Performativity and Financial Markets: Option Pricing in the Late 19th Century

The paper revisits the performativity thesis in economics stressing the plural character of knowledge, which includes not only scientific models but also every form of practical knowledge that systematizes the visible and the articulable experience of economic agents. To highlight the point, the paper examines the pricing of options in London in the late 19th century, long before the academic origin of modern option pricing models. The pamphlets of the time are valuable archives of existing option transactions performed on the basis of systematic practical techniques widely established among investors

Putting all their eggs in one basket? Portfolio diversification 1870 to 1902

There are a number of reasons why investor portfolio characteristics are of interest. First, there is limited evidence of what individual investors actually held in their portfolios in the past, including, for example, whether there were significant differences between male and female investors. Second, investors’ portfolio holdings are relevant to the debate on the ‘democratisation’ of investment and, third, the inform the debate on whether investors in the past made efforts to reduce portfolio risk through diversification, before the full ‘scientific’ approach of the early twentieth century and the Markowitz optimisation approach of the mid-twentieth century. This paper explores the portfolio choices made by a sample of 508 investors – 263 men and 245 women - between 1870 and 1902. There is evidence of diversification, with the average holding of the sample being 4.6 securities. There is also evidence of increasing levels of diversification over time, of international diversification, and greater diversification by wealthy men and women. Investors in the past clearly made efforts to reduce portfolio risk before Markowitz optimisation

The Rise of the Small Investor in the US and the UK, 1895 to 1970

The role of the small shareholder has been largely ignored in the literature, which has tended to concentrate on controlling shareholders and family ownership. And yet, focus on the importance of small shareholders can capture significant aspects of financial development, since the more 'confident' the minority shareholders, the easier will capital flow to firms. Pre 1970, debates and policy conflicts linked to stock exchange development concentrated on shareholder democracy and diffusion as key indicators. The number of shareholders relative to the population was seen as a critical factor in explaining not only structures in corporate finance but also political and economic preferences, market developments and overall economic development. This paper explores the so-called democratisation of investment and the factors behind it through the lens of trends in estimates of the UK and US shareholding populations between 1895 and 1970. It covers three key periods: before World War I, before and after the stock market crash of 1929, and post-World War II. It identifies three periods in the US when shareholder numbers were paramount: in the boom years of the 1920s, as part of the inquest into the 1929 Crash, and post-World War II in an attempt to boost stock market activity. In the UK, although some concern was expressed during the 1920s and 1930s at the passive nature of small investors, who held diversified portfolios with small amounts in each holding, it was the fear of nationalisation after World War II which led to more in-depth shareholder estimates

Rebalancing the Euro Area: The Costs of Internal Devaluation

This paper investigates the economic costs of rebalancing current account positions in the Euro area by means of internal devaluation. Internal devaluation relies on wage suppression the deficit countries. Based on an old Keynesian model we estimate a current account equation, a wage-Phillips curve and an Okun’s Law equation. All estimations are carried out for a panel of twelve Euro area members. From the estimation results we calculate the output costs of reducing current account deficits. Greece, Ireland, Italy, Portugal and Spain (GIIPS) had, on average, current account deficits of 8.4% of GDP in 2007. To eliminate these current account deficits, a reduction of GPD by some 47% would be necessary. In principle there are two ways that trade imbalances could be resolved: deflationary adjustment in the deficit countries or inflationary adjustment in the surplus countries. Presently, the burden of adjustment is exclusively on the deficit countries. Our results indicate that the economic costs of this adjustment to those countries are equivalent to the output loss of the Great Depression. An adjustment of the surplus countries would increase growth and it would come with higher inflation, but it would allow rebalancing without a Great Depression in parts of Europe

Addressing the rationality of ‘irrational’ European responses to the crisis: a political economy of the Euro area and the need for an alternative framework for economic policy

Although the analysis of the contemporary crisis in Europe has many different aspects, this paper will limit its scope to the issue of economic policy. The euro is not just a currency − it is a mechanism. Its introduction has established a particular form of symbiosis among different capitalist economies. The project of euro must be grasped in systemic terms: this mechanism amounts to a particular organization of economic strategies and forms of political power. It is therefore meaningless to criticize the putative irrationality of the policies implemented; it is necessary, rather, to unmask their innate social logic. Mainstream economic discussions focus on the problem of moral hazard and set it as a fundamental strategic target of policy making. In the context of the contemporary version of euro area, this emphasis leads to policy making regimes in which austerity is the only way to deal with economic imbalances. In other words, austerity is offered as alternative to economic instability. What is urgently needed is a progressive prospective on policy setting that overrides this unfortunate trade-off. The paper will address this issue from the viewpoint of (international) political economy

Detecting Missing Dependencies and Notifiers in Puppet Programs

Puppet is a popular computer system configuration management tool. It provides abstractions that enable administrators to setup their computer systems declaratively. Its use suffers from two potential pitfalls. First, if ordering constraints are not specified whenever an abstraction depends on another, the non-deterministic application of abstractions can lead to race conditions. Second, if a service is not tied to its resources through notification constructs, the system may operate in a stale state whenever a resource gets modified. Such faults can degrade a computing infrastructure's availability and functionality. We have developed an approach that identifies these issues through the analysis of a Puppet program and its system call trace. Specifically, we present a formal model for traces, which allows us to capture the interactions of Puppet abstractions with the file system. By analyzing these interactions we identify (1) abstractions that are related to each other (e.g., operate on the same file), and (2) abstractions that should act as notifiers so that changes are correctly propagated. We then check the relationships from the trace's analysis against the program's dependency graph: a representation containing all the ordering constraints and notifications declared in the program. If a mismatch is detected, our system reports a potential fault. We have evaluated our method on a large set of Puppet modules, and discovered 57 previously unknown issues in 30 of them. Benchmarking further shows that our approach can analyze in minutes real-world configurations with a magnitude measured in thousands of lines and millions of system calls

Identifying Bugs in Make and JVM-Oriented Builds

Incremental and parallel builds are crucial features of modern build systems. Parallelism enables fast builds by running independent tasks simultaneously, while incrementality saves time and computing resources by processing the build operations that were affected by a particular code change. Writing build definitions that lead to error-free incremental and parallel builds is a challenging task. This is mainly because developers are often unable to predict the effects of build operations on the file system and how different build operations interact with each other. Faulty build scripts may seriously degrade the reliability of automated builds, as they cause build failures, and non-deterministic and incorrect build results. To reason about arbitrary build executions, we present buildfs, a generally-applicable model that takes into account the specification (as declared in build scripts) and the actual behavior (low-level file system operation) of build operations. We then formally define different types of faults related to incremental and parallel builds in terms of the conditions under which a file system operation violates the specification of a build operation. Our testing approach, which relies on the proposed model, analyzes the execution of single full build, translates it into buildfs, and uncovers faults by checking for corresponding violations. We evaluate the effectiveness, efficiency, and applicability of our approach by examining hundreds of Make and Gradle projects. Notably, our method is the first to handle Java-oriented build systems. The results indicate that our approach is (1) able to uncover several important issues (245 issues found in 45 open-source projects have been confirmed and fixed by the upstream developers), and (2) orders of magnitude faster than a state-of-the-art tool for Make builds

The costs of internal devaluation in the EA

This paper investigates the economic costs of rebalancing current account positions in the Euro area by means of internal devaluation. Internal devaluation relies on wage suppression in the deficit countries. Based on an old Keynesian model we estimate a current account equation, a wage-Phillips curve and an Okun’s Law equation. All estimations are carried out for a panel of twelve Euro area members. From the estimation results we calculate the output costs of reducing current account deficits. Greece, Ireland, Italy, Portugal and Spain (GIIPS) had, on average, current account deficits of 8.4% of GDP in 2007. To eliminate these current account deficits, a reduction of GPD by some 47% would be necessary. Trade imbalances can be resolved in two ways: deflationary adjustment in the deficit countries or inflationary adjustment in the surplus countries. The economic costs of deflationary adjustment to those countries are equivalent to the output loss of the Great Depression. An adjustment of the surplus countries would increase growth and it would come with higher inflation, but it would allow rebalancing without a Great Depression in parts of Europe

What Victorian households can teach us about financial decision-making

They relied on local trust networks, instead of following the recommendation to diversify, write Janette Rutterford and Dimitris Sotiropoulo

Trade unions and the wages fund theory: on the significance of Mill’s recantation and some notes on Marx’s theoretical intervention

The intensity of class struggle in England of 1860s began to transform trade unions from mutual aid association societies to key factors in wage bargaining. These changes at the political level undoubtedly triggered corresponding shifts in theoretical discussion of wages. These shifts had to do chiefly with the recognition of the capacity of the trade unions to impose permanent increases in real wages without causing unemployment. Our analysis will focus on the theoretical interventions of J. S. Mill and K. Marx in this historic conjuncture. They both implicitly challenged the dominant analytical consensus in accordance with which every labour confrontation was ultimately detrimental to the working class’s own interests. Revising his own previous arguments, Mill came to support a reformist strategy which made room for trade unions but in the final analysis did not dispute capitalist rule. Marx, by contrast, challenged such political projects, stressing the irreconcilable contradiction between the long-run class interests of capital and labour