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By Andrew W. Lo
Summary via publisher (Princeton University Press)
Half of all Americans have money in the stock market, yet economists can’t agree on whether investors and markets are rational and efficient, as modern financial theory assumes, or irrational and inefficient, as behavioral economists believe—and as financial bubbles, crashes, and crises suggest. This is one of the biggest debates in economics and the value or futility of investment management and financial regulation hang on the outcome. In this groundbreaking book, Andrew Lo cuts through this debate with a new framework, the Adaptive Markets Hypothesis, in which rationality and irrationality coexist.
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Monthly Archives: April 2017
Fear Takes A Holiday As VIX Index Falls To 3-Year Low
The VIX Index – a widely followed measure of US stock market volatility — slid to a three-year low on Thursday (Apr. 28 27), suggesting that investors are unusually serene these days when it comes evaluating the outlook for risk. In fact, investor sentiment has almost never been calmer, according to the VIX. The all-time low for the so-called fear index, which dates to 1990, is 9.48 on Dec. 23, 1993, based on daily data. Considering recent history, it wouldn’t be surprising to see the VIX touch a new record low in the days ahead.
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Another Rate Hike By June?
The probability of another rate hike for the Fed’s policy meeting in June continues to tick higher, according to futures data, but no change in rates is expected at next week’s FOMC meeting.
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Quantifying The Value Premium Across Asset Classes
Value is arguably the leading exhibit in the factor zoo. Quantifying the value factor is challenging, however, for multi-asset class portfolios for at least two reasons. Commodities aren’t easily valued because oil, gold, etc. don’t generate earnings or dividends. Even when there are cash flows to measure, putting a broad set of assets on a level playing field is difficult, perhaps impossible, if we use traditional valuation metrics, such as book value, price-earnings ratio, etc. Measuring valuation for real estate investment trusts (REITs), for instance, requires a different procedure vs. stocks, which is different from bonds. A solution (or at least a partial solution) that applies to everything is estimating valuation using return.
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US Q1 GDP Estimates Run The Gamut Ahead Of Friday’s Report
The probability that a recession has started is virtually nil at the moment, but it’s debatable if low macro risk will deliver robust growth in the preliminary estimate of first-quarter US GDP release that’s due on Friday.
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US Stocks Advanced Last Week — First Weekly Gain In April
The US equity market scored its first weekly advance this month, delivering the top performance in April’s third week among the major asset classes, based on a set of exchange-traded products.
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Book Bits | 21 April 2017
By Kenneth W. Gronbach with M.J. Moye
Interview with author via BlogCritics.org
Q: Your book is about predicting the future with accuracy. Can you explain why demographics provide clear evidence of where we’re headed?
A: Demographics precipitates economics — not the other way around. Commerce is reliant on market size, and market size is determined by demographics. Cultural shifts are determined by demographic changes. Demography is dependent on live births, deaths and migration, and so is politics. People are easy to count. It is math. So much of what people influence is determined by their number, their age, and where they are.
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Research Review | 21 April 2017 | Business Cycle Analysis
Is the Next Recession Around the Corner? Probably Not
Anton Cheremukhin (Federal Reserve Bank of Dallas)
January 2017
A “profits recession” often predicts a real recession. A view of recessions as gluts of competition explains why this time a real recession is not imminent.
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Is The Recent Divergence Between Soft And Hard Data Unusual?
Judging by media, blogosphere, and Wall Street reports in recent weeks, it’s tempting to assume that the so-called soft economic data – surveys of spending plans, expectations, etc. – have become disconnected from reality, defined by the hard data, such as payrolls, sales, and production.
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US Business Cycle Risk Report | 19 April 2017
Economic growth is expected to slow in next week’s first-quarter GDP report, but the probability remains low that a new recession has started.
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