Leverage

Prize Lecture to the memory of Alfred Nobel, December 7, 1990.Leverage;

Liquidity and Market Structure

Market liquidity is modeled as being determined by the demand and supply of immediacy. Exogenous liquidity events coupled with the risk of delayed trade create a demand for immediacy. Market makers supply immediacy by their continuous presence. and willingness to bear risk during the time period between the arrival of final buyers and sellers. In the long run the number of market makers adjusts to equate the supply and demand for immediacy. This determine the equilibrium level of liquidity in the market. The lower is the autocorrelation in rates of return, the higher is the equilibrium level of liquidity.

Scaling and Universality in City Space Syntax: between Zipf and Matthew

We report about universality of rank-integration distributions of open spaces in city space syntax similar to the famous rank-size distributions of cities (Zipf's law). We also demonstrate that the degree of choice an open space represents for other spaces directly linked to it in a city follows a power law statistic. Universal statistical behavior of space syntax measures uncovers the universality of the city creation mechanism. We suggest that the observed universality may help to establish the international definition of a city as a specific land use pattern.Comment: 24 pages, 5 *.eps figure

The Sharpe ratio of estimated efficient portfolios

Investors often adopt mean-variance efficient portfolios for achieving superior risk-adjusted returns. However, such portfolios are sensitive to estimation errors, which affect portfolio performance. To understand the impact of estimation errors, I develop simple and intuitive formulas of the squared Sharpe ratio that investors should expect from estimated efficient portfolios. The new formulas show that the expected squared Sharpe ratio is a function of the length of the available data, the number of assets and the maximum attainable Sharpe ratio. My results enable the portfolio manager to assess the value of efficient portfolios as investment vehicles, given the investment environment

Ralph J. Perk, the “New ethnicity”, and the making of urban ethnic republicans

Historians seeking to explain the late twentieth century rightward shift of urban ethnic whites have tended to ignore the shifting meaning and content of white ethnic identity in this transition, and the utility of these changes to conservative political discourse. This article, focusing on the ethnic strategies of the Republican mayor of Cleveland, Ralph Perk, seeks to illustrate the importance of the “New Ethnicity” of the 1970s, and its reconceptualization of white ethnicity as a series of “values”, in the making of urban ethnic Republicans. In doing so it reorients our understanding of Perk – the “Ethnic Mayor” – and places ethnicity at the heart of the conservative insurgency reshaping urban and national politics during this period

Measuring the Behavioural Component of the S&P 500 and its Relationship to Financial Stress and Aggregated Earnings Surprises

Scholars in management and economics have shown increasing interest in isolating the behavioural dimension of market evolution. Indeed, by improving forecast accuracy and precision, this exercise would certainly help firms to anticipate economic fluctuations, thus leading to more profitable business and investment strategies. Yet, how to extract the behavioural component from real market data remains an open question. By using monthly data on the returns of the constituents of the S&P 500 index, we propose a Bayesian methodology to measure the extent to which market data conform to what is predicted by prospect theory (the behavioural perspective), relative to the (standard) subjective expected utility theory baseline.We document a significant behavioural component that reaches its peaks during recession periods and is correlated to measures of financial volatility, market sentiment and financial stress with expected sign. Moreover, the behavioural component decreases around macroeconomic corporate earnings news, while it reacts positively to the number of surprising announcements