Blog: Return Factor Illusions

I spent most of my asset management career looking for ways to predict returns. After all, that's what interests everyone. While capital market theory spoke of the relationship between risk and return as central, the vast majority of research, both public and private, has focused on returns. But return forecasting is very difficult, and, due to the large number of researchers, the chances of coming up with something original are quite small. Despite this, so many factors have been "found" for the stock market that "factor zoos" have been created that allow managers to pick their factors. The failure of most asset managers to beat the market should make most skeptical of these factor zoos, but they have become a regular fixture in money management.