and CIO of Zebra Capital Management LLC, has authored numerous articles and books, including Stocks, Bonds, Bills, and Inflation, which serves as a standard reference for information and capital market returns.

Laurence B. Siegel is the Director of Research at the CFA Institute Research Foundation and a writer, speaker, and consultant. Siegel graduated from the University of Chicago with both a BA & a MBA. His website is http://www.larrysiegel.org.

Ibbotson and Siegel discuss the driving factors behind long-term returns, how human behavior and investor psychology intervene in financial decision-making, and the future of returns in an interconnected world. From systems of economic production to sustainable investing, they draw on decades of research in financial markets to dive further into these topics.

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