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The three coeditors knew John Butterworth for many years and had
worked closely with him on a number of research projects. We
respected him as a valuable colleague and friend. We were greatly
saddened by his untimely death. This book is an attempt to remember
him. We dedicate the volume to John with thanks for the
contributions he made to our research, to the Faculty of Commerce
and Business Administration at the University of British Columbia,
and to the accounting profession. This volume contains twelve
invited papers on the general topic of the economic theory of
information and contracts. We asked leading scholars who had known
John to contribute papers. The response was very gratifying. The
authors provided us with new strong research papers that should
make a lasting contribution to the accounting and information
economics research literature, and make us all proud to have put
this volume together. The research papers in the volume are in
three sections: information evaluation in multi person conte)l: ts;
contracting in agencies under moral hazard; and contracting in
agencies with private information. We begin part I with Jerry
Feltham's review of John Butterworth's pioneering contributions to
the accounting and information economics literature. This is
followed by an introduction to the papers in the volume and the
papers themselves.
The three coeditors knew John Butterworth for many years and had
worked closely with him on a number of research projects. We
respected him as a valuable colleague and friend. We were greatly
saddened by his untimely death. This book is an attempt to remember
him. We dedicate the volume to John with thanks for the
contributions he made to our research, to the Faculty of Commerce
and Business Administration at the University of British Columbia,
and to the accounting profession. This volume contains twelve
invited papers on the general topic of the economic theory of
information and contracts. We asked leading scholars who had known
John to contribute papers. The response was very gratifying. The
authors provided us with new strong research papers that should
make a lasting contribution to the accounting and information
economics research literature, and make us all proud to have put
this volume together. The research papers in the volume are in
three sections: information evaluation in multi person conte)l: ts;
contracting in agencies under moral hazard; and contracting in
agencies with private information. We begin part I with Jerry
Feltham's review of John Butterworth's pioneering contributions to
the accounting and information economics literature. This is
followed by an introduction to the papers in the volume and the
papers themselves.
Alex Cowie As the twentieth century draws to a close, one of our
greatest problems is the availability of energy. One way to study
the energy problem is to resolve it into four areas; energy demand,
energy sources, transportation of energy from sources to demand
centers, and the optimal allocation of energy forms to demands.
Each of these areas is extremely complex by itself. When efforts
are made to tie them together, for example, to produce a National
Policy, the complexities are compounded. Another way to study the
energy problem, because of its political and so cial consequences,
is to resolve it into geographical areas. Individual prov inces of
Canada or states of the United States will have their concerns
about energy within their geographical boundaries. As producer,
consumer, or both, each wants to ensure an energy development
program which will work to the maximum benefit of its citizens.
Similarly, countries endeavor to pro tect their citizens and
undertake energy policies that will assure either a con tinuation
of the existing quality of life or - particularly in the case of
"Third World" countries - a marked improvement in quality of life.
These competing and conflicting goals call for a study which
encompasses the whole world. Again, complexity is piled upon
complexity. If the prob lem is not yet sufficiently complex, there
is an equally complex question of the effect of energy production
and use on the ecology."
This volume provides the definitive treatment of fortune's formula
or the Kelly capital growth criterion as it is often called. The
strategy is to maximize long run wealth of the investor by
maximizing the period by period expected utility of wealth with a
logarithmic utility function. Mathematical theorems show that only
the log utility function maximizes asymptotic long run wealth and
minimizes the expected time to arbitrary large goals. In general,
the strategy is risky in the short term but as the number of bets
increase, the Kelly bettor's wealth tends to be much larger than
those with essentially different strategies. So most of the time,
the Kelly bettor will have much more wealth than these other
bettors but the Kelly strategy can lead to considerable losses a
small percent of the time. There are ways to reduce this risk at
the cost of lower expected final wealth using fractional Kelly
strategies that blend the Kelly suggested wager with cash. The
various classic reprinted papers and the new ones written
specifically for this volume cover various aspects of the theory
and practice of dynamic investing. Good and bad properties are
discussed, as are fixed-mix and volatility induced growth
strategies. The relationships with utility theory and the use of
these ideas by great investors are featured.
This book is a collection of applications of analytic techniques to
a number of popular sports including baseball, basketball, hockey,
Jai Alai, NFL football and horseracing. We focus on both the
statistics of the sporting events and betting strategies on the
events. The subject is fascinating as there are many twists and
subtle complicated decisions.Sports analytics applies mathematical
and statistical methods to important questions in the structure and
performance of sporting activities using the same basic methods and
approaches as data analysts in other disciplines.Sports games and
events are a fruitful area for study and to evaluate betting
strategies as there is extensive data and mean reversion. With
prices changing continuously, risk arbitrage bets can be made.
Moreover, little errors, like a penalty to a player or an error in
a call by a referee, can change the score of a game and
corresponding betting prices. The collection and analysis of
in-game data can inform players, coaches and staff on effective
decision making during sporting events.Novel features of the book
include: an analysis of who were the greatest baseball batters;
analyses of the players most important to team success (and they
are not necessarily the best players) in basketball, NFL football
and hockey; a tutorial on risk arbitrage and its applications to
NFL football and NBA basketball; a discussion of many ad hoc
decision rules by coaches and players and what was really optimal;
in the racing section we discuss breeding, the analysis of various
bets like the Rainbow and ordinary Pick 6, a discussion and betting
on the most important races and a visit to the Breeders' Cup with
Ed Thorp to demonstrate the place and show system in action.
This book is a collection of applications of analytic techniques to
a number of popular sports including baseball, basketball, hockey,
Jai Alai, NFL football and horseracing. We focus on both the
statistics of the sporting events and betting strategies on the
events. The subject is fascinating as there are many twists and
subtle complicated decisions.Sports analytics applies mathematical
and statistical methods to important questions in the structure and
performance of sporting activities using the same basic methods and
approaches as data analysts in other disciplines.Sports games and
events are a fruitful area for study and to evaluate betting
strategies as there is extensive data and mean reversion. With
prices changing continuously, risk arbitrage bets can be made.
Moreover, little errors, like a penalty to a player or an error in
a call by a referee, can change the score of a game and
corresponding betting prices. The collection and analysis of
in-game data can inform players, coaches and staff on effective
decision making during sporting events.Novel features of the book
include: an analysis of who were the greatest baseball batters;
analyses of the players most important to team success (and they
are not necessarily the best players) in basketball, NFL football
and hockey; a tutorial on risk arbitrage and its applications to
NFL football and NBA basketball; a discussion of many ad hoc
decision rules by coaches and players and what was really optimal;
in the racing section we discuss breeding, the analysis of various
bets like the Rainbow and ordinary Pick 6, a discussion and betting
on the most important races and a visit to the Breeders' Cup with
Ed Thorp to demonstrate the place and show system in action.
This book introduces the readers to the rapidly growing literature
and latest results on financial, fundamental and seasonal
anomalies, stock selection modeling and portfolio management. Fifty
years ago, finance professors taught the Efficient Markets
Hypothesis which states that the average investor could not
outperform the stock market based on technical, seasonal and
fundamental data. Many, if not most faculty and investors, no
longer share that opinion. In this book, the authors report
original empirical evidence that applied investment research can
produce statistically significant stock selection and excess
portfolio returns in the US, and larger excess returns in
international and emerging markets.
This book consists of invaluable introductions, tutorials and
problems which are helpful for teaching purposes and have a very
broad appeal and usage. The problems cover many aspects of static
and dynamic portfolio theory as well as other important subjects
such as arbitrage and asset pricing, utility theory, stochastic
dominance, risk aversion and static portfolio theory, risk
measures, dynamic portfolio theory and asset allocation. This
material could be used with important books that cover these topics
including MacLean-Ziemba's The Handbook of the Fundamentals of
Financial Decision Making, and Ziemba-Vickson's Stochastic
Optimization Models in Finance.
This volume provides the definitive treatment of fortune's formula
or the Kelly capital growth criterion as it is often called. The
strategy is to maximize long run wealth of the investor by
maximizing the period by period expected utility of wealth with a
logarithmic utility function. Mathematical theorems show that only
the log utility function maximizes asymptotic long run wealth and
minimizes the expected time to arbitrary large goals. In general,
the strategy is risky in the short term but as the number of bets
increase, the Kelly bettor's wealth tends to be much larger than
those with essentially different strategies. So most of the time,
the Kelly bettor will have much more wealth than these other
bettors but the Kelly strategy can lead to considerable losses a
small percent of the time. There are ways to reduce this risk at
the cost of lower expected final wealth using fractional Kelly
strategies that blend the Kelly suggested wager with cash. The
various classic reprinted papers and the new ones written
specifically for this volume cover various aspects of the theory
and practice of dynamic investing. Good and bad properties are
discussed, as are fixed-mix and volatility induced growth
strategies. The relationships with utility theory and the use of
these ideas by great investors are featured.
The Handbooks in Finance are intended to be a definitive source for
comprehensive and accessible information in the field of finance.
Each individual volume in the series presents an accurate
self-contained survey of a sub-field of finance, suitable for use
by finance and economics professors and lecturers, professional
researchers, graduate students and as a teaching supplement.
It is fitting that the series Handbooks in Finance devotes a
handbook to Asset and Liability Management. Volume 2 focuses on
applications and case studies in asset and liability management.
The growth in knowledge about practical asset and liability
modeling has followed the popularity of these models in diverse
business settings. This volume portrays ALM in practice, in
contrast to Volume 1, which addresses the theories and
methodologies behind these models. In original articles
practitioners and scholars describe and analyze models used in
banking, insurance, money management, individual investor financial
planning, pension funds, and social security. They put the
traditional purpose of ALM, to control interest rate and liquidity
risks, into rich and broad-minded frameworks. Readers interested in
other business settings will find their discussions of financial
institutions both instructive and revealing.
* Focuses on pragmatic applications
* Relevant to a variety of risk-management industries
* Analyzes models used in most financial sectors
The World Scientific Handbook of Futures Markets serves as a
definitive source for comprehensive and accessible information in
futures markets. The emphasis is on the unique characteristics of
futures markets that make them worthy of a special volume. In our
judgment, futures markets are currently undergoing remarkable
changes as trading is shifting from open outcry to electronic and
as the traditional functions of hedging and speculation are
extended to include futures as an alternative investment vehicle in
traditional portfolios. The unique feature of this volume is the
selection of five classic papers that lay the foundations of the
futures markets and the invitation to the leading academics who do
work in the area to write critical surveys in a dozen important
topics.
The volume provides information on the career and life of Marida
Bertocchi, and is representative of her broad research interests on
the development of numerical algorithms and their applications in
energy, finance and logistics. It includes some of her early
publications, her significant papers on the development and
application of stochastic optimization to financial and logistics
problems, and her later work on robust optimization for risk
management in renewable energy systems, finance and logistics and
modelling mortality risk.
The volume provides information on the career and life of Marida
Bertocchi, and is representative of her broad research interests on
the development of numerical algorithms and their applications in
energy, finance and logistics. It includes some of her early
publications, her significant papers on the development and
application of stochastic optimization to financial and logistics
problems, and her later work on robust optimization for risk
management in renewable energy systems, finance and logistics and
modelling mortality risk.
Over the last three decades, wine economics has emerged as a
growing field within agricultural economics, but also in other
fields such as finance, trade, growth, environmental economics and
industrial organization. Wine has a few characteristics that
differentiate it from other agricultural commodities, rendering it
an interesting topic for economists in general. Fine wine can
regularly fetch bottle prices that exceed several thousand dollars.
It can be stored a long time and may increase in value with age.
Fine wine quality and prices are extraordinarily sensitive to
fluctuations in the weather of the year in which the grapes were
grown. And wine is an experience good, i.e., its quality cannot be
ascertained before consumption. As a result, consumers often rely
on 'expert opinion' regarding quality and maturation prospects.This
handbook takes a broad approach and familiarizes the reader with
the main research strands in wine economics.After a general
introduction to wine economics by Karl Storchmann, Volume 1 focuses
on the core areas of wine economics. The first papers shed light on
the relevance of the vineyard's natural environment for wine
quality and prices. 'Predicting the Quality and Prices of Bordeaux
Wine' by Orley Ashenfelter is a classic paper and may be the first
wine economics publication ever. Ashenfelter shows how weather
influences the quality and the price of Bordeaux Grands Crus wine.
Since the weather condition of the year when the grapes were grown
is known, an econometric analysis may be constructed. It turns out
this model outperforms expert opinion, i.e., critical vintage
scores. At best, expert opinion reflects public information. The
subsequent papers, by Ashenfelter and Storchmann, Gergaud and
Ginsburgh, and Cross, Plantinga and Stavins, tackle the terroir
question. That is, they examine the relevance of a vineyard's
physical characteristics for wine quality and prices, but from
various dimensions and with different results. Next, Alston et al.
analyze a question of great concern in the California wine
industry: the causes and consequences of the rising alcohol content
in California wine. Is climate change the culprit?The next chapter
presents three papers that apply hedonic price analyses to fine
wine. Combris, Lecocq and Visser show that Bordeaux wine market
prices are essentially determined by the wines' objective
characteristics. Costanigro, McCluskey and Mittelhammer
differentiate their hedonic analysis for various market segments.
Ali and Nauges incorporate reputational variables into their
pricing model and distinguish between short- and long-run price
effects.The next section of this volume deals with one of the
unique characteristics of wine - its long storage life, which makes
it potentially an investment asset. Studying wine's increasing role
as an alternative asset class, Sanning et al., Burton and Jacobsen,
Masset and Weisskopf, Masset and Henderson, and Fogarty all examine
the rate of return to holding wine as well as the related risks.
Since these papers analyze different wines and different time
periods there is no 'one message.' However, all point out that,
while wine may diversify an investor's portfolio, wine's returns do
not beat common stock in the long run.The last two chapters examine
the role of wine experts. First, Ashenfelter and Quandt revisit the
1976 'Judgment of Paris' and show that aggregating the assessments
of several judges should go beyond 'adding points.' Depending on
the method employed, the results may vary, and some measure of
statistical precision is essential for interpreting the reliability
of the results. In two different papers, Cicchetti and Quandt
respond to the necessity to provide statistical tools for the
assessment of wine tastings.In a seminal paper, Hodgson reports a
remarkable field experiment in which similar wines were placed
before judges at a major competition. The results have the shocking
implication that how medals are awarded at a major California wine
fair is not far from being random. Ashton analyzes the performance
of professional wine judges and finds little support for the idea
that experienced wine judges should be regarded as experts.Do
experts scores influence the price of wine? The answer to this
question is less obvious then commonly thought since expert opinion
oftentimes only repeats public information such as wine quality
that results from the weather that produced the wine grapes. Hadj
Ali, Lecocq, and Visser as well as Dubois and Nauges find that high
critical scores exert only small effects on wine prices. However,
Roberts and Reagans show that a high critical exposure reduces the
price-quality dispersion of wineries.Lecocq and Visser analyze wine
prices and find that 'characteristics that are directly revealed to
the consumer upon inspection of the bottle and its label explain
the major part of price differences.' Expert opinion and sensory
variables appear to play only a minor role. In an experimental
setting using two Vickrey auctions, Combris, Lange and Issanchou
confirm the leading role of public information, i.e., the label
remains a key determinant for champagne prices. In a provocative
and widely discussed study drawing on blind tasting results of some
5,000 wines, Goldstein and collaborators find that most consumers
prefer less expensive over expensive wine.Finally, Weil examines
the value of expert wine descriptions and lets several hundred
subjects match the wines and their descriptors. His results suggest
that the ability to assign a certain description to the matching
wine is more or less random.Volume 2 covers the topics reputation,
regulation, auctions, and market organizational. Landon and Smith,
Anderson and Schamel, and Schamel analyze the impact of current
quality and reputation (i.e., past quality) on wine prices from
different regions. Their results suggest that prices are more
influenced by reputation than by current quality. Costanigro,
McCluskey and Goemans develop a nested framework for jointly
examining the effects of product, firm and collective reputation on
market prices.The following four papers deal with regulatory issues
in the US as well as in Europe. While Riekoff and Sykuta shed light
on the politics and economics of the three-tier system of alcohol
distribution and the prohibition of direct wine shipments in the
US, Deconinck and Swinnen analyze the European planting rights
system. The political economy of European wine regulation is then
covered by Melonie and Swinnen, before Anderson and Jensen shed
light on Europe's complex system of wine industry subsidies.The
next chapter is devoted to wine auctions. In three different
papers, Fevrier, Roos and Visser, Ashenfelter, and Ginsburgh
analyze the effects of specific auction designs on the resulting
hammer prices. The papers focus on multi-unit ascending auctions,
absentee bidders, and declining price anomalies.The last chapter,
supply and organization, is devoted to a wide range of issues.
First, Heien illuminates the price formation process in the
California winegrape industry. Then, Frick analyzes if and how the
separation of ownership and control affects the performance of
German wineries.Vink, Kleynhans and Willem Hoffmann introduce us to
various models of wine barrel financing, particularly to the
Vincorp model employed in South Africa. Galbreath analyzes the role
of women in the wine industry. He finds that (1) women are
underrepresented and (2) that the presence of a female CEO
increases the likelihood of women in winemaker, viticulturist, and
marketing roles in that firm. Gokcekus, Hewstone, and Cakal draw on
crowdsourced wine evaluations, i.e., Wine Tracker data, and show
that private wine assessments are largely influenced by peer scores
lending support to the assumption of the presence of a strong
herding effect.Mahenc refers to the classic model of information
asymmetries and develops a theoretical model highlighting the role
of informed buyers in markets that are susceptible to the lemons
problem. Lastly, in their paper 'Love or Money?' Scott, Morton and
Podolny analyze how the presence of hobby winemakers may distort
market outcomes. Hobby winemakers produce higher quality wines,
charge higher prices, and enjoy lower financial returns than
professional for-profit winemakers. As a result, profit-oriented
winemakers are discouraged from locating at the high-quality end of
the market.
This book introduces the readers to the rapidly growing literature
and latest results on financial, fundamental and seasonal
anomalies, stock selection modeling and portfolio management. Fifty
years ago, finance professors taught the Efficient Markets
Hypothesis which states that the average investor could not
outperform the stock market based on technical, seasonal and
fundamental data. Many, if not most faculty and investors, no
longer share that opinion. In this book, the authors report
original empirical evidence that applied investment research can
produce statistically significant stock selection and excess
portfolio returns in the US, and larger excess returns in
international and emerging markets.
Exotic Betting at the Racetrack is unique as it covers the
efficient-inefficient strategy to price and find profitable
racetrack bets, along with handicapping that provides actual bets
made by the author on essentially all of the major wagers offered
at US racetracks. The book starts with efficiency, accuracy of the
win odds, arbitrage, and optimal betting strategies. Examples and
actual bets are shown for various wagers including win, place and
show, exacta, quinella, double, trifecta, superfecta, Pick 3, 4 and
6 and rainbow pick 5 and 6. There are discussions of major races
including the Breeders' Cup, Pegasus, Dubai World Cup and the US
Triple Crown from 2012-2018. Dosage analysis is also described and
used. An additional feature concerns great horses such as the great
mares Rachel Alexandra, Zenyatta, Goldikova, Treve, Beholder and
Song Bird. There is a discussion of horse ownership and a tour
through arguably the world's top trainer Frederico Tesio and his
stables and horses in Italy.Related Link(s)
This guidebook presents historical and new material to assist the
reader to understand NFL game strategies and provides a winning
betting strategy. The authors, William Ziemba and Leonard MacLean
are professors, traders, financial analysts and sports enthusiasts.
They covered ideas like the game's strategies, and shared their
wealth of personal experience analyzing the regular season, the
playoffs and the Super Bowls in the years 2010-2017. The results of
their actual betting for the 2009-10 to the 2017-18 seasons are
provided. The authors concluded the book with a forecast for the
2018-2019 season. They determine the players most valuable to win
the games, discuss crucial decisions and provide prediction
methodology. The authors concluded with a forecast of the top
teams, players and odds to win the 53rd Super Bowl.
This guidebook presents historical and new material to assist the
reader to understand NFL game strategies and provides a winning
betting strategy. The authors, William Ziemba and Leonard MacLean
are professors, traders, financial analysts and sports enthusiasts.
They covered ideas like the game's strategies, and shared their
wealth of personal experience analyzing the regular season, the
playoffs and the Super Bowls in the years 2010-2017. The results of
their actual betting for the 2009-10 to the 2017-18 seasons are
provided. The authors concluded the book with a forecast for the
2018-2019 season. They determine the players most valuable to win
the games, discuss crucial decisions and provide prediction
methodology. The authors concluded with a forecast of the top
teams, players and odds to win the 53rd Super Bowl.
Exotic Betting at the Racetrack is unique as it covers the
efficient-inefficient strategy to price and find profitable
racetrack bets, along with handicapping that provides actual bets
made by the author on essentially all of the major wagers offered
at US racetracks. The book starts with efficiency, accuracy of the
win odds, arbitrage, and optimal betting strategies. Examples and
actual bets are shown for various wagers including win, place and
show, exacta, quinella, double, trifecta, superfecta, Pick 3, 4 and
6 and rainbow pick 5 and 6. There are discussions of major races
including the Breeders' Cup, Pegasus, Dubai World Cup and the US
Triple Crown from 2012-2018. Dosage analysis is also described and
used. An additional feature concerns great horses such as the great
mares Rachel Alexandra, Zenyatta, Goldikova, Treve, Beholder and
Song Bird. There is a discussion of horse ownership and a tour
through arguably the world's top trainer Frederico Tesio and his
stables and horses in Italy.Related Link(s)
This book tells the story of how financial markets have evolved
over time and became increasingly more complex. The author, a
successful and experienced trader, who among other things won the
2015 battle of the quants futures contest held in New York, shares
how one can navigate today's dangerous financial markets and be
successful. Readers at all levels will benefit from his analysis
and many real life examples and experiences. The coverage is broad
and there is considerable discussion on ways to stay out of
trouble, protect oneself and grow one's assets. The author was the
first one to do turn of the year January effect trades in the
futures markets starting in the beginning of S&P 500 futures
trading in 1982. That has been successful and the author explains
his ideas and experiences from the beginning in simple markets to
the current, very complex markets we have in 2017.The author
discusses the various ways that traders and investors lose money in
the financial markets. Many examples are provided, including Long
Term Capital Management, ENRON, Amarath, Neiderhoffer's funds and
many major companies such as Lehman Brothers, Society Generale,
Saloman Brothers. This is invaluable to understanding ways to avoid
such losses.The author discusses great investors, their methods and
evaluation and the authors' work with several of them. Risk
arbitrage and mean reversion strategies are described through
actual use. Asset-liability models for pension funds, insurance
companies and other financial institutions devised by the author
are described. The author uses racetrack bias ideas in behavorial
finance in trading index futures and options. Large stock market
crashes that can be predicted are discussed with several models of
the author and others. Many mini crashes including the
January-February 2016, Brexit, Trump and French elections that are
plausible but largely unpredictable are described and how they were
dealt with successfully.Along with ways to deal with them,
investment in top quality racehorses, oriental carpets, real estate
and other interesting investments are covered. The author was
instrumental in viewing racing as a stock market. The ideas are
used by the top racing syndicates as well as hedge funds.The book
proceeds by weaving these aspects of the financial markets in the
modern era into a story of the author's academic, professional and
personal life. This is told through the people he met and worked
with and the academic and personal travel he had all over the world
this past half century. The text is simply written with details,
sources and references in the notes of each chapter. Details of
various important events and how they evolved are described. There
are numerous color and black and white photos in the text plus
graphs, tables etc. in the notes to tell the story. The teaching
and research into various financial and gambling markets takes the
reader to interesting places around the world. These include the US
and its many stock market ups and downs, Japan when they were
ruling the financial world and then they collapsed, the UK visits
with lectures, teaching and research work at their great
Universities including Cambridge and Oxford, Europe with many
activities in France, Italy, Germany and other places, to Asia
including discussions about travels to Persia, Turkey, Singapore,
Korea, China, Afghanistan, Russia and other countries. Also
discussed are visits to U.S. universities including Chicago, MIT,
Berkeley, UCLA and Washington. His work with horse racing
syndicates took him to Australia and Hong Kong. Crises like those
in Greece, US housing and internet and the flash crash are
discussed.
'Overall, the book provides an interesting and useful synthesis of
the authorsaEURO (TM) research on the predictions of stock market
crashes. The book can be recommended to anyone interested in the
Bond Stock Earnings Yield Differential model, and similar methods
to predict crashes.'Quantitative FinanceThis book presents studies
of stock market crashes big and small that occur from bubbles
bursting or other reasons. By a bubble we mean that prices are
rising just because they are rising and that prices exceed
fundamental values. A bubble can be a large rise in prices followed
by a steep fall. The focus is on determining if a bubble actually
exists, on models to predict stock market declines in bubble-like
markets and exit strategies from these bubble-like markets. We list
historical great bubbles of various markets over hundreds of
years.We present four models that have been successful in
predicting large stock market declines of ten percent plus that
average about minus twenty-five percent. The bond stock earnings
yield difference model was based on the 1987 US crash where the
S&P 500 futures fell 29% in one day. The model is based on
earnings yields relative to interest rates. When interest rates
become too high relative to earnings, there almost always is a
decline in four to twelve months. The initial out of sample test
was on the Japanese stock market from 1948-88. There all twelve
danger signals produced correct decline signals. But there were
eight other ten percent plus declines that occurred for other
reasons. Then the model called the 1990 Japan huge -56% decline. We
show various later applications of the model to US stock declines
such as in 2000 and 2007 and to the Chinese stock market. We also
compare the model with high price earnings decline predictions over
a sixty year period in the US. We show that over twenty year
periods that have high returns they all start with low price
earnings ratios and end with high ratios. High price earnings
models have predictive value and the BSEYD models predict even
better. Other large decline prediction models are call option
prices exceeding put prices, Warren Buffett's value of the stock
market to the value of the economy adjusted using BSEYD ideas and
the value of Sotheby's stock. Investors expect more declines than
actually occur. We present research on the positive effects of FOMC
meetings and small cap dominance with Democratic Presidents. Marty
Zweig was a wall street legend while he was alive. We discuss his
methods for stock market predictability using momentum and FED
actions. These helped him become the leading analyst and we show
that his ideas still give useful predictions in 2016-2017. We study
small declines in the five to fifteen percent range that are either
not expected or are expected but when is not clear. For these we
present methods to deal with these situations.The last four
January-February 2016, Brexit, Trump and French elections are
analzyed using simple volatility-S&P 500 graphs. Another very
important issue is can you exit bubble-like markets at favorable
prices. We use a stopping rule model that gives very good exit
results. This is applied successfully to Apple computer stock in
2012, the Nasdaq 100 in 2000, the Japanese stock and golf course
membership prices, the US stock market in 1929 and 1987 and other
markets. We also show how to incorporate predictive models into
stochastic investment models.
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