Skip to main content

What Moves Markets?

The Fed had recently signaled that it intends to bring its quantitative easing (QE) scheme (where the Fed creates money to buy US Treasury bonds) gradually to an end. Over the past month this has affected emerging-market currencies and caused the yield on 10-year US government bonds to increase from 1.6% to 2.2%. It has also caused stock markets and commodity prices to fall - the FTSE 100 has fallen by nearly 10% over the past month. Following Bernanke's statement on Wednesday, which reiterated the Fed's intention to taper off QE, stock markets around the globe fell sharply. 

QE has distorted asset markets around the world. The unwinding of QE in the US will not be painless for investors or foreign central banks. Investors in emerging markets can expect a particularly bumpy ride over the next few years - click here.  

Popular posts from this blog

The Railway Mania

My colleague and former PhD student Gareth Campbell has created a website about the British Railway Mania - click here . This episode has been described by the Economist as probably the greatest bubble in human history. Gareth's website provides background on the Mania and posits some explanations for the 'bubble'. In his explanation of why the bubble happened, Gareth places a lot of emphasis on investor myopia regarding future dividends and uncalled capital. His study of investors during the episode does not support the view that this episode was fuelled by naive and irrational investors. 
Read more

The CEO: The Rise and Fall of Britain's Captains of Industry

Michael Aldous and I had our book The CEO: The Rise and Fall of Britain's Captains of Industry published a few weeks ago. You can find out more about it and buy it at Cambridge University Press's website . It is also available at Amazon , Waterstones , and Barnes & Noble .  The CEO has already been reviewed in The Sunday Times , The Observer and Financial Times .
Read more

How Valuable Are Connections?

Daron Acemoglu, Simon Johnson, Amir Kermani, James Kwak and Todd Mitton have written a paper on whether firms connected to Timothy Geithner benefited from these connections. They do so by looking at how stocks of these firms reacted to the announcement that he was a nominee for Treasury Secretary in November 2008. They find that there were large abnormal returns for connected firms. Below is the paper's abstract and the full paper is available here . The announcement of Timothy Geithner as nominee for Treasury Secretary in November 2008 produced a cumulative abnormal return for financial firms with which he had a connection. This return was about 6% after the first full day of trading and about 12% after ten trading days. There were subsequently abnormal negative returns for connected firms when news broke that Geithner's confirmation might be derailed by tax issues. Excess returns for connected firms may reflect the perceived impact of relying on the advice of a small ne...
Read more