Q&A: Recent Deleveraging
Do you think that the current investor deleveraging is playing a significant role in asset pricing? If so, has it been consistent with your views on asset pricing? Is this something we should be really...
View ArticleQ&A: Gold as a Haven?
Should I consider gold as a possible safe haven for some portion of my portfolio? EFF/KRF: The volatility of gold prices (and of commodity prices in general) is much like that of stock returns. Gold is...
View ArticleQ&A: Timing Volatility
Stock market volatility is currently quite high. Does it make sense for investors to get out of the market until volatility settles down? EFF: If the current high volatility makes you permanently...
View ArticleQ&A: T-bills Shift
What would happen if many investors decided to sell their stocks and invest in Treasury bills instead? EFF/KRF: Stock prices would go down and T-bill prices would go up - the usual response of prices...
View ArticleQ&A: The Value of Historical Data
How useful is an approach based on historical data when the current situation appears to be unprecedented? EFF/KRF: Any current situation is always somewhat unprecedented and somewhat old stuff. Large...
View ArticleQ&A: Market Turmoil
Is the market turmoil a sign that markets are not efficient? EFF/KRF: The market turmoil is caused by some combination of (i) quickly fluctuating changes in expected cashflows (future profitability),...
View ArticleQ&A: Regulation
Some people have argued that the turmoil was caused by a lack of government regulation. What do you think? Do we need more regulation? KRF: It is not obvious that financial regulations were weakened...
View ArticleQ&A: Recessions
The US economy is in a recession. Does it make sense to own stocks during a recession? EFF/KRF: There is no evidence that market timing in response to economic events enhances expected returns. The...
View ArticleQ&A: Global Correlations
Have global correlations gone, effectively, to 1? Have cross-country and cross asset-class correlations behaved any differently this time than in previous downturns? EFF/KRF: When market volatility...
View ArticleQ&A: Equilibrium During a Downturn?
The Dow peaked around 14K in October 2007, one year later the Dow went to 7500. Was the market really in equilibrium last October given that it was on the verge of such a steep collapse? How can one...
View ArticleQ&A: Factor Correlations
Are the Fama/French factors more correlated when markets go down? Are value portfolios riskier in bad times? EFF/KRF: The two questions are related. Throughout the period from 1926 to now, small stocks...
View ArticleQ&A: Deflation Hedge
Should I put some portion of my portfolio in long-term US Treasury bonds as a hedge against deflation? EFF/KRF:Â Perhaps, but you would have to put a high probability on deflation. Severe downturns in...
View ArticleQ&A: Securities Lending
Does it make sense to lend securities to speculators who are driving down prices and contributing to the volatility in the markets? Sure, the revenue from lending is nice, but if security lending...
View ArticleQ&A: Stick with Passive Management?
Does passive management makes sense in all market conditions? EFF/KRF: Active management is always a zero sum game, before fees, expenses, and trading costs, regardless of market conditions. If there...
View ArticleQ&A: The Impact of Fiscal Stimulus
What are the possible impacts from the ballooning Federal Reserve balance sheet? Will this necessarily lead to an inflationary environment? Is deflation a possibility? Are there any charts or figures...
View ArticleQ&A: Avoid Firms in Trouble?
It seems obvious now that firms facing extreme financial difficulty should be avoided. EFF: This is a market efficiency question. If firms facing extreme financial difficulty are properly priced to...
View ArticleQ&A: Expected Return and Stimulus Efforts
What can we say about expected return if we do not think the stimulus plan can have positive impact on the economy? EFF/KRF: The recent sharp decline in prices suggests that the market does not think...
View ArticleQ&A: Hedging Inflation with Bonds
Is cash (that is, short-term riskless bonds) a safe investment if we think about future consumption and not about nominal dollars? EFF/KRF: Short-term high grade bonds are a good hedge against...
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