The remarkable life of Robert A. Haugen, 70, financial economist, prolific researcher, teacher and pioneer in the field of quantitative investing ended January 6, 2013 at his home in Durango, Colorado.
A vocal critic of the efficient market hypothesis and the capital asset pricing model, Dr. Haugen’s professional legacy includes scores of supporters and admirers, a prolific body of published research, 15 books on finance on the stock market available in seven languages, and the respect and appreciation of professional investors worldwide who converted his theories into profitable investments. Recently ranked among the top-20 most published academics in the top finance journals, his academic work has inspired thousands of professionals to question long-held tenets of the academic establishment. Bob is considered by many to be the “father of low volatility Investing” and is credited as the inventor of the expected return factor model.
Born in Chicago on June 26, 1942 to the late Caroline Raab Haugen and Raymond Haugen, Bob is survived by his loving wife Jan Bowler, a sister and brother, Marilyn Larson and Richard Haugen both residing in the Chicago area, and daughters Wendy Haugen of Durango and Sally Haugen Ellingsen and family in C’ouer d’Alene, ID; beloved sisters and brothers-in-law and nieces and nephews also survive him and mourn his passing.
Dr. Haugen graduated from Lane Tech College Preparatory High School in Chicago in 1960. He attended the University of Illinois, Champaign, Urbana and found his niche in finance graduating magna cum laude and continuing on to receive his PhD in Finance from that same institution.
While in graduate school, Dr. Haugen studied under A. James Heins and the two co-authored “A Market Containment Theory of Rent Differentials in Metropolitan Areas,” which was published in The Quarterly Journal of Economics and became a highly-cited classic in a variety of academic disciplines.
In 1968, Dr. Haugen accepted an Assistant Professor position with the University of Wisconsin, Madison where, again in collaboration with Heins, he began examining historical stock data from the Center for Research in Security Prices. Using data from 1926 through 1971, they were astonished to find that in both equity and bond markets, the relationship between risk and return was negative (contradicting a basic tenet in the field of finance.) This finding was not well-received by the academic community. After four years their article was finally published in 1975 in the Journal of Financial and Quantitative Analysis in watered-down form.
Despite the poor reception, the Haugen and Hines research on risk and return formed the basis for ongoing decades of research into market inefficiency and the low volatility anomaly by Dr. Haugen and many others whose results have consistently supported the initial findings.
In the early 1970’s Haugen served as an expert witness for the plaintiffs in the precedent setting legal and environmental battle known as the Reserve Mining case. Reserve Mining and the other defendant companies were disposing of thousands of tons of taconite tailings into Lake Superior with severe environmental consequences. By determining that the companies could afford to use alternate means of disposal without bankrupting their operations, Haugen enabled Judge Miles Lord to take a firm stand against the defendant companies and to restore the health of Lake Superior.
Dr. Haugen went on to hold endowed chairs at the University of Wisconsin, Madison, the University of Illinois and the University of California, Irvine. He taught thousands of students during his thirty years in academia and became legendary as his alter ego, Leif Grando, who taught students to think through and question the prevailing theories of finance.
In addition to the litany of academic papers he published, Dr. Haugen also wrote a number of notable books, The Incredible January Effect, coauthored with Josef Lakonishok, Beast on Wall Street, The Inefficient Market and completing his trilogy in 2010, with the publication of The New Finance. His numerous journal articles include the landmark work coauthored with Nardin Baker, “Commonality in the Determinants of Expected Stock Returns” published in the Journal of Financial Economics in 1996, which detailed his invention of the expected return factor model demonstrating that a combination of several factors could be used to outperform the market index on a consistent basis.
In 1992, Dr. Haugen formed Haugen Custom Financial Systems, which licenses the output of his expected return factor model to institutional investors. After his retirement from academia, he traveled the world speaking before audiences of academics and professional investors about the evidence supporting the negative relationship between risk and return.
In April 2012 Dr. Haugen wrote his final research paper, co-authored with Nardin Baker, entitled “Low Risk Stocks Outperform within All Observable Markets of the World.” He then launched a website called LowVolatilityStocks.com to educate individual investors about low volatility investing and to provide up-to-date data for those wishing to create and manage their own low volatility portfolios.