Archive for May 5th, 2008

A beginner’s guide to credit default swaps

May 5, 2008

I was just doing some search for material on Credit default swaps. I came across this Beginner’s guide to CDS. Is this for beginners or for highly advanced ? Or the advances in financial markets have become so much that this is actually beginner’s stuff?

Krugman advocates bigger financial crisis in future

May 5, 2008

Paul Krugman in this piece (thanks to Eurointelligence for the tip) in NYT says:

The bad news is that as markets stabilize, chances for fundamental financial reform may be slipping away. As a result, the next crisis will probably be worse than this one.

I am also of this view. I am with Mankiw on this:

The Bear Stearns bailout may have saved the economy from an episode of financial contagion in the short run, but in the long run it will likely leave us with a more regulated and less vibrant financial system.

Stock Broker tips can lead to a Nobel Prize

May 5, 2008

You often come across people who crib about bad the stock-broker tips are. Despite this people often look forward to any tip from their/other’s brokers on which particular stock would rise or fall and make their decisions accordingly.

Though, there is one man who surely cashed on the stock-broker’s tip- Harry Markowitz, the 1990 Nobe Prize Laureate. I came across this fantastic weblink where all the who’s who of finance have discussed history of finance and their contribution to the field.

I was going through this Markowitz transcriptand here is the discussion in brief:(Buser is the interviewer)

BUSER:Tell us a little bit more about how you got this idea for your dissertation topic.You were a graduate student at the time?

MARKOWITZ:         Right.            I was at the stage where I had to pick a dissertation topic.

So I went to my advisor, Professor Jacob Marschak.  He was busy when I got there, so I waited in his ante room.  There was another fellow in the ante room who turned out to be a broker waiting for Marschak.  We chatted while we were there, and he suggested that I should maybe do a dissertation on the stock market.  So I went in.

BUSER:A stockbroker gave you the idea?

MARKOWITZ:         That’s right, a stockbroker.

BUSER:A tip that paid off.

MARKOWITZ:         Yeah.  Some biographer of mine said this was the best advice a stockbroker has ever given.  And I agree…….

This is simply fantastic. I had read this long back in Peter Bernstein’s book- Capital Ideas and thrilling to read Harry confirming this. A stock-broker’s tip that led to development of portfolio theory and subsequently the Nobel Prize!!

Well, actually the stock-broker ideas can really lead to some good research ideas. They can point to some event studies, why certain group of stock moves up/down, etc. This has indeed been the case as we have a lot of research in financial markets which can only shape up witht he help of brokers. Many papers even give the credit to certain stock-broking firm, stock-broker etc. But then the public only seeks them for stock prices, something which is highly random.

Assorted Links

May 5, 2008

1. ID Blog has an excellent poston the subprime lessons for microfinance industry

2. WSJ Blog points Bush says beware of 3 handed economist. Hmm from 2 handed we have become 3 handed

3. PIB points to a burger worth 85 pounds

4. Mankiw says we are going to be more heavily regulated

5. FRB points to this new blog on finance

6. Ajay Shah pointsto a new paper on forex reserves in India


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