Financial Mathematics Text

Thursday, January 30, 2014

McDonald's and Wages

There's a considerable amount of debate revolving around the minimum wage and the vast number of workers in the US that earn a very low wage. I'm personally of the view that the growing inequality in the US in which the top 1% (and 0.1% which looks even worse) have been taking a larger share of the income.

A good portion of the talk has concerned fast food workers of which McDonald's is the largest and most focused on.  Today I want to take a practical look at McDonald's and wages.

Monday, January 20, 2014

CAPE - An Alternative Calculation

Today I want to look at an alternative way to calculating the Cyclically Adjusted Price to Earnings Ratio or CAPE for short. The standard approach to CAPE suffers from a few drawbacks and I think the calculation I'm proposing can address some of those drawbacks.

Thursday, January 9, 2014

My Failed Inflation Prediction

In August 2009 I made some tongue-in-cheek type predictions. To be clear, I roughly believed them but at the same time I knew they were some gut feelings based on some rough models I had in my head.

My inflation prediction was that that CPI would hit 250 by Fall 2011. It was about 215 at the time which put inflation to be close 8% a year. Apparently we're still not there.

Monday, January 6, 2014

Correlation as a Substitute for Critical Thinking in Finance?

I frequently come across graphs like these on various blogs and articles. I'm going to single out one, not because there is anything particularly wrong about it (they're all wrong), but only to use it for illustrative purposes. I could really pick out any of these and offer the same criticisms.

This one I found in the article The Declining Inflation Expectations Chart That Should Have Stock Investors Very Concerned. The original chart apparently come from Dan Greenhaus via twitter.

Friday, January 3, 2014

Interesting Approach to Predicting Future Stock Returns

So Jesse Livermore (the name on his twitter account, which comes from the trader who is known for his Reminiscences of a Stock Market Operator) has an interesting blog called Philosophical Economics. Under discussion today is an interesting approach to predicting future stock returns. The blog post under question is entitled The Single Greatest Predictor of Future Stock Returns.

In what follows I'll offer a brief summary of the post (he writes longer blog posts than I do!) and a few points of criticism as well. The criticisms offered, I think, will be in the spirit of Jesse Livermore's criticisms of other metrics which attempt to predict future returns (see here).

Wednesday, January 1, 2014

2013: Year in Review

So I started this blog several years ago and didn't do much with it. I picked it up again in 2012. 2013 was the first year I blogged the entire year.

Starting out this was primarily a philosophy blog. I still think of it as such but I've devoted several thousand words to finance as well. My guess is that most of my readers (you know, the three of you . . . well one since two of you are just voices in my head) are more interested in finance than philosophy but I think there's a lot of value that can be gained from philosophy.1 You'll find a good number of my finance posts are still related to methodological questions.