Nber Ap
On Fri I attended the NBER Asset Pricing coming together (program here) in Chicago, organized past times Adrien Verdelhan too Debby Lucas. The papers were unusually interesting, fifty-fifty past times the high standards of this meeting. Alas the NBER doesn't transportation service slides thus I don't accept non bad visuals to demonstrate you.
Lars Hansen started amongst the latest inwards the Hansen-Sargent ambiguity / robustness work,Sets of Models too Prices of Uncertainty. Stavros Panageas gave a beautiful discussion, complete amongst powerfulness indicate animations. He characterized the newspaper equally a major advance, for reducing the gain of models over which an ambiguous agent looks for the worst instance scenario, too for making that gain state-dependent.
In the application, the agent worries that the hateful increase charge per unit of measurement of consumption too the AR(1) coefficient mightiness travel wrong; a to a greater extent than persistent consumption increase procedure is hurtful, too that hurting is to a greater extent than inwards bad times.
I haven't followed this travel closely enough. I nonetheless wonder what the testable implcations are -- how dissimilar is the property pricing model from i inwards which the truthful consumption increase procedure is but a combat dissimilar from our estimate, inwards the worst possible way?
Still, it's dainty to catch a Nobel Prize winner leading off a conference, too amongst easily the most technical newspaper at that conference, amongst about other i (Rob Engle) inwards the audience. That tells y'all something most the seriousness of this group. Also, this is serious behavioral finance past times whatsoever metric -- a disciplined model of probability misperceptions, which is dainty to see.
Robert Novy-Marx presented Testing Strategies Based on Multiple Signals, discussed past times Moto Yogo. We're all familiar amongst the phenomenon that if y'all essay 10 characteristics too selection the best few to forecast returns, t statistics are biased too functioning falls out of sample.
Robert pointed out that if y'all position those best 3 inwards a portfolio, they diversify each other, reducing the in-sample variance of the portfolio, too boosting Sharpe ratios too t-statistics fifty-fifty further.
Many ``smart beta'' funds are doing this, thus the fall-off inwards functioning from backtest to existent coin is relevant beyond academia.
The extent of this bias is impressive. Here is the distribution of t statistics that results when y'all selection the best iii of twenty completely useless signals, too position them inwards a portfolio. Critical values of iv too v demonstrate upward routinely inwards Robert's calculations.
Laura Veldkamp presented her travel amongst Nina Boyarchenko, David Lucca, too Laura Veldkamp, Taking Orders too Taking Notes: Dealer Information Sharing inwards Financial Markets. Discussed ably (of course) past times Darrell Duffie. Is it a work that the dealers who are the prime number bidders at treasury auctions accept been caught talking to each other ahead of the auction? Surprisingly, no: The Treasury tin come upward out ahead when dealers part information amongst each other, too investors tin potentially come upward out ahead too.
This warms my contrarian economist heart. We know thus piffling most how markets work, too regulators are thus quick to saltation on supposedly bad behavor, it's lovely to catch a clear too convincing model, that explains the variety of second-order too equilibrium effects that economists are skillful at.
Brian Weller presented Measuring Tail Risks at High Frequency, discussed nicely past times Mike Chernov. Brian's basic thought is to run cross-sectional regressions of bid/ask spreads, normalized past times book too depth, on the cross-section of factor betas. Since spreads are larger when dealers are to a greater extent than worried most large jumps, this produces a mensurate of time-varying probability x size of such jumps. The mensurate correlates good amongst the VIX.
Michael Bauer presented his newspaper amongst Jim Hamilton Robust Bond Risk Premia discussed really nicely past times Greg Duffee. (My discussion of a previous presentation). This newspaper is genuinely most whether macro variables attention to forecast bond returns. We're used to "Stambaugh bias:'' if y'all forecast returns amongst a persistent regressor, too the conception inwards the regressor is strongly negatively correlated amongst the conception inwards the return, too thus the near-unit-root downward bias inwards the regressor autocorrelation seeps over into upward bias of provide predictability. But macro variables forecasting bond returns accept innovations nearly uncorrelated amongst the returns, thus that's non much of a problem. Michael too Jim demonstrate about other problem: amongst overlappping returns, t statistics tin travel biased downwards too.
This led to a pleasant reassessment of bond provide forecasts. Some points that came up: econometrics aside, many provide forecasters don't make good out of sample. Many of the issues are specification issues orthogonal to this econometric point. For example, evaluating the huge forecastability of bond returns from a combination of grade too inflation documented past times Anna Cieslak too Pavol Povala, where the forecasters aspect a lot similar a trend, is genuinely most specification too interpretation, non econometrics. I held out the persuasion that the of import purpose of my newspaper amongst Monika Piazzesi is the single-factor construction of expected returns, non whether small-scale chief components attention to forecast returns. We had a pleasant interchange on whether it's a skillful or terrible thought to run one-year horizon forecasting regressions. I similar them, because they attenuate measure error. Raising a weekly autoregression to the 52nd powerfulness yields junk. Greg likes them, too gave a stirring reminder of Bob Hodrick's indicate that y'all tin include lags of the forecasting variables instead.
Nick Roussanov presented his newspaper amongst Erik Gilje too Robert Ready, Fracking, Drilling, too Asset Pricing: Estimating the Economic Benefits of the Shale Revolution with Wei Xiong discussing. They rails the reaction of stock prices to the shale fossil oil boom. In particular, they showed that stocks which rose on a huge shale proclamation later rose fifty-fifty to a greater extent than equally to a greater extent than skillful shale tidings came in. Until, equally Wei pointed out, prices collapsed.
Nick also used stock marketplace value to essay to instruct at an approximate of the economic science benefits of fracking. It's a worthy effort, but let's recollect the difficulties. In a competitive no-adjustment cost world, profits are null too in that location are no abnormal stock returns. Stock capitalization may rise, equally firms number stock to invest. But that measures the value of uppercase invested, non the consumer surplus of shale. Still, the full general thought of mixing property pricing, release energy economics, too making economical measurements from stock prices is intriguing.
Jonathan Sokobin, Chief Economist, FINRA presented "An Overview of FINRA Data" which I alas had to miss. I'm delighted anyone from the regime wants us to utilisation their data!
The AP coming together has a dainty tradition. Usually the most tedious purpose of a conference is the author's response to discussant. The AP meetings make away amongst this -- or rather, the writer tin reply if individual inwards the audience raises his or her mitt too says "I'd similar to take away heed your response to x." That genuinely happened! But past times too large the AP meetings save fourth dimension too a tradition of really active participation too discussion, too this i was no different.
Lars Hansen started amongst the latest inwards the Hansen-Sargent ambiguity / robustness work,Sets of Models too Prices of Uncertainty. Stavros Panageas gave a beautiful discussion, complete amongst powerfulness indicate animations. He characterized the newspaper equally a major advance, for reducing the gain of models over which an ambiguous agent looks for the worst instance scenario, too for making that gain state-dependent.
In the application, the agent worries that the hateful increase charge per unit of measurement of consumption too the AR(1) coefficient mightiness travel wrong; a to a greater extent than persistent consumption increase procedure is hurtful, too that hurting is to a greater extent than inwards bad times.
I haven't followed this travel closely enough. I nonetheless wonder what the testable implcations are -- how dissimilar is the property pricing model from i inwards which the truthful consumption increase procedure is but a combat dissimilar from our estimate, inwards the worst possible way?
Still, it's dainty to catch a Nobel Prize winner leading off a conference, too amongst easily the most technical newspaper at that conference, amongst about other i (Rob Engle) inwards the audience. That tells y'all something most the seriousness of this group. Also, this is serious behavioral finance past times whatsoever metric -- a disciplined model of probability misperceptions, which is dainty to see.
Robert Novy-Marx presented Testing Strategies Based on Multiple Signals, discussed past times Moto Yogo. We're all familiar amongst the phenomenon that if y'all essay 10 characteristics too selection the best few to forecast returns, t statistics are biased too functioning falls out of sample.
Robert pointed out that if y'all position those best 3 inwards a portfolio, they diversify each other, reducing the in-sample variance of the portfolio, too boosting Sharpe ratios too t-statistics fifty-fifty further.
Many ``smart beta'' funds are doing this, thus the fall-off inwards functioning from backtest to existent coin is relevant beyond academia.
The extent of this bias is impressive. Here is the distribution of t statistics that results when y'all selection the best iii of twenty completely useless signals, too position them inwards a portfolio. Critical values of iv too v demonstrate upward routinely inwards Robert's calculations.
Laura Veldkamp presented her travel amongst Nina Boyarchenko, David Lucca, too Laura Veldkamp, Taking Orders too Taking Notes: Dealer Information Sharing inwards Financial Markets. Discussed ably (of course) past times Darrell Duffie. Is it a work that the dealers who are the prime number bidders at treasury auctions accept been caught talking to each other ahead of the auction? Surprisingly, no: The Treasury tin come upward out ahead when dealers part information amongst each other, too investors tin potentially come upward out ahead too.
This warms my contrarian economist heart. We know thus piffling most how markets work, too regulators are thus quick to saltation on supposedly bad behavor, it's lovely to catch a clear too convincing model, that explains the variety of second-order too equilibrium effects that economists are skillful at.
Brian Weller presented Measuring Tail Risks at High Frequency, discussed nicely past times Mike Chernov. Brian's basic thought is to run cross-sectional regressions of bid/ask spreads, normalized past times book too depth, on the cross-section of factor betas. Since spreads are larger when dealers are to a greater extent than worried most large jumps, this produces a mensurate of time-varying probability x size of such jumps. The mensurate correlates good amongst the VIX.
Michael Bauer presented his newspaper amongst Jim Hamilton Robust Bond Risk Premia discussed really nicely past times Greg Duffee. (My discussion of a previous presentation). This newspaper is genuinely most whether macro variables attention to forecast bond returns. We're used to "Stambaugh bias:'' if y'all forecast returns amongst a persistent regressor, too the conception inwards the regressor is strongly negatively correlated amongst the conception inwards the return, too thus the near-unit-root downward bias inwards the regressor autocorrelation seeps over into upward bias of provide predictability. But macro variables forecasting bond returns accept innovations nearly uncorrelated amongst the returns, thus that's non much of a problem. Michael too Jim demonstrate about other problem: amongst overlappping returns, t statistics tin travel biased downwards too.
This led to a pleasant reassessment of bond provide forecasts. Some points that came up: econometrics aside, many provide forecasters don't make good out of sample. Many of the issues are specification issues orthogonal to this econometric point. For example, evaluating the huge forecastability of bond returns from a combination of grade too inflation documented past times Anna Cieslak too Pavol Povala, where the forecasters aspect a lot similar a trend, is genuinely most specification too interpretation, non econometrics. I held out the persuasion that the of import purpose of my newspaper amongst Monika Piazzesi is the single-factor construction of expected returns, non whether small-scale chief components attention to forecast returns. We had a pleasant interchange on whether it's a skillful or terrible thought to run one-year horizon forecasting regressions. I similar them, because they attenuate measure error. Raising a weekly autoregression to the 52nd powerfulness yields junk. Greg likes them, too gave a stirring reminder of Bob Hodrick's indicate that y'all tin include lags of the forecasting variables instead.
Nick Roussanov presented his newspaper amongst Erik Gilje too Robert Ready, Fracking, Drilling, too Asset Pricing: Estimating the Economic Benefits of the Shale Revolution with Wei Xiong discussing. They rails the reaction of stock prices to the shale fossil oil boom. In particular, they showed that stocks which rose on a huge shale proclamation later rose fifty-fifty to a greater extent than equally to a greater extent than skillful shale tidings came in. Until, equally Wei pointed out, prices collapsed.
Nick also used stock marketplace value to essay to instruct at an approximate of the economic science benefits of fracking. It's a worthy effort, but let's recollect the difficulties. In a competitive no-adjustment cost world, profits are null too in that location are no abnormal stock returns. Stock capitalization may rise, equally firms number stock to invest. But that measures the value of uppercase invested, non the consumer surplus of shale. Still, the full general thought of mixing property pricing, release energy economics, too making economical measurements from stock prices is intriguing.
Jonathan Sokobin, Chief Economist, FINRA presented "An Overview of FINRA Data" which I alas had to miss. I'm delighted anyone from the regime wants us to utilisation their data!
The AP coming together has a dainty tradition. Usually the most tedious purpose of a conference is the author's response to discussant. The AP meetings make away amongst this -- or rather, the writer tin reply if individual inwards the audience raises his or her mitt too says "I'd similar to take away heed your response to x." That genuinely happened! But past times too large the AP meetings save fourth dimension too a tradition of really active participation too discussion, too this i was no different.
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