That's Interesting
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Boomer’s Guide to Higher Interest Rates: Part III – What Happens When You Can Earn 5% on Your Bank Deposits
16th March, 2025The third in a series of follow-ups, this article talks about what the world could look like when everyone can earn a reasonable risk-free rate – let’s call it 5% plus or minus 50 basis points – on their personal cash balances.
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Boomer’s Guide to Higher Interest Rates: Part II – What Happens When Equilibrium Approaches?
16th March, 2025This follow-up article shares some of the themes, expectations and lessons learned from other periods where the risk-free rate of interest was material and the cost of capital wasn’t super cheap.
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Boomer’s Guide to Higher Interest Rates: Part I – Dealing with an Increasing Interest Rate Environment
16th March, 2025No cycle is precisely like the previous one, so this article is not a perfect recipe to successfully navigate increased rates, but hopefully some of the thoughts will help accept, adjust, and be better prepared for what may come next.
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The Basic Laws of Human Stupidity
09th March, 2025In a different world (tumult of the ’70s), a pamphlet was published by one of the better-known economic historians of the ancient and medieval world that summarized why people make irrational decisions and how some countries recover and grow and yet others fail. It was written by the late Carlo Cipolla, an economic historian from Berkeley. The title (unlikely to be acceptable these days) was “The Basic Laws of Human Stupidity”, where he divided people into four brutal Forrest Gump type categories: “the helpless, the intelligent, the bandit and the stupid.” In an economic sense, the classification is based on whether they and others gain or lose from their actions. The “helpless” gain little or nothing, though others may profit from their actions; the intelligent gain from what they do, but so do others; the bandits gain when others lose; finally, the “stupid” gain nothing or suffer losses as they harm the rest. Cipolla’s conclusion was that while “bandits” are not good, their actions follow self-interest logic that allows others to understand their motives and defend against. In his view, “stupid” are the most dangerous, as they are irrational and unpredictable, suffering from losses for no gain for themselves, and thus impoverish societies. He argues there is an even distribution of “stupid”, while the composition of “intelligent” and “bandit” varies between societies. It is this shifting balance that determines recovery (intelligent offset bandits) or collapse. However, in times of stress, “bandits” might unite with “stupid” (believing erroneously that they control them) to benefit from upheavals. The same applies to “intelligent”, as they also think that they are in control, but unlike bandits, they want to build a new order. A similar and more conventional concept was later developed by Acemoglu and North, discussing evolution of “extractive vs inclusive” institutions and transitions between two states.
Revolutions: When, Why and How?
13 February 2025
Viktor Shvets
Macquarie Global Strategy
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Limited accountability and awareness of corporate emissions target outcomes
17th February, 2025Firms are increasingly announcing targets to reduce their carbon emissions, but it is unclear whether firms are held accountable for these targets. This article examines emissions targets that ended in 2020 to investigate the final target outcomes, the transparency of target outcomes and potential consequences for missed emissions targets.
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12 Best Practices for Leveraging Generative AI in Experimental Research
04th December, 2024This paper provides twelve best practices and discusses how each practice can help researchers accurately, credibly, and ethically use Generative AI (GenAI) to enhance experimental research.
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End of an Era: The Coming Long-Run Slowdown in Corporate Profit Growth and Stock Returns
04th June, 2024This paper shows that the decline in interest rates and corporate tax rates over the past three decades accounts for the majority of the period’s exceptional stock market performance. Lower interest expenses and corporate tax rates mechanically explain over 40 percent of the real growth in corporate profits from 1989 to 2019, however, the boost to profits and valuations from ever-declining interest and corporate tax rates is unlikely to continue, indicating significantly lower profit growth and stock returns in the future.
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Corporate Mergers and Acquisitions Under Lender Scrutiny
15th May, 2024This paper examines corporate mergers and acquisitions (M&A) outcomes under lender scrutiny. Using the unique shocks of U.S. supervisory stress testing, we find that firms under increased lender scrutiny after their relationship banks fail stress tests engage in fewer but higher-quality M&A deals. Evidence from comprehensive supervisory data reveals improved credit quality for newly originated M&A-related loans under enhanced lender scrutiny.
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Noise in Expectations: Evidence from Analyst Forecasts
03rd May, 2024Analyst forecasts outperform econometric forecasts in the short run but underperform in the long run. This article decomposes these differences in forecasting accuracy into analysts’ information advantage, forecast bias, and forecast noise. It finds that noise and bias strongly increase with forecast horizon, while analysts’ information advantage decays rapidly.
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