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Expected Returns: An Investor's Guide to Harvesting Market Rewards Hardcover – March 14, 2011

4.6 out of 5 stars 24 customer reviews

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Editorial Reviews


"Every investor will find something of value in this book" (Professional Investor, October 2015)

From the Inside Flap

For any investor, understanding the expected rewards that markets offer is central to long-term investment success. The traditional paradigm for assessing expected returns has focussed on historical performance and asset class management. However, Antti Ilmanen contends that this approach to investment decision-making is too narrow in its asset class focus and in the inputs used for assessing expected returns. He challenges investors to broaden their perspectives in two ways:
  • Excess returns should be harvested from diverse sources. Strategy styles and risk factors, as well as asset classes, are sources of return, thus warranting three-dimensional analysis of investments.
  • Any investment's return prospects should be judged in a way that incorporates all knowledge, including historical experience, financial and behavioral theories, and current market conditions, without being overly dependent on any one of these.

Beginning with comprehensive introduction and overview, Expected Returns goes on to analyze the historical record, give a roadmap of terminology, explore rational and behavioral theories, and look at alternative interpretations for return predictability. A series of case studies provide detailed analysis of assets (equity, bond and credit risk premia, as well as alternative asset classes), dynamic strategy styles (value, carry, momentum, volatility) and underlying risk factors (growth, inflation, liquidity and tail risks), before moving back to broader themes, including time-varying expected returns, and seasonal, cyclical and secular return patterns.

Concluding with a series of investment lessons, Expected Returns is the complete guide for the long-term investor, providing wide-ranging empirical evidence, and a platform for forecasting the expected returns of an investment portfolio for asset allocation and portfolio balancing purposes

 "Job one for any investor is to estimate asset class returns. For the first time, Antti Ilmanen has assembled into one volume all of the tools necessary for this task: for the working money manager, a unique treasure trove of analytical techniques and empirical evidence; for the academic, a comprehensive guide to the relevant academic literature; and for the consultant, a blinding light with which to illuminate performance. Expected Returns is destined to occupy the front shelves of investment professionals around the world."
William J. Bernstein, author of The Intelligent Asset Allocator, The Birth of Plenty, and A Splendid Exchange, and co-principal of Efficient Frontier Advisors

"Antti's synthesis of experience and theory has given us a book which fills a major gap in the literature on investing. Amazing, but true, this is the first book dedicated to the critical and challenging task of estimating how much we should expect to earn on our investments. This illuminating book, teaming with valuable insights that have never before been gathered under one roof, cannot fail to make the reader a more successful and discerning investor."
Victor Haghani, Associate Lecturer, London School of Economics, and former founding partner of LTCM

"Ilmanen has written a thorough and detailed analysis of one of the central issues in investing."
Ken French, Heidt Professor of Finance, Dartmouth College

"Investors' decisions should be evidence based. Antti Ilmanen assembles a global body of evidence, and interprets it with insight. Read this book and you will improve your understanding of the future."
Elroy Dimson, Emeritus Professor of Finance, London Business School

"If I could choose only one book on active management, I would choose Expected Returns. This book is extremely thorough and well researched, yet direct and to the point."
Roger G. Ibbotson, Professor in the Practice of Finance, Yale School of Management, and Chairman and CIO of Zebra Capital Management  


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Product Details

  • Hardcover: 592 pages
  • Publisher: Wiley; 1 edition (March 14, 2011)
  • Language: English
  • ISBN-10: 1119990726
  • ISBN-13: 978-1119990727
  • Product Dimensions: 7 x 1.5 x 9.9 inches
  • Shipping Weight: 2.5 pounds (View shipping rates and policies)
  • Average Customer Review: 4.6 out of 5 stars  See all reviews (24 customer reviews)
  • Amazon Best Sellers Rank: #30,881 in Books (See Top 100 in Books)

Customer Reviews

Top Customer Reviews

By Peter McCluskey on August 23, 2011
Format: Hardcover
This book is causing me to change my approach to investing much more than any other book has. It is essential reading for any professional investor.

The foreword starts by describing Ilmanen as insane, and that sounds like a good description of how much effort was needed to write it.

Amateur investors will have trouble understanding it - if you're not familiar with Sharpe ratios, you should expect to spend a lot of time looking elsewhere for descriptions of many concepts that the book uses. I had a few problems understanding the book - he uses the term information ratio on page 188, but doesn't explain it until page 491 (and it's not indexed). I was also somewhat suspicious about how he handled data mining (overfitting) concerns in momentum strategies until I found a decent answer in a non-obvious place (page 404).

The most important benefit of this book is that he has put a lot of thought into identifying which questions investors should be trying to answer. Questions such as whether past performance is a good indicator of future returns, and what would cause a pattern of superior returns to persist or vanish.

Some other interesting topics:

why it's important to distinguish between different types of undiversifiable risk, and how to diversify your strategies so that the timing of losses aren't highly correlated across those strategies.

why earnings per share growth has been and probably will continue to be below GDP growth, contrary to what most forecasts suggest.

how to estimate the premium associated with illiquidity.

why it's useful to look at changes in correlations between equities.
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Format: Hardcover
How do we estimate what returns are reasonable to expect? Most investment counselors fall back on easy rules of thumb, but is there a way of doing better?

In this book, the author takes academic research on investment returns, and tries to make it practical. What are the main findings of the book?

Momentum works.
Value works.
Illiquid assets can work very well if you have a balance sheet that can hold them.
Carry strategies work most of the time, but when they fail, they fail big. Same for strategies that sell volatility.

The book does a very good job in establishing that the excess returns of stocks over bonds are a lot lower than most believe. It also supports the idea that moderate risk taking is the superior strategy. Those that take high risks lose too often. Those who take no risk don't make anything significant. Moderate risk-taking is the sweet spot.

One of the strengths of the book is that it considers almost all assets, and analyzes how many factors affect those asset classes. The book is comprehensive; it covers everything, even if it is only an inch deep in spots.

I liked this book a lot, but it's not for everyone. You won't find a lot of difficult math here, but you will find a lot of numbers.


I don't agree with the idea of levering up low risk assets. Yes, if you are the only one doing it, fine, be a non-regulated pseudo-bank. The trouble comes when many do it. Eventually a liquidity crisis hits, and those levering up low risk assets get hosed.

The same is true of university endowments.
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Format: Hardcover Verified Purchase
The author Antti Ilmanen has completed a truly monumental task - compiling his knowledge about return expectations from years as a highly respected investment strategist on Wall Street with his expert knowledge of academic finance research. After starting at the Finnish Central Bank as a fixed income fund mamanger and asset allocation professional, he fulfilled his desire to pursue finance research full time with a PhD in Finance at the University Chicago's GSB. Having published his PhD thesis in the Journal of Finance, he joined Salomon Brothers as a global fixed income strategist at first in New York and subsequently in both London & Frankfurt. He is currently at a well-known major hedge fund in London. Despite his passion for the Chicago brand of finance, he has never lost sight of his conviction that asset returns vary through time, not the least because expected returns are changing when passing through the stages of business cycles - which makes them partially predictable. Therefore, rather than engaging in a windmill fight about efficient markets, he has strived to understand what economic forces are driving these changes, and with what kind of strategies that knowledge can be utilized to manage money. His brand new book is the result of that long and very succesful pursuit. The foreword by AQR's Cliff Asness will give you also some humorous aspects of Antti's passion to improve his and our knowledge as I could never convey it. And I agree with Cliff that it is your loss, if you don't take the time to read this book, especially if you are interested in a broad spectrum of asset classes to invest in: the author goes beyond global bonds and equities to include commodities, private equity, hedge funds and real estate. The book is now available in the US, and I am recommending it highly!
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