Category Archives: Finance/Financial Markets

What Is the True Cost of Government-Backed Credit? — Deborah Lucas

MIT Sloan Prof. Deborah Lucas

From The Huffington Post

The U.S. government is arguably the largest financial institution in the world. If you add the outstanding stock of government loans, loan guarantees, pension insurance, deposit insurance and the guarantees made by federal entities such as Fannie Mae and Freddie Mac, you get to about $18 trillion of government-backed credit. Through those activities, the government has a first-order effect on the allocation of capital and risk in the economy. Read More »

Climbing a Wall of Worry — John DeTore

MIT Sloan Sr. Lecturer John DeTore

The U.S. stock market is now at new highs. So why are average Americans continuing to struggle and not feeling this prosperity? What causes this apparent disconnect between market highs and citizen well-being?

As the expression goes, stocks are climbing a wall of worry. And by our estimates, despite economic malaise, the stock market hasn’t peaked, and we’re still on the way up. Here are some reasons why:

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Spender or Saver? The Choice May Not be Yours — Joshua Ackerman

MIT Sloan Asst. Prof. Joshua Ackerman

From Marketwatch

During a recession, why do some people spend money while others save?

Money issues can be grounds for conflict in relationships. One person may be a spender while the other is a saver. Throw in financial stress such as an economic recession and one person’s preference can seem completely irrational to the other.

How can people be so different when it comes to the “right” decisions? Recent research shows that our childhood economic environments have a lot to do with how we make financial decisions and handle financial risk later in life

Read the full post at Marketwatch

Joshua Ackerman is assistant professor of marketing at the MIT Sloan School of Management and co-author of “When the Economy Falters, Do People Spend or Save? Responses to Resource Scarcity Depend on Childhood Environments,” published in the Feb. 8 issue of Psychological Science.

Saving the Dodd-Frank Act derivatives reforms—John Parsons

MIT Sloan Sr. Lecturer John Parsons

The Dodd-Frank Act included important reforms of the derivative market. Nearly three years after passage of the Act, Congress is now considering amendments. I’m testifying this week on the derivatives reform amendments before the U.S. House of Representatives in opposition of several of the amendments as a reversal of the needed reform.

Title VII of the Dodd-Frank Act mandates important changes in U.S. derivative markets, but many of these changes are not yet fully implemented. As Americans remain threatened by the same dangers that exploded on the country in 2008, Congress should consider ways to encourage and enable the full implementation of the Dodd-Frank derivative reforms. Read More »

Does academic research destroy stock return predictability?– David McLean

Visiting Asst. Prof. David McLean

The first published paper that I know of to document that returns are predictable across stocks was published in 1972. In that paper, the authors showed that price level predicts returns in that low priced stocks tend to have higher returns than high priced stocks. Since then, this has been an active research area with numerous academic papers showing that various strategies based on observable firm traits (e.g., size, past performance) can predict returns across stocks. Read More »