Thursday, June 23, 2005

Application of game theory

The FT has a superb example that can be appled to game theory. I have not thought it through this clearly as yet. However, I am sure that someone who knew more than the basics could use this to analyse the situation.

Lex live: Italy:

"Both companies are protected - if that is the word - by shareholder pacts among the great and the good. Mediobanca, for example, is 55 per cent owned by a group including leading banks, Fiat and Telecom Italia. If these pacts were solid, there would not be an issue. But the level of consternation evident in Italy suggests they are fraying, with each of the insiders worried that one of the others might crack and sell out first. "

Wednesday, June 22, 2005

The Risk Return Tradeoff in the Long-Run

Thanks to Finance Professor for the link - SSRN-The Risk Return Tradeoff in the Long-Run: 1836-2003 by Christian Lundblad: "The risk�return tradeoff is fundamental to finance. However, while many asset pricing models imply a positive relationship between the risk premium on the market portfolio and the variance of its return, previous studies find the empirical relationship is weak at best. In sharp contrast, this study, demonstrates that the weak empirical relationship is an artifact of the small sample nature of the available data, as an extremely large number of time-series observations is required to precisely estimate this relationship. To maximize the available time-series, I employ the nearly two century history of US equity market returns from Schwert (1990), exploring the empirical risk-return tradeoff for a variety of specifications that allow for asymmetric volatility, regime-switching, and additional factors associated with intertemporal (ICAPM) hedging demands. Similar to studies that use the more recent US equity price history, conditional market volatility in the historical data is persistent and displays strong asymmetric relationships to return innovations. Further, the conditional correlation between stock and bond markets is closely related to periods of documented financial crises. Finally, in contrast to evidence based upon the recent US experience, the estimated relationship between risk and return is positive and statistically significant across every specification considered. "

Thursday, June 16, 2005


A great overview of what we know and what we do not know about aging.

A Fistful of Euros: No Answers Only Questions: "One person who could rightly claim to know more about global ageing and its possible consequences than anyone else in the business is the German Director of the Manheim Research Institute for the Economics of Ageing Axel B'rsch-Supan."

Saturday, June 11, 2005

Cheap - with reason

Stumbling and Mumbling: Cheap - with reason: "US equities are cheap. That's one overlooked message from yesterday's flow of funds data from the Fed."

Interesting discussion on the recent payout for investors (dividends and equity purchase). There is also a look at the way that firms may be paying cash now but neglecting the future. The high level of cash holdings and the relatively low level of investment seems to be one recent feature.

Tuesday, June 07, 2005

Dead trees, dead brains

Stumbling and Mumbling: Dead trees, dead brains: "Or is it because the FT is an equal opportunities employer in the same sense that the BBC is � it employs people from any Oxbridge college, regardless of ability?"

Ha ha ha ha ha

Sunday, June 05, 2005

Who Gambles in the Stock Market?

SSRN-Who Gambles in the Stock Market? by Alok Kumar:
"This paper examines whether socio-economic and psychological factors, which are known to influence lottery purchases, lead to excess investment in lottery-type stocks. The results indicate that, unlike institutional investors, individual investors prefer stocks with lottery-type features. The demand for lottery-type stocks increases during bad economic times and demand shifts influence the returns and idiosyncratic volatility of those stocks. In the cross-section, factors which induce greater expenditure in lotteries also induce greater investment in lottery-type stocks. Poor, young, less educated men who live in urban, Republican dominated regions and belong to specific minority (African American and Hispanic) and religious (Catholic) groups invest more in lottery-type stocks. As expected, investors who exhibit stronger preference for lottery-type stocks experience greater mean under performance. Collectively, the evidence indicates that people's attitudes toward gambling are reflected in their stock investment choices and stock returns"

Interesting paper and thanks to finance professor for the link. Finance Professor