of Capitalism! This is a page of "market quotes" though not of the usual kind.
J.P. Morgan had it down. When asked what he expected the market to do in the coming year, he said
"Prices will fluctuate."
Naturally, if Morgan had known about GARCH he would surely have added then (as I would now):
"Moreover, periods of larger fluctuations and periods of smaller fluctuations will exhibit more clumping that would be expected by chance alone."
For more on Morgan, see my Mineral Rights page.
"By Financial Time Series in contrast to Time Series, do you mean 'series that have no signal' compared with 'series that may have signal' ?" --- Adi Wyner, Faculty Meeting, December 8, 2006.
Adi and I have logged hundreds of hours of conversation circling around the fundamental fact that even the best and wisest tools only offer us only the faintest shadow of future asset returns. Still, to see a shadow seems better than to see nothing at all. Besides, there is much more to financial time series than the hard scrabble of forecasting returns.
of Capitalism! "I was asked once by a fellow who owns a lot of rentals if I knew the best time to raise rents. He told me --- at Christmas time!
People cannot afford to move then."
--- from an essay by Alan Millhone (found at dailyspeculations.com)
The problem arises from the fact that, if policymakers do not react sufficiently aggressively to increases in inflation, spontaneously arising expectations of increased inflation can ultimately be self-confirming and even self-reinforcing. --- Ben Bernanke (Speech, 2004)
"The empirical history of option pricing, therefore, falls into three distinct phases. First is the phase prior to the opening of the CBOE and in its first year or so, when there were substantial differences between observed prices and Black-Scholes values. The second is a phase that had begun by 1976 and lasted until summer 1987, in which the Black-Scholes-Merton model was an excellent fit to observed prices. Third is a phase from autumn 1987 to the present, when the model’s fit has again been poor, especially for index options, in the crucial matter of the relationship between strike price and implied volatility."
MacKenzie, Donald and Yuval Millo (2003). "Constructing a Market, Performing Theory: The Historical Sociology of a Financial Derivatives Exchange," American Journal of Sociology 109 (1): 107--145.
"There are many statistical measures to forecast volatility. The book by F.X. Diebold, “The Elements of Forecasting” is excellent in this regard. " ---- from an interview with Victor Niederhoffer.
Niederhoffer also observed (possibly while sober): "We also believe that the study and philosophy of barbecue contributes much to the speculator's understanding of markets."
Ken Fisher is a money manager and a self-made billionaire who is also a prolific writer. He has done a zillion columns for Forbes Magazine, and he has written several instructive books. In his most recent book he generously says, " If you get nothing else out of my book except to go to ABEbooks.com and get a copy of Huff's book, my book will have been well worth your time." (The Only Three Questions that Count, Wiley 2006, page 130).
On this point it is easy to agree with Fisher, and, if you want to have some additional perspective, you may want to check out my piece Darrell Huff and Fifty Years of How to Lie with Statistics, Statistical Science, 20 (2005), 205--209.
"The fraction of U.S. Federal Reserve notes held abroad rose from under 20 percent in 1980 to almost 50 percent in the late 1990s." ---- Randall Kroszner (FRB Speech)
"If Dow Jones & Co. had included dividend returns in the DJIA when it was reformed in 1928, the index would be over 250,000 today." ---- John B. Shoven in The Dow Jones Industrial Average: The Impact of Fixing its Flaws (2006)
"Property rights expert Hernando de Soto once estimated that 4 billion poor people in the Third World and former communist nations owned $9 trillion worth of real estate. But because of insecure property rights, those assets were dead assets. Imagine what would happen to the global economy if even a fraction of that $9 trillion were liberated. " --- Steve Forbes (4.9.07)
Liberate $9 Trillion? Cool. Can I have some?
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