Fama, French and Thaler

I’m teaching finance this quarter. Thumbing through the textbook section on “anomalies” and behavior finance I see cites to lots of papers by these three guys.

These three are my guess for the Nobel. If I didn’t misread the “depression” contract on intrade (I didn’t catch that they summed annualized quarterly numbers to define a depression), I’d have money in that account to bet on these guys.

BTW, I can’t believe Barro hasn’t won.

UPDATE: Cheerleading for EMH. Cochrane’s introduction to Fama gives an argument for why these three folks deserve the prize.

Some friendly advice from the breach

The Real Scientist is breathing down my neck because we need to get out of town for something, but I have to get this out in the universe before I forget:

Talk to your advisors. All of them. They are, all of them, a huge asset. You have no idea which of your papers or ideas will be ready in time for the job market and you don’t know which of your advisors will be most open to your ideas.

Schedule a meeting with every one of them right now and meet with them regularly. Do it!

The Recourse Rule

I want to know if this is true:

Under the Recourse Rule, an AA- or AAA-rated asset-backed security, such as a mortgage-backed bond, received a 20-percent risk weight, compared to a zero risk weight for cash and a 50-percent risk weight for an individual (unsecuritized) mortgage. This meant that commercial banks could issue mortgages—regardless of how sound the borrowers were—sell them to investment banks to be securitized, and buy them back as part of a mortgage-backed security, in the process freeing up 60 percent of the capital they would have had to hold against individual mortgages. Capital held by a bank is capital not lent out at interest; by reducing their capital holdings, banks could increase their profitability.

Is it true that this is what the rule change required and is it true that this is how banks responded? Also, is there a way to quantify the impact of this rule change (assuming this paragraph is a correct summary of what happened)?

The insoluability of the Libertarian-Social Democrat question: evidence from Google Translate

Typing the phrase “no man is an island” into this doohickey produces no equilibrium and causes an infinite loop between the phrases “1 of the islands, the only” and “one of the island, the only”.

Does my worth as an individual derive from my being one of the islands or from being one of the island? Google translate doesn’t know; how can we?