Archive for the ‘finance’ Category

Stock Market Returns and Risk: Returns from Various Years until 2013

July 23rd, 2013 1 comment

I’ve posted as a blog permanent “page”, a memo on “Stock Market Returns and Risk: Returns from Various Years until 2013.” I’ll repeat it here as a blog post.

This is a memo I wrote for the directors of Bloomington’s Lighthouse Christian Academy to aid them in thinking about whether it was worth putting capital account funds into the stock market, which has higher returns but also might result in a loss. It is useful for anyone wanting to know the average return on the stock market.

June 19, 2013
What investment is prudent for LCA?

Suppose LCA had $100,000 in a given year and had invested it in the S+P 500, 500 very big companies’ stock, until May 2013. What would have become of it? What would be its annual return?

S+P returns (dividends reinvested) from the given year until 2013, annualized and total, May to May:

1963: 9.7%
1973: 10.3
1983: 10.6
1993: 8.7
Read more…

Categories: decisionmaking, discounting, finance, g406 Tags:

Wilson, Harding, and How to Use Deep Pockets to Look Like a Financial Genius

June 27th, 2009 No comments

Scott Sumner has a good blog entry on two subjects:

1. Why Wilson was a rotten President and Harding was a good one.

2. How to have a 99% chance of seeming to be a financial genius like Keynes. The secret is to do double-or-nothing trades for long enough, and to have deep pockets. The 1% chance is that you lose everything, though.

Categories: finance, harding, history, wilson Tags:

November 27th, 2007 No comments

Downward Sloping Demand Curves for Stocks. Marzena Rostek presented “Frequent Trading and Price Impact in Thin Markets,” (with Marek Weretka)today at Nuffield. It’s a simple approach to downward-sloping demands for assets. Suppose there are a number of traders with CARA utility functions and stock returns are normal, so the traders care only about mean and variance. Each trader holds some portfolio of stocks. He would like to diversify, but if he puts some of his stock on the market, he has market power and will push down the price, since other people will have to be paid to hold more of that kind of risk. As a result, he will hold back some of the stock rather than diversify fully. Also, in way I do not fully understand this can explain splitting a trade up across periods. It is not for informational reasons– there is full information in this model– but because if I try to trade more of my stock in a period, I will drive down the price, keeping other people’s quantity offered constant.

Categories: Economics, finance Tags:

October 17th, 2007 No comments

Negative Reviews and Inframarginal Subsidies for Investment. MR emailed me recently asking me to look at part of a review by RM of his recent book. As you can see, the review says the book’s theory is “remarkable”, quotes at length including a diagram, and then implies that the theory is wrong, without saying why. (Click here to read more.)

Categories: finance, Japan, price theory, reviews, writing Tags: