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More on externalities

November 15, 2011 Comments (0)

Greg Mankiw cites a paper talking about taxes on externalities.  (something I blogged about recently). Taxes on negative externalities are a good thing.

Stock market liquidity and volatility.

November 15, 2011 Comments (0)

Felix Salmon asks "should we be worried about stock market liquidity?".  He cites a Wall Street Journal article that claims that as volatility increases liquidity decreases.   Felix correctly recognizes that this isn't really anything to worry about.  In fact the positive relation between spreads and volatility is very well documented (even in my own work - see table 5). The question then seems to relate to high frequency trading and whether algorithmic trading is perhaps...

Capitalists of the world unite

November 15, 2011 Comments (0)

There's been a lot of talk about the Occupy Wall Street movement recently, but today, the Wall Street Journal Sunday edition printed a great article on why capitalists should be mad at Wall Street also. (The article defines capitalists as anyone who invests money - which would include pretty much anyone with a 401K or retirement plan). Why should capitalists be mad?  Well it all boils down to fees.  The finance industry is basically a fee based business.  When investment firms...

State pension funds - more underfunded.

November 15, 2011 Comments (0)

The degree to which state pension funds are underfunded has increased, in part due to lower bond rates.  This is because the present value of the liability faced by a state should be estimated by discounting the promised retirement payments at something close to a risk free rate.  The risk free rate is very low so the present value of these liabilities is high. Of course states continue to use 8% to present value these liabilities.

Market volatility and drug use.

November 15, 2011 Comments (0)

Apparently Berlusconi (the Italian PM) wants to start drug testing traders.  He thinks cocaine use is causing market volatility.