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

Bitcoin Bubble?

According to Robert Shiller , speaking at Davos, Bitcoin is a perfect example of a bubble - story here . Shiller sees Bitcoin as a backwards step in the evolution of money.   George Selgin , a free banker, takes an opposing view - click here .  Although he doesn't believe that Bitcoin is money, he sees its development as a fascinating turn in the evolution of money. In particular, he lauds the fact that Bitcoin production is constrained and cannot be infinite. There is a short video below where Bitcoin explain how it works.
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

Boom and Bust: A Global History of Financial Bubbles

Boom and Bust: A Global History of Financial Bubbles, co-authored with my colleague Will Quinn , is forthcoming in August. It is published by Cambridge University Press and is available for pre-order at Amazon , Barnes and Noble , Waterstones and Cambridge University Press . 
Read more