Most Americans then were practicing Christians, which implied they favored moral equality among individuals, but also the idea that the government exists to protect individual free will rather than individuals living to support the government.No one can read the US Constitution without concluding that the people who wrote it wanted their government to be limited severely; the words “no” and “not” as applied to government power occur 24 times in the first seven articles of the Constitution, and 22 more times in the Bill of Rights. John Locke’s liberalism focused on life, liberty, and property, a free economy with minimal government interference (zero government is a straw man caricature).
My book The Missing Risk Premium is a steal at only $15, but my first book, Finding Alpha, is a $65, which is a bit much for anyone not expensing their books. Finding Alpha goes over why the current asset pricing model fails, with lots of evidence, explains why economists still like it, and then in chapters 10-13 shows concrete examples of how investors have actually found alpha.The risk begets return theory is 100 degrees wrong: usually generates a wrong sign, often no correlation.
I haven't read an argument like mine for Christianity, though given everything written about Christianity, I probably haven't tried hard enough.A Rational Argument for Christianity (pdf here, w/ footnotes)[if !supportLists]· [endif]Something created us[if !supportLists]· [endif]Created things have a purpose[if !supportLists]· [endif]The New Testament’s consistency with economics and psychology work as if our creator wrote it[if !supportLists]· [endif]‘As if’ assumptions are often trueBertrand Russell (1872-1970) was an eminent philosopher, mathematician, and logician, and avowed atheist. [Hereafter I denote the ‘argument from design’ aka ‘intelligent design,’ as ID, the theory that life, or the universe, cannot have arisen by chance and was designed and created by some intelligent entity.
Though I think they are profoundly wrong, I think the paper was done well in good faith. Wrong mainly because it still implies people think there's a positive Security Market Line, even though at best it's flat, and wrong also because high vol assets like puts lose just as much money as calls (ie, the alpha is not linear in beta so much as correlated with volatility).
I saw this story in Bloomberg magazine a couple weeks ago, so I decided to speak with Ric Bratton again on the history of the low volatility effect. Below is an outline of what I consider to be the history of low volatility with links to relevant articles.
I didn't mention my firm or current work much; being in a highly regulated field it's just too problematic.
It's my personal opinion:Thomas Piketty's bestselling door-stopper Capital in the Twenty First Century notes some facts that he thinks point to a clear problem and solution:The return on capital over the economic growth rate determines the Capital/Income ratio, where a higher return on capital implies higher level of capital relative to income (r/g --> C/I)The rate of return on capital has been pretty consistently around 4.5%, The rate of growth grew from 0.9% in the 19th century to 2.4% in the 20th, peaking around 1950Growth was 3.8% in Europe in the Les Trente Glorieuses ("The Glorious Thirty") of 1945-75, when marginal taxes and taxes on inheritance were higher, and income became more equally distributed'Peek-et-ee'To him, the implication is obvious. Alan Reynolds notes the many changes in the 1980s US tax code that explain the rise in reported wealth and income irrespective of the actual change in wealth an income in that decade, and one can imagine all those loopholes and inducements two generations ago when the top tax rates were above 90% (it seems people can no better imagine their grandparents sheltering income than having sex, another generational conceit).For example, he writes that Lilian Bettencourt, the richest woman in France and heiress to the L'Oreal fortune (mentioned often, she serves as the archetype of the rich), never reported more than a $5MM annual income on a $30B fortune, a 0.02% annual return.
I've got a new job with Pine River, and I want my new colleagues to know I'm not going to blab about anything that comes up, so blogging is now really over. Of course, if you bump into me you can always buy me drinks and try to get me spill the beans (about non-proprietary matters) but I should warn you, I can drink a lot of beer.
Recently the CBO issued its annual budget projection, and it's pretty benign for the next decade, then climbs at a pretty measured pace.Yet, note that in the last recession our debt relative to GDP doubled. I think the odds that we elect a modern-day Calvin Coolidge next term are much smaller than the odds the deficit will increase dramatically when the next recession hits.Consider that in 2007, before anyone saw any hint of the 2008 crisis, the debt was actually projected to fall, but we know how that turned out (black are actual historicals).
I have a feeling MSCI is a bit confused, as they have another tab noting their 'Risk Premia Indexing', which they noteAn accumulating body of empirical research has found positive gross excess returns from exposure to factors (or risk premia) such as Value, Momentum, Low Size (small firms), and Low Volatility stocks. The studies show that these factors historically have improved return-to-risk ratios.
I find Alain de Botton's approach to philosophy rather refreshing, because one senses his genuine lack of certainty, and appreciation of discovering, in his works. Interestingly he was insightfully quoted in a NYT review of Sophie Fontanel's self-indulgent book on her self-induced celibacy, which highlighted his breadth and profundity (de Botton's quip was basically that 'sex is messy, get over it').
As a proponent of the idea that people are oriented towards their relative success, not absolute wealth, I think this lottery idea is fiendishly clever. Here's a description from TheWeek of a clever way to capitalize on this instinct:A salient example is the "Postcode Lottery" in the Netherlands.
They find diversified firms offers less skew, and diversiﬁcation discounts are signiﬁcantly greater when the diversiﬁed ﬁrm offers less skewness than typical focused ﬁrms in similar business segments. They suggest a substantial proportion of the excess returns received on discount ﬁrms relative to premium ﬁrms can be explained by differences in exposure to skewness.
Our intrepid equity researchers at AQR have come out with a new paper adding to the color on how to pick a strategy given value considerations. In Asness, Frazzini and Pedersen's latest paper, Quality Minus Junk, they first try to create a 'quality' metric, and then try to meld it with value.
Most said yes (Dave Hendersen, Bryan Caplan, Noahpundit, Robin Hanson, The NewYorkTimes), though Krugman said no. Krugman's experience is very pertinent as his Nobel Prize winning model on increasing returns to scale is a good example of obtuse economodeling: its thesis was known before being the basis of the centuries-old infant industry argument, and after Krugman it was no easier to apply.
Consider the recent papers arguing that low volatility is really just a skew effect, in which case their worldview is safe. He also finds it relevant to the underperformance of IPOs, the low average return of distressed stocks, of bankrupt stocks, of stocks traded over the counter, and of out-of-the-money options (all of these assets have positively skewed returns); the low relative valuations of conglomerates as compared to single-segment firms (single-segment firms have more skewed returns); and the lack of diversification in many household portfolios (households may choose to be undiversified in positively skewed stocks so as to give themselves at least a small chance of becoming wealthy).It seems like an orthogonal way to address these puzzles compared to the constrained rational approach offered by Betting Against Beta, but there's a problem, and it's that the well-know equity risk premium has a negative skew relative to what's considered less premium-worthy, long-term bonds.
Three different types of low vol portfolios are seemingly higher priced using two different value metrics, book/market and earnings yield. That is, low vol portfolios over the past 10 years used to have higher earnings yields than the market, and higher book/market ratios; now it's the reverse.To put these into perspective, the relative difference in the book-to-price ratio moving from 0.3 to 0.6 is about moving from the 15th percentile to the 45th percentile.
Imagine a world where expected returns are solely a function of covariances as standard theory implies. People expect risk and return to be positively correlated in this theory.Instead, Sharpe and Amromin find that people expect volatility and returns to be inversely correlated: when they are bullish they expect low volatility, and when they are bearish they expect high volatility.