Antti Ilmanen - Understanding Return Expectations (S7E21)

In this episode of Flirting with Models, Corey Hoffstein interviews Antti Ilmanen, Principal and Global Co-Head of the Portfolio Solutions Group at AQR Capital Management, about his latest paper series on expected returns. They discuss the difference between objective and subjective expectations, why rational models can go wrong, CAPE ratios, market timing accusations, behavioral biases, valuation anchors, and structural shifts in forming capital market assumptions. Ilmanen shares insights on equity analysts' over-optimistic expectations, the irrationality of investors at market peaks, and the tendency for equity investors to extrapolate while bond investors expect mean reversion. He also touches on the challenges AQR faces in balancing valuation anchors with structural changes when forming capital market assumptions.