I have recently seen the term, "value stock". The definition is:
A stock that tends to trade at a lower price relative to it's fundamentals (i.e. dividends, earnings, sales, etc.) and thus considered undervalued by a value investor. Common characteristics of such stocks include a high dividend yield, low price-to-book ratio and/or low price-to-earnings ratio.
Saturday, October 19, 2013
Friday, October 18, 2013
U of Chicago on Fama and Hansen
The following is a report by U of Chicago:
Fama’s work demonstrated that new information is very quickly incorporated into the market, making it difficult to predict short-term changes in asset prices. Hansen developed a statistical method for testing rational theories of asset pricing like those advanced by Fama and Shiller.
They are among the 89 scholars associated with the University to receive Nobels, and among the 28 who have received the Nobel Memorial Prize in Economics.
Hansen’s “powerful, pioneering” methods for assessing economic models have been adopted by social scientists in many fields, said List, the Homer J. Livingston Professor and chair of Economics. “Whether it is to explore how public policies effect unemployment rates, how networks form, or how environmental regulations influence productivity growth, Lars’ work plays a key role.”
Fama’s early work on efficient markets, which gave rise to the index funds many investors participate in today, not only revolutionized academic finance, but also made “a phenomenal impact on the practical world, and really on people’s lives,” said John Heaton, the Joseph L. Gidwitz Professor of Finance and Deputy Dean for Faculty at Chicago Booth.
Fama coined the term “efficient market” and the term gained widespread use following publication of “Efficient Capital Markets: A Review of Theory and Empirical Work” in the Journal of Finance in 1970. The efficient markets hypothesis holds that, as a result of competition, equilibrium prices in financial markets incorporate all relevant information.
Hansen’s research looks at ways to bridge the gap between economic models and economic and financial data. His work has led to improved methods for formulating, analyzing and testing dynamic economic models in environments with uncertainty. He has applied these methods to study the determinants of consumption, savings and security market prices.
Fama’s work demonstrated that new information is very quickly incorporated into the market, making it difficult to predict short-term changes in asset prices. Hansen developed a statistical method for testing rational theories of asset pricing like those advanced by Fama and Shiller.
They are among the 89 scholars associated with the University to receive Nobels, and among the 28 who have received the Nobel Memorial Prize in Economics.
Hansen’s “powerful, pioneering” methods for assessing economic models have been adopted by social scientists in many fields, said List, the Homer J. Livingston Professor and chair of Economics. “Whether it is to explore how public policies effect unemployment rates, how networks form, or how environmental regulations influence productivity growth, Lars’ work plays a key role.”
Fama’s early work on efficient markets, which gave rise to the index funds many investors participate in today, not only revolutionized academic finance, but also made “a phenomenal impact on the practical world, and really on people’s lives,” said John Heaton, the Joseph L. Gidwitz Professor of Finance and Deputy Dean for Faculty at Chicago Booth.
Fama coined the term “efficient market” and the term gained widespread use following publication of “Efficient Capital Markets: A Review of Theory and Empirical Work” in the Journal of Finance in 1970. The efficient markets hypothesis holds that, as a result of competition, equilibrium prices in financial markets incorporate all relevant information.
Hansen’s research looks at ways to bridge the gap between economic models and economic and financial data. His work has led to improved methods for formulating, analyzing and testing dynamic economic models in environments with uncertainty. He has applied these methods to study the determinants of consumption, savings and security market prices.
Thursday, October 17, 2013
Robert Shiller on Finance
Finance is misunderstood as the field about how to make money, how to get rich. Finance is the study of human activity, human activity at large.
Finance is about financing activity; making the resources available, insentivizing people, spreading risks...substantially about risk management,..useful to real people, not just to minority people.
Finance is about financing activity; making the resources available, insentivizing people, spreading risks...substantially about risk management,..useful to real people, not just to minority people.
ノーベル経済学賞がアホらしいという人へ
今回のノーベル経済学賞が、「資産価格の決定理論」について。明日の株価が読めないのに、経済学賞なんてアホらしっ、というあなたへ。
資産価格を完全予測するのは、いつどこでどんな形の雲が発生しているかを予測するのに似ているんじゃないでしょうか。現在の物理学をもってしても、そんなことできないでしょう。
今回の受賞は、そんな「雲をつかむ」ような資産価格にどう切り込むか、Famaは「効率的市場仮説」で、Hansenはそれを調べるための統計分析の手法の開発、Shillerはそれだけでは説明できないことを示した。
「どちらの理論が正しいのか」ではなく、切り込み方を示した点では評価に値するのではないでしょうか。
資産価格を完全予測するのは、いつどこでどんな形の雲が発生しているかを予測するのに似ているんじゃないでしょうか。現在の物理学をもってしても、そんなことできないでしょう。
今回の受賞は、そんな「雲をつかむ」ような資産価格にどう切り込むか、Famaは「効率的市場仮説」で、Hansenはそれを調べるための統計分析の手法の開発、Shillerはそれだけでは説明できないことを示した。
「どちらの理論が正しいのか」ではなく、切り込み方を示した点では評価に値するのではないでしょうか。
Wednesday, October 16, 2013
ノーベル経済学賞について
「資産価格の決定要因は経済学者にはわかっていないことにある。経済学者にわかっていないことの研究がノーベル賞になるわけだから、物理や化学の学者からしたら卒倒ものだろうが、これが経済学だ。」
慶応義塾の准教授の発言とは思えないが、過去７４名のノーベル経済学賞受賞者のうち、２８名がシカゴ大学の教授や卒業生、その研究者（２０１３年現在）であること（全体の３８％）が、ノーベル賞にバイアスがあるのでは、という疑いもある。
しかし、その２８名を見れば、マンデル＝フレミングモデル、コースの定理、マネタリスト、フリードマン、など絶対に初級の経済学の教科書にも載っている人物ばかりだ。
シカゴ大学なくして、経済学なし。という感じだ。
慶応義塾の准教授の発言とは思えないが、過去７４名のノーベル経済学賞受賞者のうち、２８名がシカゴ大学の教授や卒業生、その研究者（２０１３年現在）であること（全体の３８％）が、ノーベル賞にバイアスがあるのでは、という疑いもある。
しかし、その２８名を見れば、マンデル＝フレミングモデル、コースの定理、マネタリスト、フリードマン、など絶対に初級の経済学の教科書にも載っている人物ばかりだ。
シカゴ大学なくして、経済学なし。という感じだ。
Cochrane on Efficient Market
It's what caught my eye in the note of Cochrane on Fama's work:
(1) Financial markets are, at heart, markets for information.
(2) Markets are “informationally efficient” if market prices today summarize all available information about future values.
(3) A natural implication of market efficiency is that simple trading rules should not work, e.g. “buy when the market went up yesterday.”
(4) If markets are informationally efficient, the “fundamental analysis” performed by investment firms has no power to pick stocks, and professional active managers should do no better than monkeys with darts at picking stocks portfolios.
(5) If markets are informationally efficient, then corporate news such as an earnings announcement should be immediately reflected in stock prices, rather than set in motion some dynamics as knowledge diffuses.
(6) For nearly 40 years, Gene Fama’s efficient market framework has provided the organizing principle for empirical financial economics.
(7) You can get a higher return, in equilibrium, in an efficient market, but only if you shoulder more risk.
(8) The Capital Asset Pricing model (CAPM) specifies that assets can earn higher returns if they have greater “beta” or covariance with the market portfolio.
(9) Actually checking stock price reactions to corporate events is not as straightforward as it sounds.
(10) The efficient markets work of the 1960s and 1970s found that stock returns are not predictable ("random walks") at short horizons.
(11) If expected returns and risk premiums are high, this will drive prices down. But then the “low” price today is a good signal to the observer that returns will be high in the future.
(12) Low prices do not cause high returns any more than the weatherman causes it to snow.
(13) The fact that the vast majority of stock market fluctuation comes from changing expected returns rather than changing expectations of future profits, dividends, or earnings, will fundamentally change the way we do everything in financial economics.
(14) The key observation is that “value stocks” -- those with low prices relative to book value -- tend to move together. Thus, buying a portfolio of such stocks does not give one a riskless profit. It merely moves the times at which one bears risk from a time when the market as a whole declines, to a time when value stocks as a group decline.
(15) Once you understand the definition of efficiency and the nature of its tests, as made clear by Gene 40 years ago, you see that the latest crash no more "proves" lack of efficiency than did the crash of 1987, the great slide of 1974, the crash of 1929, the panic of 1907, or the Dutch Tulip crisis.
(16) The heart of efficient markets is the statement that you cannot earn outsize returns without taking on “systematic” risk.
(17) All of us can invest in passive, low cost index funds, gaining the benefits of wide diversification only available in the past to the super rich (and the few super-wise among those).In turn, these vehicles have spurred the large increase in stock market participation of the last 20 years, opening up huge funds for investment and growth. (...)The recognition that markets are largely “efficient,” in Gene’s precise sense, was crucial to this transformation.
(1) Financial markets are, at heart, markets for information.
(2) Markets are “informationally efficient” if market prices today summarize all available information about future values.
(3) A natural implication of market efficiency is that simple trading rules should not work, e.g. “buy when the market went up yesterday.”
(4) If markets are informationally efficient, the “fundamental analysis” performed by investment firms has no power to pick stocks, and professional active managers should do no better than monkeys with darts at picking stocks portfolios.
(5) If markets are informationally efficient, then corporate news such as an earnings announcement should be immediately reflected in stock prices, rather than set in motion some dynamics as knowledge diffuses.
(6) For nearly 40 years, Gene Fama’s efficient market framework has provided the organizing principle for empirical financial economics.
(7) You can get a higher return, in equilibrium, in an efficient market, but only if you shoulder more risk.
(8) The Capital Asset Pricing model (CAPM) specifies that assets can earn higher returns if they have greater “beta” or covariance with the market portfolio.
(9) Actually checking stock price reactions to corporate events is not as straightforward as it sounds.
(10) The efficient markets work of the 1960s and 1970s found that stock returns are not predictable ("random walks") at short horizons.
(11) If expected returns and risk premiums are high, this will drive prices down. But then the “low” price today is a good signal to the observer that returns will be high in the future.
(12) Low prices do not cause high returns any more than the weatherman causes it to snow.
(13) The fact that the vast majority of stock market fluctuation comes from changing expected returns rather than changing expectations of future profits, dividends, or earnings, will fundamentally change the way we do everything in financial economics.
(14) The key observation is that “value stocks” -- those with low prices relative to book value -- tend to move together. Thus, buying a portfolio of such stocks does not give one a riskless profit. It merely moves the times at which one bears risk from a time when the market as a whole declines, to a time when value stocks as a group decline.
(15) Once you understand the definition of efficiency and the nature of its tests, as made clear by Gene 40 years ago, you see that the latest crash no more "proves" lack of efficiency than did the crash of 1987, the great slide of 1974, the crash of 1929, the panic of 1907, or the Dutch Tulip crisis.
(16) The heart of efficient markets is the statement that you cannot earn outsize returns without taking on “systematic” risk.
(17) All of us can invest in passive, low cost index funds, gaining the benefits of wide diversification only available in the past to the super rich (and the few super-wise among those).In turn, these vehicles have spurred the large increase in stock market participation of the last 20 years, opening up huge funds for investment and growth. (...)The recognition that markets are largely “efficient,” in Gene’s precise sense, was crucial to this transformation.
Tuesday, October 15, 2013
Robert Shiller
Taro met the Nobel Prize Winner of 2013, Robert J Shiller, who is also a coauthor of "Animal Spirits". Professor, congrats.
Monday, October 14, 2013
Saturday, October 05, 2013
Keynesian Economics and Classical Economics
It might be quite a little old question, but what is the difference between Keynesian Economics and Classical (Walrasian) Economics?
Now in economics there's no big disagreement about the coexistence of Keynesian and Classical economics, but many economists explain about Keynesian economics from the viewpoint of Classical economics and they think that economics should be based on Classical economics.
The difference is not related to some ideology, but to point of view: Keynesian economics focuses on the short-run and demand-side economy while Classical one on the long-run and supply-side economy.
Of course, both sides of economics agree that competitive households and firm think at margin when making an optimal decision and that competitive economy is Pareto-optimum.
However, they think differently when they look at the whole economy: Keynesians think that the whole economy should fail to be composed, what is called the 'fallacy of composition', and some little shock (tax policy change or so) can be very big impact on it. In contrast, Classical economists think that the whole economy should be consistently composed by each optimal decision making and thus that some little shock can be as little as itself on the whole economy.
Classical economists admires 'Neutrality Theorem', while Keynesian economists 'fallacy of composition'. The former says that changes in monetary expansion or government expenditure have almost no impact on the whole economy because each person makes every decision as looking ahead in the future, while the latter says the opposite because each person doesn't look forward.
Which idea is right? The point is the view each side of economics puts weight on. Some problems are though to be better analyzed from the viewpoint of Keynesian economics while others are not. Which side should be taken depends on what economists think as of importance.
Now in economics there's no big disagreement about the coexistence of Keynesian and Classical economics, but many economists explain about Keynesian economics from the viewpoint of Classical economics and they think that economics should be based on Classical economics.
The difference is not related to some ideology, but to point of view: Keynesian economics focuses on the short-run and demand-side economy while Classical one on the long-run and supply-side economy.
Of course, both sides of economics agree that competitive households and firm think at margin when making an optimal decision and that competitive economy is Pareto-optimum.
However, they think differently when they look at the whole economy: Keynesians think that the whole economy should fail to be composed, what is called the 'fallacy of composition', and some little shock (tax policy change or so) can be very big impact on it. In contrast, Classical economists think that the whole economy should be consistently composed by each optimal decision making and thus that some little shock can be as little as itself on the whole economy.
Classical economists admires 'Neutrality Theorem', while Keynesian economists 'fallacy of composition'. The former says that changes in monetary expansion or government expenditure have almost no impact on the whole economy because each person makes every decision as looking ahead in the future, while the latter says the opposite because each person doesn't look forward.
Which idea is right? The point is the view each side of economics puts weight on. Some problems are though to be better analyzed from the viewpoint of Keynesian economics while others are not. Which side should be taken depends on what economists think as of importance.
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