Nber Ap
On Fri I attended the NBER Asset Pricing coming together (program here) in Chicago, organized yesteryear Adrien Verdelhan together with Debby Lucas. The papers were unusually interesting, fifty-fifty yesteryear the high standards of this meeting. Alas the NBER doesn't post slides hence I don't bring nifty visuals to present you.
Lars Hansen started amongst the latest inwards the Hansen-Sargent ambiguity / robustness work,Sets of Models together with 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, together with for making that gain state-dependent.
In the application, the agent worries that the hateful increment charge per unit of measurement of consumption together with the AR(1) coefficient mightiness last wrong; a to a greater extent than persistent consumption increment procedure is hurtful, together with that hurting is to a greater extent than inwards bad times.
I haven't followed this operate closely enough. I nevertheless wonder what the testable implcations are -- how dissimilar is the property pricing model from 1 inwards which the truthful consumption increment procedure is but a flake dissimilar from our estimate, inwards the worst possible way?
Still, it's prissy to regard a Nobel Prize winner leading off a conference, together with amongst easily the most technical newspaper at that conference, amongst but about other 1 (Rob Engle) inwards the audience. That tells y'all something almost the seriousness of this group. Also, this is serious behavioral finance yesteryear whatever metric -- a disciplined model of probability misperceptions, which is prissy to see.
Robert Novy-Marx presented Testing Strategies Based on Multiple Signals, discussed yesteryear Moto Yogo. We're all familiar amongst the phenomenon that if y'all attempt 10 characteristics together with selection the best few to forecast returns, t statistics are biased together with functioning falls out of sample.
Robert pointed out that if y'all seat those best 3 inwards a portfolio, they diversify each other, reducing the in-sample variance of the portfolio, together with boosting Sharpe ratios together with t-statistics fifty-fifty further.
Many ``smart beta'' funds are doing this, hence 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 xx completely useless signals, together with seat them inwards a portfolio. Critical values of iv together with v present upwards routinely inwards Robert's calculations.
Laura Veldkamp presented her operate amongst Nina Boyarchenko, David Lucca, together with Laura Veldkamp, Taking Orders together with Taking Notes: Dealer Information Sharing inwards Financial Markets. Discussed ably (of course) yesteryear Darrell Duffie. Is it a job that the dealers who are the prime number bidders at treasury auctions bring been caught talking to each other ahead of the auction? Surprisingly, no: The Treasury tin come upwards out ahead when dealers percentage information amongst each other, together with investors tin potentially come upwards out ahead too.
This warms my contrarian economist heart. We know hence picayune almost how markets work, together with regulators are hence quick to saltation on supposedly bad behavor, it's lovely to regard a clear together with convincing model, that explains the sort of second-order together with equilibrium effects that economists are skilful at.
Brian Weller presented Measuring Tail Risks at High Frequency, discussed nicely yesteryear Mike Chernov. Brian's basic thought is to run cross-sectional regressions of bid/ask spreads, normalized yesteryear book together with depth, on the cross-section of factor betas. Since spreads are larger when dealers are to a greater extent than worried almost 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 yesteryear Greg Duffee. (My discussion of a previous presentation). This newspaper is truly almost whether macro variables assistance to forecast bond returns. We're used to "Stambaugh bias:'' if y'all forecast returns amongst a persistent regressor, together with the conception inwards the regressor is strongly negatively correlated amongst the conception inwards the return, together with hence the near-unit-root downward bias inwards the regressor autocorrelation seeps over into upward bias of supply predictability. But macro variables forecasting bond returns bring innovations nearly uncorrelated amongst the returns, hence that's non much of a problem. Michael together with Jim present but about other problem: amongst overlappping returns, t statistics tin last biased downwardly too.
This led to a pleasant reassessment of bond supply forecasts. Some points that came up: econometrics aside, many supply 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 degree together with inflation documented yesteryear Anna Cieslak together with Pavol Povala, where the forecasters human face a lot similar a trend, is truly almost specification together with interpretation, non econometrics. I held out the persuasion that the of import work of my newspaper amongst Monika Piazzesi is the single-factor construction of expected returns, non whether small-scale primary components assistance to forecast returns. We had a pleasant interchange on whether it's a skilful 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, together with 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 together with Robert Ready, Fracking, Drilling, together with Asset Pricing: Estimating the Economic Benefits of the Shale Revolution with Wei Xiong discussing. They rails the reaction of stock prices to the shale crude oil boom. In particular, they showed that stocks which rose on a huge shale proclamation later on rose fifty-fifty to a greater extent than equally to a greater extent than skilful shale tidings came in. Until, equally Wei pointed out, prices collapsed.
Nick also used stock marketplace value to attempt to teach at an guess of the economic science benefits of fracking. It's a worthy effort, but let's recall the difficulties. In a competitive no-adjustment cost world, profits are null together with at that spot are no abnormal stock returns. Stock capitalization may rise, equally firms number stock to invest. But that measures the value of upper-case missive of the alphabet invested, non the consumer surplus of shale. Still, the full general thought of mixing property pricing, loose energy economics, together with 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 authorities wants us to work their data!
The AP coming together has a prissy tradition. Usually the most tiresome work of a conference is the author's response to discussant. The AP meetings make away amongst this -- or rather, the writer tin response if mortal inwards the audience raises his or her manus together with says "I'd similar to remove heed your response to x." That truly happened! But yesteryear together with large the AP meetings save fourth dimension together with a tradition of really active participation together with discussion, together with this 1 was no different.
Lars Hansen started amongst the latest inwards the Hansen-Sargent ambiguity / robustness work,Sets of Models together with 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, together with for making that gain state-dependent.
In the application, the agent worries that the hateful increment charge per unit of measurement of consumption together with the AR(1) coefficient mightiness last wrong; a to a greater extent than persistent consumption increment procedure is hurtful, together with that hurting is to a greater extent than inwards bad times.
I haven't followed this operate closely enough. I nevertheless wonder what the testable implcations are -- how dissimilar is the property pricing model from 1 inwards which the truthful consumption increment procedure is but a flake dissimilar from our estimate, inwards the worst possible way?
Still, it's prissy to regard a Nobel Prize winner leading off a conference, together with amongst easily the most technical newspaper at that conference, amongst but about other 1 (Rob Engle) inwards the audience. That tells y'all something almost the seriousness of this group. Also, this is serious behavioral finance yesteryear whatever metric -- a disciplined model of probability misperceptions, which is prissy to see.
Robert Novy-Marx presented Testing Strategies Based on Multiple Signals, discussed yesteryear Moto Yogo. We're all familiar amongst the phenomenon that if y'all attempt 10 characteristics together with selection the best few to forecast returns, t statistics are biased together with functioning falls out of sample.
Robert pointed out that if y'all seat those best 3 inwards a portfolio, they diversify each other, reducing the in-sample variance of the portfolio, together with boosting Sharpe ratios together with t-statistics fifty-fifty further.
Many ``smart beta'' funds are doing this, hence 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 xx completely useless signals, together with seat them inwards a portfolio. Critical values of iv together with v present upwards routinely inwards Robert's calculations.
Laura Veldkamp presented her operate amongst Nina Boyarchenko, David Lucca, together with Laura Veldkamp, Taking Orders together with Taking Notes: Dealer Information Sharing inwards Financial Markets. Discussed ably (of course) yesteryear Darrell Duffie. Is it a job that the dealers who are the prime number bidders at treasury auctions bring been caught talking to each other ahead of the auction? Surprisingly, no: The Treasury tin come upwards out ahead when dealers percentage information amongst each other, together with investors tin potentially come upwards out ahead too.
This warms my contrarian economist heart. We know hence picayune almost how markets work, together with regulators are hence quick to saltation on supposedly bad behavor, it's lovely to regard a clear together with convincing model, that explains the sort of second-order together with equilibrium effects that economists are skilful at.
Brian Weller presented Measuring Tail Risks at High Frequency, discussed nicely yesteryear Mike Chernov. Brian's basic thought is to run cross-sectional regressions of bid/ask spreads, normalized yesteryear book together with depth, on the cross-section of factor betas. Since spreads are larger when dealers are to a greater extent than worried almost 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 yesteryear Greg Duffee. (My discussion of a previous presentation). This newspaper is truly almost whether macro variables assistance to forecast bond returns. We're used to "Stambaugh bias:'' if y'all forecast returns amongst a persistent regressor, together with the conception inwards the regressor is strongly negatively correlated amongst the conception inwards the return, together with hence the near-unit-root downward bias inwards the regressor autocorrelation seeps over into upward bias of supply predictability. But macro variables forecasting bond returns bring innovations nearly uncorrelated amongst the returns, hence that's non much of a problem. Michael together with Jim present but about other problem: amongst overlappping returns, t statistics tin last biased downwardly too.
This led to a pleasant reassessment of bond supply forecasts. Some points that came up: econometrics aside, many supply 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 degree together with inflation documented yesteryear Anna Cieslak together with Pavol Povala, where the forecasters human face a lot similar a trend, is truly almost specification together with interpretation, non econometrics. I held out the persuasion that the of import work of my newspaper amongst Monika Piazzesi is the single-factor construction of expected returns, non whether small-scale primary components assistance to forecast returns. We had a pleasant interchange on whether it's a skilful 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, together with 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 together with Robert Ready, Fracking, Drilling, together with Asset Pricing: Estimating the Economic Benefits of the Shale Revolution with Wei Xiong discussing. They rails the reaction of stock prices to the shale crude oil boom. In particular, they showed that stocks which rose on a huge shale proclamation later on rose fifty-fifty to a greater extent than equally to a greater extent than skilful shale tidings came in. Until, equally Wei pointed out, prices collapsed.
Nick also used stock marketplace value to attempt to teach at an guess of the economic science benefits of fracking. It's a worthy effort, but let's recall the difficulties. In a competitive no-adjustment cost world, profits are null together with at that spot are no abnormal stock returns. Stock capitalization may rise, equally firms number stock to invest. But that measures the value of upper-case missive of the alphabet invested, non the consumer surplus of shale. Still, the full general thought of mixing property pricing, loose energy economics, together with 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 authorities wants us to work their data!
The AP coming together has a prissy tradition. Usually the most tiresome work of a conference is the author's response to discussant. The AP meetings make away amongst this -- or rather, the writer tin response if mortal inwards the audience raises his or her manus together with says "I'd similar to remove heed your response to x." That truly happened! But yesteryear together with large the AP meetings save fourth dimension together with a tradition of really active participation together with discussion, together with this 1 was no different.
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