Sunday, November 30, 2014

You Want a Bigger Paycheck? Convince Me. - Bloomberg View

You Want a Bigger Paycheck? Convince Me. - Bloomberg View: "This last fact -- the increase in capital’s share of the national pie -- is really the big mystery. Why has it happened? There are two basic competing theses: the rise of the robots and the great labor dump."

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Wednesday, November 26, 2014

Automation Makes Us Dumb - WSJ

Automation Makes Us Dumb - WSJ: The limits and limitations of automation.

"When system designers begin a project, they first consider the capabilities of computers, with an eye toward delegating as much of the work as possible to the software. The human operator is assigned whatever is left over, which usually consists of relatively passive chores such as entering data, following templates and monitoring displays."

Finding a new role for the human.

Monday, November 24, 2014

The truth about UK living standards since the crisis -

The truth about UK living standards since the crisis -

An analysis of UK income statistics.

"Come next year’s UK election, bread and butter issues of living standards will displace Europe and immigration from the top of the public debate. The problem is that there are so many different comparisons and data sources that many contradictory claims are true. Few will be both true and fair. Here, then, is a guide to British living standards since the crisis, which avoids cherry-picking data and the cop out of saying that results are all too uncertain and complicated to conclude anything"

One additional area of interest is the contrast between the UK, the US and the Euro area.  The UK has had a fall in real wages and relatively healthy employment growth. For the US, though the economy has been stronger overall, employment and wages have been higher.  I need to look at the Euro area to complete the picture.

Sunday, November 16, 2014

Self-opinion and forecasting

Why we are unaware that we lack the skill to tell how unskilled and unaware we are:

"Dunning and Ehrlinger knew that most college students tend to hold very high opinions of themselves when it comes to abstract reasoning. It’s part of what they call a “chronic self view.” You have an idea of who you are in your mind, and it is kind of like a character in a story, the protagonist in the tale of your life. Some aspects of that character are chronic, traits that are always there that you feel are essential and evident, beliefs about your level of skill that are consistent across all situations. For most college students, being great at abstract reasoning is one of those traits, but being great at computer programming is not."

There is an experiment here that can be conducted with economic or financial forecasting.  How well do people forecast and how accurate do they think that they will be?

Saturday, November 15, 2014

Oranges and lemons — the FX scandal in perspective — Bull Market — Medium

The WM benchmark fix.  Oranges and lemons — the FX scandal in perspective — Bull Market — Medium:

"The FX settlement was announced this week, prompting a lot of editorialising about how the banks Don’t Get It, and Are Systematically Corrupt and so on. To an extent this is the default position post LIBOR, post CDO and rightly so. But I think there’s a danger in viewing everything through the prism of previous scandals. Although there was some behaviour that was clearly on the other side of the line, the regulators also made clear that lots of the practices involved were not intrinsically criminal; this was an investigation into a grey area, not a straightforward case of lying. Of course, the industry has less than zero claim to the benefit of anyone’s doubt, and people will be instantly suspicious of claims that “it’s more complicated than that”, so maybe I can explain what went on in the FX market through the medium of a series of examples, all based on someone going down to market to buy oranges."

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Friday, November 14, 2014

Trading as gambling

Management Science: INFORMS: "This paper offers evidence from three different samples consistent with investors substituting between playing the lottery and gambling in financial markets. In the United States, increases in the jackpots of the multistate lotteries Powerball and Mega Millions are associated with significant reductions in small trade participation in the stock market. California-based discount brokerage clients and German discount brokerage clients are significantly less likely to trade during weeks with larger lottery prizes in the California and German lotteries, respectively. Variation in lottery prizes affects speculative trading in more lottery-like securities such as individual stocks and options, but not trading in bonds and mutual funds. Trading that is likely associated with long-term savings motives, such as trading in retirement accounts, does not respond to lottery jackpots, either. The negative relation between trading activity and jackpots is stronger for individuals who are more likely to play the lottery."

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. . . and the Cross-Section of Expected Returns

. . . and the Cross-Section of Expected Returns: "Hundreds of papers and hundreds of factors attempt to explain the cross-section of expected returns. Given this extensive data mining, it does not make any economic or statistical sense to use the usual significance criteria for a newly discovered factor, e.g., a t-ratio greater than 2.0. However, what hurdle should be used for current research? Our paper introduces a multiple testing framework and provides a time series of historical significance cutoffs from the first empirical tests in 1967 to today. Our new method allows for correlation among the tests as well as missing data. We also project forward 20 years assuming the rate of factor production remains similar to the experience of the last few years. The estimation of our model suggests that a newly discovered factor needs to clear a much higher hurdle, with a t-ratio greater than 3.0. Echoing a recent disturbing conclusion in the medical literature, we argue that most claimed research findings in financial economics are likely false."

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Thursday, November 13, 2014

The productivity of PhDs: Lazy graduate students? | The Economist

The productivity of PhDs: Lazy graduate students? | The Economist: "But the vast majority of PhD students, even at top universities, produce nowhere near that much (see chart). The number of AER-equivalent papers of the median PhD student, six years after graduation, is below 0.2 for all universities. Yes, all—even Harvard, MIT and Chicago. The 50th percentile at almost all universities has a score of 0.1. That’s equivalent to publishing one paper in a second-tier field journal over six years. "

Thursday, November 06, 2014

Gordon Tullock, R.I.P.

Gordon Tullock, R.I.P. | Competitive Enterprise Institute:

 "Imagine making Nobel-worthy contributions to a discipline in which you had almost no formal training. It’s an amazing feat. Gordon Tullock is one of the few to accomplish it. We at CEI are deeply saddened to learn that he has just passed away. But what a life he led, all 92 years of it. That, we can celebrate. Born in 1922 in Rockford, Illinois, Tullock served in World War II. He spent some time in the foreign service in China and Korea, and pondered making a career of it. But his pursuit of a law degree at the University of Chicago changed his life—along with many others."

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Wednesday, November 05, 2014

Mergers and insider trading

Bloomberg View: discusses rules on insider trading tendering.

 "The answer, I think, is that Rule 14e-3 is not about protecting investors from informational disadvantages. It's about protecting companies from tender offers. The "warehousing" problem is not that some people might sell to Pershing Square at too low a price and then be sad. It's that Pershing Square might acquire a lot of shares and then tender them in the offer, making Allergan's management sad."

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Sunday, November 02, 2014

Keynesian rebirth

Anatole Kaletsky writes about the takeaway from six years of economic troubles?.  Keynes was right. In a crisis, fiscal policy is effective and monetary policy is close to impotent.

 "Monetarism overturned the Keynesian fiscal consensus that prevailed from the 1930s to the 1970s, by introducing one simple assumption into the models that guided governments and central banks. The case for Keynesian fiscal stimulus in deep recessions was simply assumed away by asserting that interest rates could always be reduced sufficiently to stimulate private investment, discourage private savings and so restore growth. As a result, the private sector as a whole would never suffer for long from a shortfall in spending. Therefore government borrowing would never be needed to balance inadequate private demand."

However, it appears that this is not the case when there is household de-leveraging that will not be affected by the level of interest rates and, as a result of the economic slump that ensues,  firms are too cautious to invest

The Taylor Curve

The Taylor Curve Has Two Dimensions In Both Hemispheres | Economics One:

"But more seriously, the evaluation of inflation-targeting as a strategy for monetary policy in John’s paper—the main purpose of the paper—was also misleading or at least incomplete. Rather than consider the performance of both inflation stability and output stability—as virtually all monetary policy evaluation studies have done for the past 40 years—he looked only at the first—inflation stability. To paraphrase Milton “the second is at least as important as the first.” Yes we know that inflation has been low and steady in recent years. The problem is that output or employment performance has been terrible—in the US we have had the Great Recession and the Not-So-Great Recovery. That deterioration should be part of the evaluation too."

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