7 ms·

Nobel Prize in Economic Sciences 2013: Trendspotting in asset markets

28 points by antr 13y ago

omonra 13y ago
I really wished they'd always referred to it as 'The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel' to differentiate it from real Nobels.
- KingMob 13y ago
  Ditto. Alfred Nobel had no intent to create an Economics Nobel, and his grandson has argued against the economics "Nobel" prize associating with the family name.
forgottenpaswrd 13y ago
"Sveriges Riksbank Prize" != Nobel Price This is a prize given by the Central Bank of Sweden, not really an unbiased source. They have a clear agenda to propagate, and it is more about how to get more money for them for central planning than about economy.
- deleted 13y ago
  [deleted]
- onebaddude 13y ago
  >This is a prize given by the Central Bank of Sweden, not really an unbiased source. The only people who care about the title of the prize are elitists who clearly miss the point of discussion. This is a prestigious prize in the field of economic research. I don't see it as more or less relevant because it's called "Nobel". But thanks for pointing this out in every Economic Nobel thread. Now, please, explain to everyone here the biases of the Central Bank of Sweden. Is it because it's run by economists? Who else should be choosing the prize? Clearly unbiased people with minimal economic knowledge? Maybe you could provide us with a refutation of the works of Messrs. Fama, Shiller and Hansen, rather than just waving your hand and dismissing the work of men, far more accomplished than yourself in the field, as the "propagation of an agenda".
  - vasquez 13y ago
    This prize was created by bankers to celebrate their own pseudo(mostly)-science. Everything I've come across suggest that Alfred Nobel detested their ilk, and wouldn't want his name associated with the prize in any way, shape or form. That's why the title matters.
    - socrates1998 13y ago
      Thank you, this award is really a joke. Economists, generally, don't use their models in the real world. And when they do, they lose billions of dollars. See Myron Scholes. He did it twice. Because his "science" was flawed. It drives me crazy that these guys not only get awards, but influence government financial policy.
      - jljljl 13y ago
        What should influence government financial and fiscal policy if not economics?
        socrates1998 13y ago
        Economists, not economics. The current people who are the "top economists" in the world, are, generally, ill-fit to their jobs. Their abilities to assess risk are horrible. They are making the world a more dangerous place, not safer. Economics is very complicated, much more complicated than most leading economists think. I am talking about people heading the leading economic and financial institutions today. They are dangerous because they are overly confident of their horrible "predictions".
- pathy 13y ago
  >This is a prize given by the Central Bank of Sweden, not really an unbiased source. It is indeed sponsored by Riksbanken but the ones who actually choose the 'winners' are The Royal Swedish Academy of Sciences. >They have a clear agenda to propagate, and it is more about how to get more money for them for central planning than about economy. Everyone has an agenda. And I don't think you understand how the Swedish Central Bank operates. Central planning has nothing to do about it. Last I checked their primary task was to maintain the inflation at ~2%.
carlosgg 13y ago
https://www.coursera.org/course/financialmarkets https://www.coursera.org/course/financialmarkets
- sten 13y ago
  Wow. I had already signed up for it, but this certainly makes it more interesting.
bachback 13y ago
Fama was wrong about everything. I think Nassim Taleb should have deserved it, for actually "predicting" the crises. http://www.youtube.com/watch?v=S3REdLZ8Xis&list=PLzfJcwakFwlXX98P1pteZDYHqBUyf3dy2 http://www.youtube.com/watch?v=S3REdLZ8Xis&list=PLzfJcwakFwl...
- omonra 13y ago
  He predicted the crisis in December 2012?
  - bachback 13y ago
    No, he published the Black Swan in 2008, which as a term is now part of the dictionary. He very thoughtful about the term predictions, so it is much more a framework for statistical thinking. Actual help work, as opposed to the nonsense that is currently economics.
    - omonra 13y ago
      Umm..ok. But the point of Black Swan is that certain are unpredictable. Yet plenty of people saw the crisis coming [2,3]. Taleb was not one of them - please see [0] If you are a Taleb fan (or just curious), check out this critique of his work: [0] http://quixoticfinance.com/tag/nassim-taleb/ http://quixoticfinance.com/tag/nassim-taleb/ [1] http://unpleasantfacts.com/falken-on-taleb http://unpleasantfacts.com/falken-on-taleb People who actually predicted the crisis [2] http://www.amazon.com/Greatest-Trade-Ever-Behind-Scenes/dp/0385529945 http://www.amazon.com/Greatest-Trade-Ever-Behind-Scenes/dp/0... [3] http://www.amazon.com/The-Big-Short-Doomsday-Machine/dp/0393338827/ref=pd_bxgy_b_img_z http://www.amazon.com/The-Big-Short-Doomsday-Machine/dp/0393...
      - zurn 13y ago
        At any given moment there are "plenty" of people who think the sky is falling. How do you account for survivor bias.
crntaylor 13y ago
I believe that this is fundamentally good research. But beware if anyone thinks that you can use this to build a killer investment strategy. If one tests a simple rule, for example "buy when the shiller p/e ratio dips below 15 and sell when it hits 20" then indeed, you would have seen some fantastic results - most obviously in the aftermath of the 2008 financial crisis, when after adjusting for inflation and dividends, you could have bought the S&P500 in Feb 2009 for 887.12 and sold it again in December for 1202.03, realizing a 35% return after inflation). However, you also would have had the patience and determination to ride out some extremely tough times - you'd be long stocks for the 1987 crash, and completely miss out on the pre-2000 tech bubble, for example). You'd also have to ride out some drawdown that would have wiped out 50% of your capital before the eventual recovery. In fact, you'd only have placed six trades in about 125 years -- 1. Buy in April 1882 and sell in 1898, realizing 2.62% annualized, inflation-adjusted return over 16 years. 2. Buy in March 1907 and sell in 1928, realizing 1.01% annualized and inflation-adjusted over 21 years. 3. Buy in Sept 1931 and sell in 1936, realizing 10.1% annualized over five years (this was a great trade, as you bought in the immediate aftermath of the 1929-1930 crash, and just before the recovery of the early 1930s) 4. Buy in Jan 1937 and sell in 1961, realizing 6.79% annualized over 24 years (another great trade, but you would have had to hold your position over the second world war, which included some terrifying drawdowns). 5. Buy in 1973 and sell in 1992, realizing 2% annualized over 19 years. Again, you'd have to suffer losing over half your capital before you eventually came out on top. 6. Buy in Feb 2009 and sell in December the same year, realizing a 35% return in less than a year (the single greatest trade in the strategy's history, perhaps indicating how thoroughly depressed markets were after the 2008 crash).
- onebaddude 13y ago
  Thanks for this. I think a major flaw with the Shiller P/E is that there is no fundamental reason for choosing 10 years of earnings for the calculation. Why not 7, or 12? When events like 2008 happen, and earnings drop tremendously and temporarily, it puts a serious skew on the metric going forward (until that single year is no longer used in the calculation). It is, however, a useful tool for "guesstimating" whether future stock markets returns will be above or below historical averages.
- 13y ago
rayiner 13y ago
The term "economic sciences" is about as appropriate as the term "sanitation engineers." No controlled experiments = not a science. Relevant: https://www.lhup.edu/~dsimanek/cargocul.htm https://www.lhup.edu/~dsimanek/cargocul.htm.
- dagw 13y ago
  Like it or not, the term social science is widely used, understood and accepted in the English language. Everybody knows what it means and understand that it's not the same as physical science.
- onebaddude 13y ago
  >No controlled experiments = not a science. According to whom? Wikipedia: Science (from Latin scientia, meaning "knowledge) is a systematic enterprise that builds and organizes knowledge in the form of testable explanations and predictions about the universe. More importantly: who cares?
  - widdershins 13y ago
    > in the form of testable explanations i.e. controlled experiments. > More importantly: who cares? Anyone who's interested in the truth.
    - lotharbot 13y ago
      > "testable explanations ... i.e. controlled experiments" Explanations can be tested through careful observation of uncontrolled environments.
  - Misterburns 13y ago
    Randomized controlled trials to study poverty: http://www.telegraph.co.uk/culture/books/authorinterviews/8681481/Esther-Duflo-Can-this-woman-change-the-world.html http://www.telegraph.co.uk/culture/books/authorinterviews/86... Game. Set. Match.
- davidw 13y ago
socrates1998 13y ago
This is a joke. It's not a Nobel Prize. It's a propaganda award given to promote economics. I have a question, how many "Nobel Prize" winning economists does it take to lose billions of dollars in a hedge fund? The answer: 2. Why? Because economists are generally idiots and don't worry about "real world" applications. They just enjoy listening to themselves talk and win awards. Edit: I just looked over the paper. They make no predictions about the future. They just say "it is possible to make longer term predictions." Again, since they don't make any predictions, how can this be considered science?
- davidw 13y ago
  > economists are generally idiots That's the sort of inquisitive, open minded, intellectually curious, fact-based sort of approach to the world that I like to see on Hacker News.
  - socrates1998 13y ago
    My problem with economists is they call themselves scientists, yet have very little actual "science". Science means, reproducible, testable and predictable ideas. Economists use curve fitting formulas on past data, then call it science. And, worse, they defend each other. I have taught economics, worked at hedge fund and studied economics in college. They work at banks and governments, then use "science" to justify stealing money from the people they are supposed to be helping. What happened to all the economists after the recent world economic crisis? They didn't lose their jobs. They weren't held responsible for their horrible risk-analysis. So, yes, they are idiots.
    - zmk_ 13y ago
      And of course economics==financial economics. You have a very narrow definition of science as well. If in X years penicillin stops working altogether because of anitbiotic resitant bacteria will you start calling biology/medicine not a science?! Economics deals with an ever changing enviroment.

28 points by antr 13y ago

I really wished they'd always referred to it as 'The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel' to differentiate it from real Nobels.

KingMob 13y ago
Ditto. Alfred Nobel had no intent to create an Economics Nobel, and his grandson has argued against the economics "Nobel" prize associating with the family name.

forgottenpaswrd 13y ago

"Sveriges Riksbank Prize" != Nobel Price This is a prize given by the Central Bank of Sweden, not really an unbiased source. They have a clear agenda to propagate, and it is more about how to get more money for them for central planning than about economy.

deleted 13y ago
[deleted]
onebaddude 13y ago
>This is a prize given by the Central Bank of Sweden, not really an unbiased source. The only people who care about the title of the prize are elitists who clearly miss the point of discussion. This is a prestigious prize in the field of economic research. I don't see it as more or less relevant because it's called "Nobel". But thanks for pointing this out in every Economic Nobel thread. Now, please, explain to everyone here the biases of the Central Bank of Sweden. Is it because it's run by economists? Who else should be choosing the prize? Clearly unbiased people with minimal economic knowledge? Maybe you could provide us with a refutation of the works of Messrs. Fama, Shiller and Hansen, rather than just waving your hand and dismissing the work of men, far more accomplished than yourself in the field, as the "propagation of an agenda".
- vasquez 13y ago
  This prize was created by bankers to celebrate their own pseudo(mostly)-science. Everything I've come across suggest that Alfred Nobel detested their ilk, and wouldn't want his name associated with the prize in any way, shape or form. That's why the title matters.
  - socrates1998 13y ago
    Thank you, this award is really a joke. Economists, generally, don't use their models in the real world. And when they do, they lose billions of dollars. See Myron Scholes. He did it twice. Because his "science" was flawed. It drives me crazy that these guys not only get awards, but influence government financial policy.
    - jljljl 13y ago
      What should influence government financial and fiscal policy if not economics?
      - socrates1998 13y ago
        Economists, not economics. The current people who are the "top economists" in the world, are, generally, ill-fit to their jobs. Their abilities to assess risk are horrible. They are making the world a more dangerous place, not safer. Economics is very complicated, much more complicated than most leading economists think. I am talking about people heading the leading economic and financial institutions today. They are dangerous because they are overly confident of their horrible "predictions".
pathy 13y ago
>This is a prize given by the Central Bank of Sweden, not really an unbiased source. It is indeed sponsored by Riksbanken but the ones who actually choose the 'winners' are The Royal Swedish Academy of Sciences. >They have a clear agenda to propagate, and it is more about how to get more money for them for central planning than about economy. Everyone has an agenda. And I don't think you understand how the Swedish Central Bank operates. Central planning has nothing to do about it. Last I checked their primary task was to maintain the inflation at ~2%.

carlosgg 13y ago

https://www.coursera.org/course/financialmarkets https://www.coursera.org/course/financialmarkets

sten 13y ago
Wow. I had already signed up for it, but this certainly makes it more interesting.

bachback 13y ago

Fama was wrong about everything. I think Nassim Taleb should have deserved it, for actually "predicting" the crises. http://www.youtube.com/watch?v=S3REdLZ8Xis&list=PLzfJcwakFwlXX98P1pteZDYHqBUyf3dy2 http://www.youtube.com/watch?v=S3REdLZ8Xis&list=PLzfJcwakFwl...

omonra 13y ago
He predicted the crisis in December 2012?
- bachback 13y ago
  No, he published the Black Swan in 2008, which as a term is now part of the dictionary. He very thoughtful about the term predictions, so it is much more a framework for statistical thinking. Actual help work, as opposed to the nonsense that is currently economics.
  - omonra 13y ago
    Umm..ok. But the point of Black Swan is that certain are unpredictable. Yet plenty of people saw the crisis coming [2,3]. Taleb was not one of them - please see [0] If you are a Taleb fan (or just curious), check out this critique of his work: [0] http://quixoticfinance.com/tag/nassim-taleb/ http://quixoticfinance.com/tag/nassim-taleb/ [1] http://unpleasantfacts.com/falken-on-taleb http://unpleasantfacts.com/falken-on-taleb People who actually predicted the crisis [2] http://www.amazon.com/Greatest-Trade-Ever-Behind-Scenes/dp/0385529945 http://www.amazon.com/Greatest-Trade-Ever-Behind-Scenes/dp/0... [3] http://www.amazon.com/The-Big-Short-Doomsday-Machine/dp/0393338827/ref=pd_bxgy_b_img_z http://www.amazon.com/The-Big-Short-Doomsday-Machine/dp/0393...
    - zurn 13y ago
      At any given moment there are "plenty" of people who think the sky is falling. How do you account for survivor bias.

crntaylor 13y ago

I believe that this is fundamentally good research. But beware if anyone thinks that you can use this to build a killer investment strategy. If one tests a simple rule, for example "buy when the shiller p/e ratio dips below 15 and sell when it hits 20" then indeed, you would have seen some fantastic results - most obviously in the aftermath of the 2008 financial crisis, when after adjusting for inflation and dividends, you could have bought the S&P500 in Feb 2009 for 887.12 and sold it again in December for 1202.03, realizing a 35% return after inflation). However, you also would have had the patience and determination to ride out some extremely tough times - you'd be long stocks for the 1987 crash, and completely miss out on the pre-2000 tech bubble, for example). You'd also have to ride out some drawdown that would have wiped out 50% of your capital before the eventual recovery. In fact, you'd only have placed six trades in about 125 years -- 1. Buy in April 1882 and sell in 1898, realizing 2.62% annualized, inflation-adjusted return over 16 years. 2. Buy in March 1907 and sell in 1928, realizing 1.01% annualized and inflation-adjusted over 21 years. 3. Buy in Sept 1931 and sell in 1936, realizing 10.1% annualized over five years (this was a great trade, as you bought in the immediate aftermath of the 1929-1930 crash, and just before the recovery of the early 1930s) 4. Buy in Jan 1937 and sell in 1961, realizing 6.79% annualized over 24 years (another great trade, but you would have had to hold your position over the second world war, which included some terrifying drawdowns). 5. Buy in 1973 and sell in 1992, realizing 2% annualized over 19 years. Again, you'd have to suffer losing over half your capital before you eventually came out on top. 6. Buy in Feb 2009 and sell in December the same year, realizing a 35% return in less than a year (the single greatest trade in the strategy's history, perhaps indicating how thoroughly depressed markets were after the 2008 crash).

onebaddude 13y ago
Thanks for this. I think a major flaw with the Shiller P/E is that there is no fundamental reason for choosing 10 years of earnings for the calculation. Why not 7, or 12? When events like 2008 happen, and earnings drop tremendously and temporarily, it puts a serious skew on the metric going forward (until that single year is no longer used in the calculation). It is, however, a useful tool for "guesstimating" whether future stock markets returns will be above or below historical averages.
13y ago

rayiner 13y ago

The term "economic sciences" is about as appropriate as the term "sanitation engineers." No controlled experiments = not a science. Relevant: https://www.lhup.edu/~dsimanek/cargocul.htm https://www.lhup.edu/~dsimanek/cargocul.htm.

dagw 13y ago
Like it or not, the term social science is widely used, understood and accepted in the English language. Everybody knows what it means and understand that it's not the same as physical science.
onebaddude 13y ago
>No controlled experiments = not a science. According to whom? Wikipedia: Science (from Latin scientia, meaning "knowledge) is a systematic enterprise that builds and organizes knowledge in the form of testable explanations and predictions about the universe. More importantly: who cares?
- widdershins 13y ago
  > in the form of testable explanations i.e. controlled experiments. > More importantly: who cares? Anyone who's interested in the truth.
  - lotharbot 13y ago
    > "testable explanations ... i.e. controlled experiments" Explanations can be tested through careful observation of uncontrolled environments.
- Misterburns 13y ago
  Randomized controlled trials to study poverty: http://www.telegraph.co.uk/culture/books/authorinterviews/8681481/Esther-Duflo-Can-this-woman-change-the-world.html http://www.telegraph.co.uk/culture/books/authorinterviews/86... Game. Set. Match.
davidw 13y ago

socrates1998 13y ago

This is a joke. It's not a Nobel Prize. It's a propaganda award given to promote economics. I have a question, how many "Nobel Prize" winning economists does it take to lose billions of dollars in a hedge fund? The answer: 2. Why? Because economists are generally idiots and don't worry about "real world" applications. They just enjoy listening to themselves talk and win awards. Edit: I just looked over the paper. They make no predictions about the future. They just say "it is possible to make longer term predictions." Again, since they don't make any predictions, how can this be considered science?

davidw 13y ago
> economists are generally idiots That's the sort of inquisitive, open minded, intellectually curious, fact-based sort of approach to the world that I like to see on Hacker News.
- socrates1998 13y ago
  My problem with economists is they call themselves scientists, yet have very little actual "science". Science means, reproducible, testable and predictable ideas. Economists use curve fitting formulas on past data, then call it science. And, worse, they defend each other. I have taught economics, worked at hedge fund and studied economics in college. They work at banks and governments, then use "science" to justify stealing money from the people they are supposed to be helping. What happened to all the economists after the recent world economic crisis? They didn't lose their jobs. They weren't held responsible for their horrible risk-analysis. So, yes, they are idiots.
  - zmk_ 13y ago
    And of course economics==financial economics. You have a very narrow definition of science as well. If in X years penicillin stops working altogether because of anitbiotic resitant bacteria will you start calling biology/medicine not a science?! Economics deals with an ever changing enviroment.