Beth Goody
Lessons from the Markets
Mark Carhart, PhD ’95, shares how empirical research and a healthy appetite for debate help him uncover new insights in finance.
- By
- October 01, 2025
- Finance
When Mark Carhart, PhD ’95, began his doctoral studies, researchers were developing a deeper understanding of the factors that influence asset prices, drawing on the growing availability of computing power and the emergence of behavioral finance. Building on the three-factor model proposed in 1992 by Eugene F. Fama, MBA ’64, PhD ’64, and Kenneth French, Carhart explored how momentum could be a fourth factor that helps explain pricing anomalies.
He started a career in academics after graduating, but soon gravitated toward industry to work with Booth alumni who shared his love for intellectual challenges—joining Clifford Asness, MBA ’91, PhD ’94; the late Kent Clark, MBA ’90; Ray Iwanowski, MBA ’97; and John Liew, AB ’89, MBA ’94, PhD ’95, in the quantitative investment strategies group at Goldman Sachs. In 2010, he started Kepos Capital, a boutique alternative investment firm, with Giorgio De Santis, AM ’89, PhD ’93 (Economics).
Carhart recently established an endowment to support Booth professors. He spoke to Chicago Booth Magazine about how his education shaped his investment philosophy and his pursuit of lifelong learning.
Eugene Fama has been an important mentor for you. How did he support you in your early work?
Gene is so well known for his immense contributions to finance that, at first, he was very intimidating. But if you wanted to discuss a finance topic or an empirical question, he always had time to talk to you.
When I proposed to use mutual funds to study active versus passive investment strategies, Gene thought it was a great idea. In my first version of the paper, I didn’t have all the data—only funds that were still alive at that time. He came back to me and said: “This is a great paper, but without the dead funds it’s meaningless.” He offered to pay me to create a database of dead funds so I could take it further. It exists today as the CRSP Survivor-Bias-Free US Mutual Fund Database.
The database took me and a handful of undergrads about three years to build. It taught me a lot about how messy data is, how the mutual fund industry functions, and why funds disappear. If a fund has bad performance, the organization will shut it down. Some firms start many funds at once and keep only the best ones, or they’ll change their names or merge them into a better-performing fund. Another industry strategy is to incubate many funds privately, then only report their full track records into databases after strong past performance, which creates backfill bias.
One of the most important things I learned from Booth and Gene was how to conduct solid empirical research: working with data, understanding the power of a test statistic, looking at biases in data and tests. Gene taught his students how to read a paper and immediately determine the significance, the relevance, any missing elements, and possible explanations. That’s been really important for my career in empirical finance—and even more broadly, in reading scientific research.
“Another idea, driven largely by 60 years of empirical research at Booth on market efficiency, is that because markets are so efficient, investing in a portfolio of low-cost index funds is, for the predominance of investors, the best long-term strategy.”
— Mark Carhart
What else did you take away from your time at Booth?
My professors were fantastic and have become important peers. My class and the ones above and below me were full of terrific people. I share with them an appreciation for intellectual rigor to this day.
Booth’s academic seminars were intimidating—almost like inquisitions at times—but the format is designed to deepen understanding and, sometimes, uncover the truth. The result is that attendees ask tough questions, there are follow-on ideas, and everyone gets smarter. I recently hosted an alumni seminar event in our office with about 30 PhD graduates from Booth and the economics department. Eric Budish presented on crypto markets and blockchain technology.
What do you wish more people knew about investing?
First of all, the markets are pretty darn efficient. There are billions of dollars competing every instant to make money. Just reading an idea from the newspaper or listening to the financial news and saying, “I think pharmacy stocks are going to do well” isn’t going to work—that information is already discounted in prices.
The second thing is, when evaluating track records, it is important to separate the return of the index or investment style from the manager’s unique skill. Many funds hold relatively concentrated portfolios of stocks. If a fund performs really well, it might be due to an incredible manager, but it could also be due to the sector or investment style that drove that return. A great example of this is technology-focused funds, which have enjoyed a 30-year tailwind.
Another idea, driven largely by 60 years of empirical research at Booth on market efficiency, is that because markets are so efficient, investing in a portfolio of low-cost index funds is, for the predominance of investors, the best long-term strategy. I believe we all should be humbler and understand that most investment returns come passively, and largely for free!
You and your wife, Sabrina, recently established the Carhart Family Professorship Fund. Why was this decision meaningful to you?
We did it because UChicago was such an important part of my life. I really value everything the university stands for, in terms of my education but also in terms of academic rigor, free speech, the very best science.
I was excited to learn that the school nominated Yueran Ma to be the first recipient. She was born and raised in Communist China, was exposed to free-market theory, and decided to come to the US to pursue academic training. She studies comparative economic systems, and that was my focus as an undergrad. I loved her recent paper on Communism and the Chicago School.
Sabrina and I have four daughters, one of whom we adopted from China. I would love for all of them to attend UChicago, and hopefully one of them will pursue a PhD. Professor Ma is a terrific role model.
Eugene F. Fama, MBA ’64, PhD ’64, is the Robert R. McCormick Distinguished Service Professor of Finance and a 2013 Nobel laureate. Eric Budish is the Paul G. McDermott Professor of Economics and Entrepreneurship, and Yueran Ma is the inaugural Carhart Family Professor of Finance.