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Showing posts from June, 2014

Stock-Market Anomalies

Using a unique dataset, Qing Ye and I have looked at stock-market anomalies in the nineteenth-century London stock market. The study has just been published by the International Review of Financial Analysis (click here). The working paper version is available here. The paper's abstract is: Using a new dataset which contains monthly data on 1015 stocks traded on the London Stock Exchange between 1825 and 1870, we investigate the cross section of stock returns in this early capital market. Unique features of this market allow us to evaluate the veracity of several popular explanations of asset pricing behavior. Using portfolio analysis and Fama–MacBeth regressions, we find that stock characteristics such as beta, illiquidity, dividend yield, and past-year return performance are all positively correlated with stock returns. However, market capitalization and past-three-year return performance have no significant correlation with stock returns.

Banking in Crisis: An Update

My new book Banking in Crisis will be published in paperback and hardback on 31st July. It has just been released in Kindle format. You can use Amazon's look-inside function to see the table of contents and read a sample chapter.

Market Capitalism to Blame for England's World Cup Exit

The England football team are perennial underachievers. Every major tournament sees them exit well before the semi-final stages and after every exit there is the usual inquest into why it happened. The usual suspects are tactics (England should have played a 4-3-3 instead of a 4-2-3-1), tired players, unrealistic press expectations, bored players, and injuries to key players. Imagine my shock when I read a Daily Telegraph article at breakfast this morning which blamed England's early exit on market capitalism! Click here to read the article.   

Piketty Responds to FT

Thomas Piketty has responded in detail to the FT's criticism of the wealth inequality statistics in his Capital book (see earlier post on this) - click here. Wealth inequality data is much harder to collect than income inequality data for the long run. My paper on wealth inequality in Ireland over the period 1858 to 2001 uses probate data to measure wealth inequality. The findings of my paper agree with Piketty's view that wealth has become more concentrated over recent decades.

Wealth Tax

Click here to see a debate on Channel 4 between the IEA's Ryan Bourne and Thomas Piketty, where they debate whether the super-rich should face a high wealth tax (hat tip: Graham Brownlow). 

Burrito and Chocolate Bonds

The Wall Street Journal has an interesting article on Chilango's bond issuance (hat tip: Graeme Acheson). Chilango is a Mexican fast-food outlet in London, which is seeking to expand across London. To achieve this, they have issued a four-year bond with an 8% coupon. However, for those who invest £10,000 in the bonds, there is an additional coupon in the form of a free burrito every week during the lifetime of the bond. This seems to be a trend, with Hotel Chocolat paying its bond coupon with chocolate (see video below)! Issuing bonds helps small firms bypass banks and they are not a new innovation. Small firms financed themselves in this manner before 1913.

Preventing Bank-Credit-Fuelled Housing Booms

The Chancellor of the Exchequer is giving new powers to the Bank of England to help dampen the current and future housing booms (Guardian coverage here). The Bank will in essence be able to limit mortgage lending and set constraints on the size of loan-to-value ratios or income-to-loan ratios. There are also plans to build more more homes to address the shortage of homes in the south-east of England. Mark Carney in his Mansion House speech (see video below) states the Bank is not interested in targeting asset prices or bursting bubbles, but they are interested in constraining excessive build-ups of debt and leverage.
Bank of England constraints on bank credit existed from the Second World War until the 1970s. In particular, there were quantitative and qualitative constraints on lending to the property and other 'speculative' sectors. I discuss these credit constraints and how they enhanced banking stability in a chapter in my forthcoming book.

Negative Interest Rates

From tomorrow, the ECB will be applying a negative interest rate (-0.1%) to reserves held with it by European commercial banks (press release is here). Central banks typically pay no or a low interest rate on sums deposited with them by commercial banks. In normal times, there is usually a large opportunity cost associated with holding reserves at the central bank, but in the midst of financial turmoil, banks would rather hold reserves with the central bank than lend them out. In applying negative rates, the ECB is hoping that banks will begin lending to businesses and thus stimulate the EU economy, which is heading towards deflation. Neil Irwin at the NY Times has a nice blog post on the ECB's motives here.

Kickstarting the Eurozone

Authers' Note below has an interview with BNP Paribas's William De Vijlder about the ECB's announcement last week regarding its package of 400bn euros of cheap long-term loans (targeted longer-term refinancing operations or TLTROs) which banks can use to lend to small businesses (ECB press release here).

For The Fallen (by Laurence Binyon)

With proud thanksgiving, a mother for her children,
England mourns for her dead across the sea.
Flesh of her flesh they were, spirit of her spirit,
Fallen in the cause of the free.

Solemn the drums thrill; Death august and royal
Sings sorrow up into immortal spheres,
There is music in the midst of desolation
And a glory that shines upon our tears.

They went with songs to the battle, they were young,
Straight of limb, true of eye, steady and aglow.
They were staunch to the end against odds uncounted;
They fell with their faces to the foe.

They shall grow not old, as we that are left grow old:
Age shall not weary them, nor the years condemn.
At the going down of the sun and in the morning
We will remember them.

They mingle not with their laughing comrades again;
They sit no more at familiar tables of home;
They have no lot in our labour of the day-time;
They sleep beyond England's foam.

But where our desires are and our hopes profound,
Felt as a well-spring that is hidden from sight…


One of the most moving things which I have ever done is to visit the Normandy beaches where the D-Day landings occurred. I was really struck by the sacrifice, bravery, and ingenuity of those who liberated Europe. If the D-Day landings of 6th June 1944 had failed, what would Europe have looked like today? The BBC has great coverage of the 70th anniversary of D-Day - click here.

The Beautiful Game Meets the Dismal Science

Economists are often accused of imperialism - economics can be applied to everything. The Nobel prize-winner Gary Becker, who passed away recently, was renowned for applying economics to things such as crime and the family. Economists have even applied their insights to football (or soccer) - see, for example, the Soccernomics blog and the Soccernomics book. PwC and Goldman Sachs have recently produced reports on who they think will win the World Cup - their reports are available here and here. PwC thinks that England will do well to progress from the 'group of death' and that Brazil will win. Goldman Sachs predicts that Brazil will beat Argentina in the final. Unlike the Olympics, GDP is not a good predictor of success at the World Cup. Instead, footballing tradition is a very good predictor of success.