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Private Sector Incentives

December 7, 2011 Comments (0)

A Northwestern grad student (just like I used to be) blogs on academic paper over at A Fine Theorem, and I was struck by this snippet:The benefit of capitalism can’t have much to do with profit incentives per se, since (almost) every employee of a modern firm is a not an owner, and hence is incentivized to work hard only by her labor contract. A government agency could conceivably use precisely the same set of contracts and get precisely the same outcome as the private firm (the principle-agent...

Investing Rule

December 6, 2011 Comments (0)

I was on the Chicago Tribune website, and the top banner ad contained the following picture links to a site promoting penny stocks. The link went to a site with those annoying pop-up ads that are difficult to destroy. I think a good investing rule, or at least guideline, is to not buy stocks promoted at websites with half-naked women. Another might be to avoid investments that present +1000% returns as examples (see here or here), which are often common on these sites. As mentioned, average...

Business Cycles and Barrier Options

December 4, 2011 Comments (0)

I was at an NBER conference in early 2008 when we really didn’t know if we were in a recession, and Markus Brunnermeier explained to a group of esteemed economists that while the housing collapse was real, it represented only a couple hundred billion dollars, and by then the stock market seemed to have lost three times that, which seemed an overreaction, a sign of excessive volatility due to behavioral biases. This was not a contrary stance, rather, the conventional expert opinion. This turned...

Bloggingheads to Downsize

November 30, 2011 Comments (0)

Robert Wright announced today that he is scaling down his Bloggingheads.tv site, in part because as a business it clearly has no potential to make money. The basic problem, he found, was that his site tried to have people on both sides talk about issues, as opposed to what is much more popular, having people who agree with each other talk to each other (MSNBC, CNN, Fox):Too bad, because I'm a big fan. It's rational to listen more to people you agree with because you think what they saying is...

Unsophisticated Investors Circa 2005

November 29, 2011 Comments (0)

From the LA Times back in 2005:"If you paid your mortgage off, it means you probably did not manage your funds efficiently over the years," said David Lereah, chief economist of the National Association of Realtors and author of "Are You Missing the Real Estate Boom?" "It's as if you had 500,000 dollar bills stuffed in your mattress."He called it "very unsophisticated."Anthony Hsieh, chief executive of LendingTree Loans, an Internet-based mortgage company, used a more disparaging term. "If you...

Nationalize the Fed!

November 28, 2011 Comments (0)

Paul Krugman's wife, Robin Wells, came out with a piece arguing Occupy Wall Street's issues are something economists should address. I wonder whether she thinks biologists should all teach about creationism because so many students believe in some sort of transcendental spark to life. Probably not. I do think there should be classes on free markets vs. Keynesian debates led by different professors, because it's not like this issue isn't always there, but I don't think academics should crater...

Overconfidence vs. Optimism

November 28, 2011 Comments (0)

In 1971 Robert L. Trivers gave us the idea of reciprocal altruism, the idea that helping someone else although incurring some cost for this act, could have evolved since it increases the chance that such niceness might be returned some day. This really expanded the conception of self-interest to be semantically indistinguishable from altruism in many cases. Biologists have observed this behavior in bats, where they share blood harvested, but only with those who share with them.Trivers has some...

Eurozone Causing Greek AIDS

November 28, 2011 Comments (0)

A Greek economist notes that some Greeks are intentionally infecting themselves with HIV to qualify for benefits, the result of the Greek austerity forced on it by those nasty surplus countries currently funding their deficits. He mentions this, he says, to make dry statistics more real, to convey the true picture of what is going on in Greece. And another reason why anecdotes are usually tendentious crap. Here he is on Bloggingheads.tv:Greece can either 1) leave the Euro and inflate their...

Characteristics vs. Factors

November 28, 2011 Comments (0)

the Low Volatility ETF LVOL, put out by Russell-Axioma, tries to capture the low volatility goodness via a circuitous route. First, it takes into account beta, and momentum in some unspecified way, which makes it a really hard thing to nail down. What most amused me, was that it calculates the return to the lowest volatility third of the Russel1000 index. It then selects a portfolio of about 100 stocks that track this index. The idea is that you find the target portfolio, and then, instead of...

Facebook Followers Correlated with Stock Price

November 28, 2011 Comments (0)

A recent paper by Aurthur J. O'Connor and Famecount looked at 30 top brands from June 2010 through June 2011, and found that number of Facebook fans was correlated with the stock price. Looking at the charts below, I can see how it's pretty significant. You can't see these graphs very well, but the vertical axes are price, the horizontal are Facebook fans.In my 1994 dissertation I found that if I counted up stories in Nexus, these stories counts explained the relative ownership percentage of...