Don't invest in mutual funds

Here are two quotes from "New Facts in Finance, J. Cochrane, Chicago Fed 99".

Thus, if there is skill in stock picking, we should see some persistence in fund performance. However, a generation of empirical work found no persistence at all. Funds that did well in the past were no more likely to do well in the future.

and

Since the average fund underperforms the market, and fund returns are not predictable, we conclude that active management does not generate superior performance, especially after transaction costs and fees. This fact is surprising. Professionals in almost any field do better than amateurs. One would expect that a trained experienced professional who spends all day reading about markets and stocks should be able to outperform simple indexing strategies

Why the hell do people keep on putting their money in? There are virtually no transaction costs associated with looking up this information. It's even on Wikipedia. Where is the rationality?

Supply and Demand: Champagne!

In this article from the Telegraph, an interesting example concerning the "law of demand and supply" applied to the Champagne. As these two articles from "The economist" further explain, the drop in demand from all over the world (see the graph) started because of the crisis



and the glut of supply built up in recent years (when demand was booming), will likely determine a slash in price, more likely by Christmas, which is typically the season with higher consumption. For those who love sparkling win...ehm, Champagne, you should be able to get good deals, unless you were already into Prosecco and liked it.

The Dude and Time Series Econometrics

To some of us doing the Gerzensee Study Program, he's informally known as 'The Dude' (not to be confused with the one from the film The Big Lebowski). But to the rest of the world he's more well known as Mark Watson, Professor of Economics and Public Affairs at Princeton University.

One of the foremost academic macroeconometricians in the world, Watson has written extensively on a wide variety of topics. This morning I was watching the first in a series of lectures he gave (together with his coauthor Professor James Stock) at the NBER Summer Institute in 2008 concerning 'What's New In Time Series Econometrics'. Here Watson and Stock serve up a veritable alphabet soup - SVAR, HAC, DSGE, IV and MCMC - as well as other interesting topics such as forecasting with many predictors and time varying models.

For anyone doing time series, these lectures are a must!!

How to define a graduate student?

Proposition :

If you are a graduate student, Wikipedia cannot answer all of your questions.

Proof:

Can't you see it dammit?

.........................................................................

It's truly sad part of life. My life is in ruins, what can I rely on for help if not on Wikipedia? ...

World Bank Bums

Ever been to DC? Then you might have been surprised by the large number of homeless people. In particular, you may have noticed a group of homeless people living in the small park in front of the World Bank. It is somewhat ironic that the largest poverty-fighting institution in the world faces severe poverty on its own doorsteps. Everybody at the Bank or the Fund knows them, seeing them on the way to work (or from their windows) every day. I am wondering whether the Bank has ever tried to do something to help them, e.g. via initiatives such as “Pimp this Bum”. I am also wondering why there is barely any research on homeless people in the US or Europe, while there are tons of papers on poverty in Africa or Asia.

Why travel thousands of miles to conduct yet another wildly expensive field survey in Uganda or Indonesia, while so much remains to be understood about the most disenfranchised segments of our own societies? Put differently: Why not conduct randomized field experiments with the bums on Pennsylvania Avenue, instead of doing the 50th one in Kigali?


P.S. I have just found a small economic literature on homelessness (e.g. here), although none of it seems to be based on such detailed data as available to development researchers.

The typical African family

"...the typical African family consists of a wife-beating alcoholic male and starving refugee females raped by child soldiers, soon after massacred by the janjaweed just before they would have died of AIDS anyway."

from sarcastic Bill.

RDB monthly update

Here are just a few updates before the RDB's second quarterly report to be released on October 1st 2009.

Watching Bill Easterly

Is Jeffrey Sachs behind this?

Trust is built by a competitive environment

The study of culture and economics has become super interesting as recent methods to identify causality (use the culture of second generation migrants, natural experiments etc…) have shown that in many ways culture affects economic outcomes and is quite persistent. But if this was the whole story poverty would be irremediable…there must be a way to change culture…

Recently I have been way more interested in what shapes culture than in how culture shapes outcomes, mostly inspired by Ha Joon Chang who reminded us that the Japanese were once perceived as lazy and the Germans as thieves.

So how do economic institutions cause culture? This Vox column reminds us “Montesquieu had argued that markets themselves created civilised people. But early in the 20th century, the sociologist, Georg Simmel argued that it’s not markets per se that lead to good culture, but market competition. Uncompetitive markets would not build it, but competitors pitted against each other in a quest for market share would”. This is the hypothesis explored by the underlying paper.

Using a US natural experiment where financial deregulation happened at different times across states and created more competition, it shows that increased sectoral competitiveness increased trust levels at the state level. It also shows that workers whose firms are located in competitive sectors have higher trust levels. It is quite convincing in arguing against the possibility of selection and omitted factor bias and in explaining that trust is built when working in a competitive environment.