Category Archives: Market inefficiencies

On Blogging Economics and Aesthetics

Readers may have noticed that this site has gotten what one can most politely call visually busy. I’m not happy with the awkward adolescent ad-cluttered look. That in turn leads to a broader discussion of aesthetics, not just in terms of appearance but also positioning. The visual issue is pretty obvious: I’d like this to […]

Further Discussion of the Central Banks’ Attempts to Stimulate Interbank Lending

Steve Cecchetti, Professor of Global Finance at Brandeis, has a nice post at Vox EU, “The Art of Crisis Management: Auctions and Swaps.” The title’s misleading; Cecchetti describes it as a FAQ on the central bank actions of last week to try to close the unusually high and troubling spread between interbank rates like Libor […]

Nicholas Taleb Attacks the "Pseudo-Science" of Modern Finance

Nassim Nicholas Taleb, seasoned trader and risk manager, and author of the provocative and well regarded book Black Swans, today in the Financial Times takes on the high priesthood of modern finance. He argues that modern portfolio theory and many of its offspring, such as the Black-Scholes option pricing model and the capital asset pricing […]

Securitization Ain’t What It Used to Be

A wry and informative article, “Slicing and dicing risk rebounds on banks,” by John Dizard at the Financial Times tells us that newfangled investment vehicles considered to be a good thing because it moved risk assumption away from large banks (and therefore ultimately central banks) to the wealthy. But Dizard explains the rich were too […]

Housing Speculation Says Bottom Is Not Yet Nigh

A story in today’s New York Times, “Buyers Pounce as Homes Go on the Block.” shows that true belief in housing as an investment is far from dead. And the belief that auction = bargain quickens the pulse. While some local markets will have shallow (if any) price declines and fast rebounds, and Minnesota, the […]

Companies That Make Buybacks Lag the Market

A piece in Seeking Alpha, “Buybacks: A Wolf In Sheep’s Clothing,” by Matthew Hougan at Index Universe, does a nice job of debunking the myth that stock buybacks are a positive indicator for price performance. I’ve always had trouble with the logic of buybacks. If a company doesn’t believe that it has attractive enough prospects […]

Menzie Chin Parses the Meaning of "Strong Dollar"

A very good post by Menzie Chin at Ecnobrowser explores the meaning of an expression often used by regulators, traders, and the media, the strength (or weakness) of a currency. Chin tells us (and I hope I am not oversimplifying a lucid explanation) that it really signifies two things. The first meaning is the value […]

American Express: Another Example of How Fees Skew Credit Decisions

A clever post by Elizabeth Warren at Credit Slips keys off, of all things, a discussion by mystery writer Lisa Scottoline about her experiences with American Express and reward programs generally. Scottoline gives a colorful recap of her inattentiveness about paying on time and its predictable impact on her credit record (“My FICO score was […]

Quel Surprise! Auction Houses Ramp Up Prices

Today’s Wall Street Journal, in a page one story, tells how makers of high-end watches, such as Omega and Patek Phillipe, use actions to establish high price points for their wares by acting as anonymous shill bidders. Understandably, buyers who realized that the makers (ie, the sellers) were bidding against them, they were outraged: Demand […]

Mirable Dictu: Businesses Want More Regulations (If They Write Them)

We’ve never understood why regulation has such a bad name in America. Yes, there are all kinds of terrible specific implementations of the concept “regulation.” But the difficulty of getting it right doesn’t mean the concept should be rejected out of hand, since it turns out the alternative of “no regulation” isn’t so hot. And […]

In Case You Believe Markets Are Efficient

Today in the Financial Times, John Authers provides a tidy example of investor irrationality: Why do some stocks do better than others? There can be many reasons but one, it appears, could be a change to a new and catchier ticker symbol. On August 24, Sun Microsystems announced that it was changing its ticker from […]

Hedge Funds: Good Activists?

Hedge funds, which even at their peak of popularity, were regarded with considerable suspicion, have taken a shellacking in the last few months as subprime tainted funds have folded or reported poor results, and “quant” strategies have failed spectacularly, due to extraordinary, allegedly unprecedented market turmoil. Of course, the problem with that defense is that […]

Fed Found, and Dismissed, Signs of High Correlation in Hedge Fund Strategies

It’s summer rerun time. By happenstance, I came across a May post, which referred to a Federal Reserve study that had found that risks of hedge funds pursuing highly correlated strategies appeared, by some measures, as high as before the LTCM crisis. We had thought the Fed might be making a mistake in dismissing its […]