Wednesday, February 28, 2007


An overview of the pressure in the MTS market. This highlights the way that the European bond market is much more fragmented that the US version. This makes it less liquid. A Finnish government bond is not the same as a German government bond. However, MTS forces investment banks to treat them in a way that is more similar than would be the case if market forces prevailed.
Hedge funds seek access to eurozone bonds:
"Supporters of MTS say that these practices are needed to ensure there is plenty of liquidity in the eurozone’s fragmented government bond market. The rules are popular among smaller eurozone members.

However, critics say the rules have created a quasi-cartel, which has raised the cost of bond dealing and looks increasingly anachronistic given the growing use of electronic trading. "

Tuesday, February 27, 2007

Diversified genes

Marginal Revolution: Beautiful People are Mean
Nothing to do with finance, but astonishing. This suggests that we appreciate that which is an amalgamation from many. We want diversified genes!

Tuesday, February 13, 2007

Instrumental variables

Social Science Statistics Blog: The "Imperial Grip" of Instrumental Variables: "Consider the two papers desribed in the Economist article. The first attempts to estimate the effect of colonialism on current economic outcomes. The authors propose wind speed and direction as an instrument for colonization, arguing (plausibly) that Europeans were more likely to colonize an island if they were more likely to encounter it while sailing. So far so good. Then they argue that, while colonization in the past has an effect on economic outcomes in the present, being situated in a location favorable for sailing in the past (i.e., before steam-powered ships) does not. Is this really plausible? The authors think so, I don't, and it isn't obvious that there is a way to resolve the matter."

Thursday, February 01, 2007


Excellent from Chris Dillow on the hierarchy in firms.

Here's some great empirical evidence for all this. Bart Hobijn and Boyan Jovanovic estimate (pdf) that the stock market value of US firms that existed in 1972 fell relative to GDP in the three subsequent decades. And yet the value of the overall market more than doubled relative to GDP. This means that more than all the rise in the value of shares relative to GDP came from new firms. Growth - as perceived by investors - therefore comes from new firms much more than incumbent ones.
This suggests that old hierarchic firms don't grow quickly. Rather than being a source of innovation, big hierarchical firms exist to exploit innovations that have occurred outside the firm, as this paper (pdf) shows.
Now, I'm not saying here that co-operatives would be a better source of innovations; as workers want to cling onto their jobs, labour-saving innovation would be less. All I'm saying is that whatever the benefits of hierarchies are, they don't include an ability to innovate. It's markets that give us innovations, not hierarchies.