Nobel Prize in Economics

It is worth noting that the Nobel Prize in Economics was announced on Monday. The winners are Leonid Hurwicz (University of Minnesota), Eric Maskin (Institute for Advanced Study at Princeton University) and Roger Myerson (University of Chicago). They are famous for their seminal work in the field of “Mechanism Design Theory”. NPR provides a good (audio) explanation on their website. Still don’t understand what these Nobel winners developed? Here’s an explanation for non-economists from the "Marginal Revolution" blog.


Are 'Quant' Kings Free of Blame?

Page C18 of today’s Wall Street Journal has a very interesting article entitled “Absolving the Quants, a Bit” concerning the financial market consequences of so-called quantitative hedge funds.  This article notes, among other things, that there has been a proliferation over time of hedge funds implementing similar “LTCM-style” quantitative  strategies.  With so many arbitragers chasing similar (transitory) profit opportunities all at the same time, these investors are finding that earning excess returns is becoming increasingly more difficult.  As the article notes, “To boost the raw returns achievable this year to those seen in 1998, a fund would have to borrow much more, with a consequent increase in risk. If funds are borrowing more, there is a bigger chance that a move to cut debt could trigger sharp and correlated market moves. Such an effect would likely be much broader than the "quantagion" caused when different computer-driven trading models work in similar ways.”