Wednesday, April 27, 2005

Demographics, and the Stock Market

This paper looks at how demographic changes can predict changes in demand and pofitability for certain industries. The paper suggests that the securities prices under react to information about demographic changes and provides the opportunity for excess returns.

Demographics, and the Stock Market by Stefano DellaVigna, Joshua Pollet:

"Do investors pay enough attention to long-term fundamentals? We consider the case of demographic information. Cohort size fluctuations produce forecastable demand changes for age-sensitive sectors, such as toys, bicycles, beer, life insurance, and nursing homes. These demand changes are predictable once a specific cohort is born. We use lagged consumption and demographic data to forecast future consumption demand growth induced by changes in age structure. We find that demand forecasts predict profitability by industry. Moreover, forecasted demand changes 5 to 10 years in the future predict annual industry returns. One additional percentage point of annualized demand growth due to demographics predicts a 5 to 10 percentage point increase in annual abnormal industry stock returns. However, forecasted demand changes over shorter horizons do not predict stock returns. The predictability results are more substantial for industries with higher barriers to entry and with more pronounced age patterns in consumption. A trading strategy exploiting demographic information earns an annualized risk-adjusted return of 5 to 7 percent. We present a model of underreaction to information about the distant future that is consistent with the findings. "

Monday, April 25, 2005

Will an aging population lower stock returns?

Marginal Revolution: Will an aging population lower stock returns?: "The study, by James M. Poterba, an economics professor at the Massachusetts Institute of Technology, has found that changes in the proportion of retirees in the population have only a modest impact on stock market returns. So while the market is likely to come under some downward pressure from the retirement of boomers over the next couple of decades, he says he believes that there is no reason to expect the effects to be severe."

At face value it would appear that an aging population is likely to be a net seller of financial assets as they pass retirement age. However, there is a not a lot of empirical evidence to support this view.

Thursday, April 21, 2005

Central Bank Losses and Experiences in Selected Countries

Central Bank Losses and Experiences in Selected Countries

This is a paper looking at central bank losses. More focused on commercial bank problems than FX reerves, but I suspect the principal is the same.

Brad Setser has a much wider discussion of this topic. This includes an item from Billion.

Tuesday, April 19, 2005

Does the U.S. Want the Renminbi to Rise Now?

Brad DeLong's Website: Does the U.S. Want the Renminbi to Rise Now?

Brad Delong brings together a number of stories about the increased pressure from the US administration on China to revalue its currency.

Friday, April 15, 2005

Do Fundamentals or Emotions Drive the Stock Market? - - Do Fundamentals or Emotions Drive the Stock Market?

A look at some of the factors that may temporarily drive asset prices from fundamentals. I tend to agree that these factors are temporary but it woudl be interesting to align these ideas with those that suggest that there is a return available to those prepare to take risk, those with superior information and those with capital to take short term losses.

Thursday, April 14, 2005

Why aren't wages rising more?

Marginal Revolution: Why aren't wages rising more?

Links to Brad Delong story about recent weakness in real wages. This looks at some of the tricky parts of the "real" part of this. What about product improvements? Does everyone benefit from this?

China's dollar dilemma / Comment & analysis - China's dollar dilemma:

FT (subscription required) talks about the political pressure in China for a change in the exchange rate regeime. "Exchange rates are subservient to China's overarching aim of maintaining annual economic growth of about 7 per cent to 8 per cent, creating the 15m to 20m jobs a year that the government believes are needed to maintain social stability and meet expectations of higher living standards."

There is a lot more on this issue Brad Stetser's blog

It seems to me that there is a risk to changing excahnge rate policy in China and that the fortunes of the Chinese economy are very much mixed up with those of the US. Any fall in US economic growth will mean a reduction in Chinese exports (even without a currency change) and this will complicate the aim of creating 15m to 20m jobs a year. However, the threat of losses on FX reserves and the continued increase in money supply that the unsterilised intervention implies suggest that changing the exchange rate regeime would be advantagous.

Wednesday, April 13, 2005

The history of Rover / Comment & analysis / Analysis - The wrong and winding road:

FT (subscription required) on the sorry Rover saga.

"This latest, probably final chapter began in 2000, when BMW, the German carmaker that had poured £3.4bn into Rover since buying it from British Aerospace in 1994, abandoned all hope of turning the lossmaking business around. BMW announced a plan to sell Rover to Alchemy, a private equity firm led by Jon Moulton, which would whittle it down to a niche producer of MG sports cars, cutting 4,000 jobs. BMW, fearful of the potential backlash in one of its most important markets, offered a dowry of £500m to help fund the restructuring and redundancy. "

John Kay: Cult of the practical man killed MG Rover

Kay argues that modern firms need outside expertise.

Friday, April 08, 2005

MG Rover staff face pension wait

BBC NEWS | Business | MG Rover staff face pension wait: "BMW has told BBC News that well over 90% of MG Rover staff chose to transfer their pensions from the BMW-run Rover Group Pension to the new MG Rover scheme. "

How could so many people have transfered their pension to the new Rover group rather than stay with BMW? It does not make much sense unless there was some pressure or incentive.

Economist: Human evolution

Economist looks at research by Dr Shogren suggesting that it was the ability to trade that ensured that modern man prevailed over the Neanderthal. Trade allowed the better hunters to hunt while the others specialised in other activities - trade then took place. This allowed modern man to get more meat at the expense of the Neanderthal.

"Initially, the researchers assumed that on average Neanderthals and modern humans had the same abilities for most of these attributes. They therefore set the values of those variables equal for both species. Only in the case of the trading and specialisation variables did they allow Homo sapiens an advantage: specifically, they assumed that the most efficient human hunters specialised in hunting, while bad hunters hung up their spears and made things such as clothes and tools instead. Hunters and craftsmen then traded with one another.
According to the model, this arrangement resulted in everyone getting more meat, which drove up fertility and thus increased the population. Since the supply of meat was finite, that left less for Neanderthals, and their population declined.
A computer model was probably not necessary to arrive at this conclusion. But what the model does suggest, which is not self-evident, is how rapidly such a decline might take place. Depending on the numbers plugged in, Neanderthals become extinct between 2,500 and 30,000 years after the two species begin competing�a range that nicely brackets reality. Moreover, in the model, the presence of a trading economy in the modern human population can result in the extermination of Neanderthals even if the latter are at an advantage in traditional biological attributes, such as hunting ability."