Trade policy is upending markets—but not investment
By Steven J. Davis – Trade-policy concerns became a major source of US stock market volatility in 2018. For example, the S&P 500 fell 2.5 percent on March 22, 2018, reacting to news about just-announced US tariffs on tens of billions of dollars of Chinese imports. Four days later, the index rose 2.7 percent on news the United States and China had begun trade negotiations. Still, tariffs and tariff threats between the two countries ratcheted upward over the next several months.
This prominence marks a striking change, as demonstrated in my research with Northwestern’s Scott R. Baker, Northwestern PhD candidate Marco Sammon, and Stanford’s Nicholas Bloom. We took a systematic look at the role of trade-policy developments and other news in large daily stock market moves. We first identified every daily move of 2.5 percent or more, up or down, in the US stock market. By this criterion, there were 1,112 large daily moves from 1900 to the end of 2018.
For each large move, we read next-day news articles in the Wall Street Journal to classify perceptions of what moved the market. The WSJ attributed seven of 1,103 large moves from 1900 to 2017 mainly to news about trade policy. But in a remarkable turnabout, the newspaper attributed three of nine large moves in 2018 to trade-policy news. From a historical perspective, the prominent role of trade policy in recent US stock market swings is highly unusual.
The highly visible US–China dispute is only one of the heightened trade-policy concerns behind the pattern we chart. The US has also become enmeshed in trade-policy disputes with several other major trading partners since Donald Trump became president.
How much do these heightened concerns affect capital-investment expenditures by US businesses? Not as much as you might think. more>
Posted in Business, Economic development, Economy, Education, How to, Regulations
Tagged Business improvement, Capital, Chicago Booth, Investment, Policy, Stock market, Trade
Technology is splitting the job market
Some people are prospering, while others are left behind
By Raghuram Rajan – Soon, the smartphone may be replaced by a device implanted in our body that connects with our mind and provides instant access to both computing power and enormous databases. Computer-enhanced humans are no longer the realm of science fiction. The information and communications technology (ICT) revolution has fundamentally changed what we spend time on, how we interact with one another, what work we do and where we do it, and even how people commit crime.
Most importantly, it has upset the balance between the three pillars—the state, markets, and the community.
The ICT revolution has not just followed the course of previous revolutions by displacing jobs through automation; it has also made it possible to produce anywhere and sell anywhere to a greater degree than ever before. By unifying markets further, it has increased the degree of cross-border competition, first in manufacturing and now in services. Successful producers have been able to grow much larger by making where it is most efficient. This has created spectacular winners, but also many losers.
The technology-assisted market has had widely varying effects across productive sectors in a country. Some of the effects stem naturally from technological change, and some stem from the reactions of people and companies to it. Indisputably, it has raised the premium on human capabilities. As a result, some well-educated communities in big cities have prospered, while communities with moderately (typically high-school-) educated workers in semirural areas dominated by manufacturing often have not.
More generally, as with past technological revolutions, the need for people to adapt has come rapidly, before the benefits have spread widely. Indeed, the communities that are required to adapt the most, as always, are the communities that have been experiencing the greatest adversity, and have the least resources to cope. more>
Posted in Business, Economic development, Economy, Education, How to, Media, Net, Science, Technology
Tagged Business improvement, Capital, Chicago Booth, community, Financial crisis, Government, Internet
Public disclosures help hold politicians accountable
By Rebecca Stropoli – A common problem in democracies is that, once elected, politicians may fail to address the needs of their constituents, especially the poorer ones. But is there a way to empower the electorate by holding officials accountable for their actions?
MIT’s Abhijit Banerjee and Harvard’s Nils Enevoldsen, Rohini Pande, and Michael Walton examined the effect that publicizing politicians’ records had on electoral results in the 2012 municipal elections in Delhi, India. They find that being issued public report cards caused politicians to shift their spending priorities.
With more than 18 million people, Delhi is the world’s second-largest city, behind Tokyo. Poor people living in slums form a significant share of the Delhi population. Slum dwellers, in fact, account for an electoral majority in many of the city’s 272 single-member wards, each of which elects a councilor to the municipal government every five years.
The anticipation of media reports did influence the policies of politicians representing poorer areas, the findings suggest. Councilors in high-slum wards whose report cards were published shifted their spending priorities to better match the needs of their constituents.
The “effective spending” on the needs of the poor by these councilors over two years increased by about $5,000 on average, or more than 13 percent, Enevoldsen says. more>
Posted in Business, Economic development, Economy, Education, How to, Leadership, Science, Technology
Tagged Business improvement, Capital, Chicago Booth, Health, Internet, Leadership, Skills
Machine learning can help money managers time markets, build portfolios, and manage risk
By Michael Maiello – It’s been two decades since IBM’s Deep Blue beat chess champion Garry Kasparov, and computers have become even smarter. Machines can now understand text, recognize voices, classify images, and beat humans in Go, a board game more complicated than chess, and perhaps the most complicated in existence.
And research suggests today’s computers can also predict asset returns with an unprecedented accuracy.
Yale University’s Bryan T. Kelly, Chicago Booth’s Dacheng Xiu, and Booth PhD candidate Shihao Gu investigated 30,000 individual stocks that traded between 1957 and 2016, examining hundreds of possibly predictive signals using several techniques of machine learning, a form of artificial intelligence. They conclude that ML had significant advantages over conventional analysis in this challenging task.
ML uses statistical techniques to give computers abilities that mimic and sometimes exceed human learning. The idea is that computers will be able to build on solutions to previous problems to eventually tackle issues they weren’t explicitly programmed to take on.
“At the broadest level, we find that machine learning offers an improved description of asset price behavior relative to traditional methods,” the researchers write, suggesting that ML could become the engine of effective portfolio management, able to predict asset-price movements better than human managers. more>
Posted in Business, Economy, Education, How to, Net, Technology
Tagged Business improvement, Capital, Chicago Booth, Internet, Machine learning, Skills