MBA - 29 study Zone

26/04/2015

Skip to content
Skip to navigation
View mobile version

Advertisement

Loading...

Advertisement
Business Day
Sharing Nobel Honors, and Agreeing to Disagree

OCT. 26, 2013
Continue reading the main story
Continue reading the main story

Economic View

By ROBERT J. SHILLER
Continue reading the main story
Share This Page

The Nobel Memorial Prize in Economic Science has sometimes been awarded to economists who disagree profoundly. Notably, in 1974, the Nobel committee gave a joint prize to Gunnar Myrdal, a Social Democrat in Sweden and a proponent of the welfare state, and Friedrich Hayek, a conservative who believed that government should be minimal.

This time, the prize given to Eugene Fama and Lars Peter Hansen of the University of Chicago and me for “empirical analysis of asset prices” is similarly discordant. So many people have been asking me about this obvious incongruity that I thought I should address it directly here.
Continue reading the main story
Related Coverage

A co-winner of the Nobel in economics, Eugene Fama is called the father of the efficient-markets theory. He is shown in his classroom.
Eugene Fama, King of Predictable MarketsOCT. 26, 2013
From left: Eugene F. Fama, Lars Peter Hansen and Robert J. Shiller were awarded the Nobel Memorial Prize in Economic Science on Monday.
Economists Clash on Theory, but Will Still Share the NobelOCT. 14, 2013

Professor Fama is the father of the modern efficient-markets theory, which says financial prices efficiently incorporate all available information and are in that sense perfect. In contrast, I have argued that the theory makes little sense, except in fairly trivial ways. Of course, prices reflect available information. But they are far from perfect. Along with like-minded colleagues and former students, I emphasize the enormous role played in markets by human error, as documented in a now-established literature called behavioral finance.
Photo
Credit Koren Shadmi

The conflict between the third winner, Professor Hansen, and me is less marked. In fact, he is well known for having rejected one form of the efficient-markets model, in a famous paper with Kenneth Singleton, now at Stanford. Professor Hansen has developed a procedure, called the “generalized method of moments,” for testing rational-expectations models — models that encompass the efficient-markets model — and his method has led to the statistical rejection of many more of them. His sympathies still seem to be with rational expectations and efficient markets, though.

Actually, I do not completely oppose the efficient-markets theory. I have been calling it a half-truth. If the theory said nothing more than that it is unlikely that the average amateur investor can get rich quickly by trading in the markets based on publicly available information, the theory would be spot on. I personally believe this, and in my own investing I have avoided trading too much, and have a high level of skepticism about investing tips.
Economic View
A column that explores life through an economic lens with leading economists and writers.

Economists Actually Agree on This: The Wisdom of Free Trade
APR 24
Why Americans Don’t Want to Soak the Rich
APR 17
Why a Harvard Professor Has Mixed Feelings When Students Take Jobs in Finance
APR 10
It’s Not the Inequality; It’s the Immobility
APR 3
How Idealism, Expressed in Concrete Steps, Can Fight Climate Change
MAR 27

See More »

But the theory is commonly thought, at least by enthusiasts, to imply much more. Notably, it has been argued that regular movements in the markets reflect a wisdom that transcends the best understanding of even the top professionals, and that it is hopeless for an ordinary mortal, even with a lifetime of work and preparation, to question pricing. Market prices are esteemed as if they were oracles.

This view grew to dominate much professional thinking in economics, and its implications are dangerous. It is a substantial reason for the economic crisis we have been stuck in for the past five years, for it led authorities in the United States and elsewhere to be complacent about asset mispricing, about growing leverage in financial markets and about the instability of the global system. In fact, markets are not perfect, and really need regulation, much more than Professor Fama’s theories would allow.

Advertisement
Continue reading the main story
Continue reading the main story

It’s interesting that Professor Fama is also the intellectual father and major adviser of an investment company that has, by many accounts, been beating the market. The company, Dimensional Fund Advisors, has impressed investors with its performance so much that its assets under management have grown to $296 billion, as of Aug. 31.

So, how does D.F.A. reconcile the successes with Professor Fama’s efficient-markets theory?

The D.F.A. Web site refers to the “dimensions” of investing, reflecting the name of the company. First on the list of dimensions are “size” (the stock returns of small companies tend to do better) and “value” (low-priced companies tend to have better returns as well). Indeed, Professor Fama’s work with Kenneth French of the Tuck School of Business at Dartmouth has shown that historically, these dimensions could be used to deliver higher return for investors.

Now, many of us are accustomed to describing these size and value anomalies as reflecting market inefficiencies, or investor errors. This is especially true with regard to value. Wouldn’t you think that some overzealous investors would sometimes cause some stocks to be overpriced, and that one should stay away from them? That kind of pricing error and inefficiency creates value stocks. D.F.A., and Professor Fama, use different language, referring to “risk premia.”

Professor Fama avoids theories that describe these risk premia as even possibly reflecting irrational behavior, and I think he’s wrong about that. Still, he has ended up with an investing approach that looks, in some of its fundamental principles at least, a little like my own.

I can even recommend that people might consider investing in D.F.A.

I would not, however, recommend that monetary or fiscal authorities seek inspiration from his theories on how to stabilize the economy. He doubts the existence of any bubble before this crisis, and his philosophy would have let banks fail at the beginning of it.

Still, like Professor Hansen, Professor Fama is a first-class scholar who does careful research on the topics he focuses on.

We disagree on a number of important points, but there is nothing wrong with our sharing the prize. In fact, I am happy to share it with my co-recipients, even if we sometimes seem to come from different planets.

ROBERT J. SHILLER is Sterling Professor of Economics at Yale.

A version of this article appears in print on October 27, 2013, on page BU6 of the New York edition with the headline: We’ll Share the Honors, and Agree to Disagree. Order Reprints| Today's Paper|Subscribe
Loading...

Go to Home Page »
Site Index
News

World
U.S.
Politics
New York
Business
Technology
Science
Health
Sports
Education
Obituaries
Today's Paper
Corrections

Opinion

Today's Opinion
Op-Ed Columnists
Editorials
Contributing Writers
Op-Ed Contributors
Opinionator
Letters
Sunday Review
Taking Note
Room for Debate
Public Editor
Video: Opinion

Arts

Today's Arts
Art & Design
ArtsBeat
Books
Dance
Movies
Music
N.Y.C. Events Guide
Television
Theater
Video Games
Video: Arts

Living

Automobiles
Crossword
Food
Education
Fashion & Style
Health
Home & Garden
Jobs
Magazine
N.Y.C. Events Guide
Real Estate
T Magazine
Travel
Weddings & Celebrations

Listings & More

Classifieds
Tools & Services
Times Topics
Public Editor
N.Y.C. Events Guide
TV Listings
Blogs
Cartoons
Multimedia
Photography
Video
NYT Store
Times Journeys
Subscribe
Manage My Account

Subscribe

Times Premier
Home Delivery
Digital Subscriptions
NYT Opinion
Crossword

Email Newsletters
Alerts
Gift Subscriptions
Corporate Subscriptions
Education Rate

Mobile Applications
Replica Edition
International New York Times

© 2015 The New York Times Company
Home
Search
Contact Us
Work With Us
Advertise
Your Ad Choices
Privacy
Terms of Service
Terms of Sale

Site Map
Help
Site Feedback
Subscriptions

17/03/2015

reading material by sir waqas ..... follow the folowing linkDeflation
The high cost of falling prices.
http://www.economist.com/news/finance-and-economics/21644196-low-or-negative-inflation-spreading-around-world-more-worry

FOR central banks in the rich world, two is a magic number. If prices rise at 2% a year, most shoppers can more or less ignore their slow ascent. And a touch of...

17/03/2015

Deflation
The high cost of falling prices

Low or negative inflation is spreading around the world. That is more of a worry than it sounds
Feb 21st 2015 | From the print edition
Timekeeper

FOR central banks in the rich world, two is a magic number. If prices rise at 2% a year, most shoppers can more or less ignore their slow ascent. And a touch of inflation is hugely helpful: it gives bosses a way to nudge unproductive workers—a pay freeze actually means a 2% cut—and an incentive to invest their earnings. Most importantly it keeps economies away from deflation and the depressing choices—hoarding cash, delaying purchases—that falling prices can bring. Yet despite the professed adherence to the 2% mantra, a period of falling prices is on the cards.

The whiff of deflation is everywhere (see chart 1). Even in America, Britain and Canada—all growing at more than 2%—inflation is well below target. Prices are cooling in the east, with Chinese inflation a meagre 0.8%. Japan’s 2.4% rate is set to evaporate, as it slips back into deflation; Thailand is already there. But it is the euro zone that is most striking. Its inflationary past—price rises averaged 11% a year in Italy and 20% in Greece in the 1980s—is a distant memory. Today 15 of the area’s 19 members are in deflation; the highest inflation rate, in Austria, is just 1%.

In this section
The high cost of falling prices
False hope
The Saudi project, part two
Currency peace
Pyramid scheme
Shipshape
It takes 28 to tango
Worse than nothing
The Saudi project, part two
Reprints
Related topics
Economic integration
Economics
Domestic policy
Economic policy
Quantitative Easing
Oil explains a lot. A year ago a barrel of Brent crude cost $110; today it is $60 (see article). This 45% price cut is trickling through economies. In Britain data released on February 17th showed that tumbling energy and transport prices had helped deliver an inflation rate of 0.3% in the year to January, one of the lowest on record. In America the price of gasoline has fallen by 35% over the past six months; the cost of diesel and heating oil is down, too.

This is not—in itself—a bad thing. Since winter energy use is a necessity, consumers are better off with cut-price fuel. Firms are cheering, too. As well as lower energy bills, the cost of inputs, from plastic bottles to detergent, are edging down. Some of the savings are being passed on: food, which is costly to transport and requires a lot of packaging, is cheapening. These are the hallmarks of a positive supply shock: cheap oil means economies can provide more goods at lower prices. In the services sector, which relies much less on energy, transport and oil-based inputs, prices are still rising (see chart 2).

For those selling durable goods, deflation may seem more worrying. The price of new cars is flat in Britain, slowly sliding in Portugal and tumbling in Greece, where a new motor is nearly 20% cheaper than in 2005. For many industries, however, falling prices are not new, but a way of life. In the euro zone the prices of phones, computers and cameras have been falling for a decade (in Spain telephone equipment is 90% cheaper than ten years ago), so deflation is unlikely to shock shoppers. Even in Japan, which has seen years of falling prices, there is little evidence purchases are being put off.

The boost to purchasing power from a short period of falling prices is welcome. In the rich world, pay rises have been rare despite huge improvements in employment. Since early 2010 more than 10m American workers have found jobs, as unemployment, which peaked at over 15m, has fallen by 40%. Japan has seen a similarly big drop, from 3.6m to 2.3m. Britain has done even better, slashing the ranks of its jobless by 50% to just 800,000. Even the sickly euro zone has added some jobs. The puzzle is why rising employment has not led to inflation in the form of higher pay.

Unemployment rates in America, Britain and Japan—all of them at or below pre-crisis lows—would previously have triggered rising wages. But all three have seen growth in insecure forms of employment: part-time work has risen, as have the ranks of the “underemployed”, who would like more hours if they could get them. As looser contracts have helped create flexible workforces, casual work—from drivers for Uber to day labourers in construction—has boomed. Jobs may be up, but workers’ bargaining power is not.

The drawbacks of these newly flexible labour markets are beginning to prompt a political backlash. Barack Obama has urged Congress to raise America’s minimum wage from $7.25 to $10.10. In Britain, both main parties plan to clarify when insecure “zero hours” contracts are abusive. Shinzo Abe, Japan’s prime minister, recently announced that temporary workers should expect the same deals as their permanent colleagues. As these steps lift pay and firms’ costs, inflation should follow.

But even if it is short-lived, this sort of deflation can dull an economy. With inflation at 2% a boss sitting on a cash pile has a clear choice: invest it in something that returns more or give it back to the shareholders as dividends. Either step—boosting investment or investors’ incomes—is a good one. But when prices flatline, risk-averse bosses can justifiably sit on funds. With higher inflation, corporate cash piles—which reached $2 trillion in America and ¥229 trillion ($2.1 trillion) in Japan in 2014—would be more quickly put to use.

The euro zone is a different story. Apart from Germany, its members have done little to make labour markets efficient; most have masses of spare capacity. In late 2009 the unemployment rate was just under 10%, the same as America’s. But since then joblessness has risen in the euro area and is now 11%. In Greece, it is close to 25%. It will take years to overcome this: even if Spain, lauded for its 2% growth rate, carries on at its current pace it will take eight years for unemployment to reach its pre-crisis rate. Those seeking higher pay have scant hope. That makes the risk of long-lasting deflation more of a worry than elsewhere.

If falling prices endure, then debts, fixed in nominal terms, are harder to pay. A recent study by McKinsey, a consultancy, tracked total debt—government, household and corporate—between 2007 and 2014. Euro-zone economies lead the charge, with debt up by 55 percentage points of GDP or more in five troubled “peripheral” states and three “core” ones. If incomes consistently fall those debts may become impossible to pay.

Central banks are at last leaping into action. The European Central Bank (ECB) has been late to the game on quantitative easing (QE) but will begin creating money to buy government debt in March. The Bank of Japan is committed to as much QE as it takes to get inflation back to 2%. A new and radical policy—negative interest rates—is becoming fashionable, with Nordic central banks following the ECB in adopting it (see Free exchange). If these attempts fail, then the glee at cheap food and fuel will be short-lived, as debt-ridden economies find themselves using up all the savings from falling prices to keep creditors at bay.

17/03/2015

management acounting

08/03/2015

Q1= pv=747.258
Q2= pva=6079058
Q3= ,(1054.406),(1000) ,(p=1000) , (p=1000.563),(p=880.08)
Q4= i=7.46
Q5= pv=12272.68
Q6= p=2000 and p= 1000
Q7= p=29555.5

08/03/2015

quantitative questions from Q1 to Q7 of chapter 3 as assigment of fim tomorrow

07/03/2015

03/03/2015

The Negative Way to Growth?
Tweet424
Share1.2K
Share128
24
7
NEW YORK – Monetary policy has become increasingly unconventional in the last six years, with central banks implementing zero-interest-rate policies, quantitative easing, credit easing, forward guidance, and unlimited exchange-rate intervention. But now we have come to the most unconventional policy tool of them all: negative nominal interest rates.
Such rates currently prevail in the eurozone, Switzerland, Denmark, and Sweden. And it is not just short-term policy rates that are now negative in nominal terms: about $3 trillion of assets in Europe and Japan, at maturities as long as ten years (in the case of Swiss government bonds), now have negative interest rates.

At first blush, this seems absurd: Why would anyone want to lend money for a negative nominal return when they could simply hold on to the cash and at least not lose in nominal terms?
In fact, investors have long accepted real (inflation-adjusted) negative returns. When you hold a checking or current account in your bank at a zero interest rate – as most people do in advanced economies – the real return is negative (the nominal zero return minus inflation): a year from now, your cash balances buy you less goods than they do today. And if you consider the fees that many banks impose on these accounts, the effective nominal return was already negative even before central banks went for negative nominal rates.
In other words, negative nominal rates merely make your return more negative than it already was. Investors accept negative returns for the convenience of holding cash balances, so, in a sense, there is nothing new about negative nominal interest rates.
Moreover, if deflation were to become entrenched in the eurozone and other parts of the world, a negative nominal return could be associated with a positive real return. That has been the story for the last 20 years in Japan, owing to persistent deflation and near-zero interest rates on many assets.
One still might think that it makes sense to hold cash directly, rather than holding an asset with a negative return. But holding cash can be risky, as Greek savers, worried about the safety of their bank deposits, learned after stuffing it into their mattresses and walls: the number of armed home robberies rose sharply, and some cash was devoured by rodents. So, if you include the costs of holding cash safely – and include the benefits of check writing – it makes sense to accept a negative return.
Beyond retail savers, banks that are holding cash in excess of required reserves have no choice but to accept the negative interest rates that central banks impose; indeed, they could not hold, manage, and transfer those excess reserves if they were held as cash, rather than in a negative-yielding account with the central bank. Of course, this is true only so long as the nominal interest rate is not too negative; otherwise, switching to cash – despite the storage and safety costs – starts to make more sense.
But why would investors accept a negative nominal return for three, five, or even ten years? In Switzerland and Denmark, investors want exposure to a currency that is expected to appreciate in nominal terms. If you were holding Swiss franc assets at a negative nominal return right before its central bank abandoned its euro peg in mid-January, you could have made a 20% return overnight; a negative nominal return is a small price to pay for a large capital gain.
And yet negative bonds yields are also occurring in countries and regions where the currency is depreciating and likely to depreciate further, including Germany, other parts of the eurozone core, and Japan. So, why are investors holding such assets?
Many long-term investors, like insurance companies and pension funds, have no alternative, as they are required to hold safer bonds. Of course, negative returns make their balance sheets shakier: a defined-benefit pension plan needs positive returns to break even, and when most of its assets yield a negative nominal return, such results become increasingly difficult to achieve. But, given such investors' long-term liabilities (claims and benefits), their mandate is to invest mostly in bonds, which are less risky than stocks or other volatile assets. Even if their nominal returns are negative, they must defer to safety.
Moreover, in a “risk-off" environment, when investors are risk-averse or when equities and other risky assets are subject to market and/or credit uncertainty, it may be better to hold negative-yielding bonds than riskier and more volatile assets.
Over time, of course, negative nominal and real returns may lead savers to save less and spend more. And that is precisely the goal of negative interest rates: In a world where supply outstrips demand and too much saving chases too few productive investments, the equilibrium interest rate is low, if not negative. Indeed, if the advanced economies were to suffer from secular stagnation, a world with negative interest rates on both short- and long-term bonds could become the new normal.
To avoid that, central banks and fiscal authorities need to pursue policies to jump-start growth and induce positive inflation. Paradoxically, that implies a period of negative interest rates to induce savers to save less and spend more. But it also requires fiscal stimulus, especially public investment in productive infrastructure projects, which yield higher returns than the bonds used to finance them. The longer such policies are postponed, the longer we may inhabit the inverted world of negative nominal interest rates.

Read more at http://www.project-syndicate.org/commentary/negative-nominal-interest-rates-by-nouriel-roubini-2015-02 .99

Monetary policy has become increasingly unconventional in the last six years, with central banks implementing zero-interest-rate policies, quantitative easing, credit easing, forward guidance, and unlimited exchange-rate intervention. But now we have come to the most unconventional policy tool of th…

03/03/2015

mba -29 send me your yahoo id as soon as possible..

02/03/2015

tomorrow the class of operational management wiil b at 3;30 pm...........................................CR AWAIS AKHTAR

01/03/2015

the timetable of The CLASS
MON : FIM (LR 14) 11:30 to 2:15
TUE : OP-MGT (LR 14) 11:30 to 2:15
WED: MGT-ACT (LR 14) 11:30 to 2:15
THU : ST-MGT (LR 22) 11:30 to 2:15
FRI : MG-FIN (LR 12) 9:30 to 12:30