Robert A. Haugen, who rebelled against academic conformity yet inspired many practitioners who now apply his ideas in institutional investing, leaves a legacy as a pioneer in quantitative investing and low-volatility investing, and as a critic of the efficient-market hypothesis and capital asset pricing model.
Mr. Haugen died Jan. 6 in his home in Durango, Colo., of complications from prostate cancer, said Jan Bowler, his widow. He was 70. Services were Jan. 19 in Durango.
Mr. Haugen at the time of his death was president of Haugen Custom Financial Systems Inc. and chairman of lowvolatiltystocks.com, both based in Durango.
Up until mid-2012, he was a consultant with BNP Paribas Investment Partners, Paris, working with its financial engineering group and its THEAM Funds and Alfred Berg Asset Management AB units.
Haugen Custom Financial Systems, which targets institutional investors providing research on Mr. Haugen's expected-return factor model, and lowvolatiltystocks.com, which targets individuals providing them with tools to implement his low-volatility strategy, will continue in operation. Ms. Bowler, who had been director of operations of HCFS, became its president and president of lowvolatilitystocks.com.
During an academic career stretching from the University of Wisconsin, Madison; the University of Illinois, Champaign-Urbana; and the University of California, Riverside, and University of California, Irvine; Mr. Haugen developed his ideas beginning with a paper he co-wrote, published in 1972, as modern portfolio theory was taking root. He wrote numerous other academic papers as well as 15 books on finance and investment.
Mr. Haugen was regarded by many as the father of low-volatility investing, whose central tenet is that lower volatility stocks outperform higher risk stocks. The expected-return factor model he created incorporates low volatility among some 65 other factors that affect stock price, said Ms. Bowler.
Mr. Haugen's ideas have gained wider acceptance among practitioners than academics, Ms. Bowler said.
It is a point he noted in a paper, “Low Risk Stocks Outperform within All Observable Markets of the World,” he co-wrote in April with Nardin L. Baker, chief strategist-global alpha at Guggenheim Partners Asset Management LLC, Boston.
The paper was intended as a summary of his ideas and to fight against the headwind of efficient-market theory, as well as presenting new evidence of his models, Ms. Bowler said.
“The fact that low-risk stocks have higher expected returns is a remarkable anomaly in the field of finance. It is remarkable because it is persistent … (and) it is remarkable because it contradicts the very core of finance: that risk bearing can be expected to produce a reward,” Messrs. Haugen and Baker write in the paper, which has not yet been published.
“For those who produce research results that discredit the dominant paradigm, the road to academic success and professional recognition can be difficult,” they wrote. “Over the years, we have met several individuals who had academic careers terminated by their inability to get their own discovery of what we found in 1972 published.”
“In our opinion, we are now in the midst of a second paradigm shift in the field of finance. This time, the shift is being driven by the research of practitioners rather than academics, whose self-interest is firmly tied to defending the current paradigm.”
Mr. Baker, who had known and worked with Mr. Haugen for 27 years, first as a student of his at the University of Illinois, said Mr. Haugen showed major anomalies and inefficiencies in the equity market.
“He attacked the efficient market paradigm in a convincing way and built up a portfolio of work (in investing and research papers and books) that was compelling as evidence mounted up,” Mr. Baker said.
Mr. Haugen embraced the challenge of defending his ideas, Mr. Baker said.
“It's always a challenge within any field to be in the minority and improve the field by attacking elements” of it, Mr. Baker said. But Mr. Haugen had the prerequisites of high research capability and the ability to explain his ideas in compelling arguments, Mr. Baker said.
“The academic walls of the efficient market paradigm are cracking,” said Mr. Baker, who added Mr. Haugen has been gaining wider recognition.
Mr. Haugen traveled a lot until late 2011 when illness forced him to cut back, although he continued to write and host video conferences, Ms. Bowler said. Among his last trips was speaking at a Pensions & Investments' conference on low-volatility investing in October 2011, joined as a speaker by Mr. Baker.
Mr. Haugen met Jan Bowler, who became his business partner, through eHarmony.com, she said. His first wife, Tiffany Suzanne Meyer Haugen, who died in 2006, was a former Vogue model who used modeling to put herself through school, earn an MBA and become a lawyer.
“He was a colorful guy,” said David Fallace, vice president of business development, HCFS, said of Mr. Haugen. “He was the life of the party” who enjoyed sharing stories from his professional and business travel.
“He was real nice guy … he was extremely successful,” and always made time to listen to other ideas even from those just beginning their careers, Mr. Fallace said.
“He told me have fun in everything you are doing and try to be impactful,” Mr. Fallace said.
Mr. Haugen in 2006 founded the Foundation for the Protection of Animals, Durango. In addition to Ms. Bowler, he is survived by two daughters, Wendy Haugen, who is director the foundation, and Sally Ellingsen of Coeur d'Alene, Idaho.
The family requests any memorial donations may be made to the foundation at 120 12-Point Buck Trail, Durango, CO 81301.