william the wie
Gold Member
- Nov 18, 2009
- 16,667
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@Old Fart,
You wanted a serious discussion of economics but first some definitions for those who want to join the fun:
Financial Markets spend most of their time either going sideways or up and down in a fairly predictable range.
Stocks that tend to go up when the market goes sideways or is range bound have positive or high Alpha. Stocks that tend go down in these conditions have negative or low Alpha. So, high alpha stocks are less risky under normal conditions.
High beta stocks tend to go up or down faster than the market. Low beta stocks tend to go up and down slower than the market as a whole.
Because of buying stocks, bonds, real estate and commodities on borrowed money and discounting value by interest rates capital markets tend to have more cascading failures than normal curve probabilities would predict: 8% (- 2 or more sd failures) instead of the expected 2%. Since high alpha issues tend to go up when the market isn't doing much they tend to produce far fewer defaults due to inadequate collateral. Low alpha issues tend to get more margin calls regardless of market conditions.
The downswings contribute more to the computation of beta than the upswings because of the way margin calls amplify failure.
So, bring on the counter-arguments.
You wanted a serious discussion of economics but first some definitions for those who want to join the fun:
Financial Markets spend most of their time either going sideways or up and down in a fairly predictable range.
Stocks that tend to go up when the market goes sideways or is range bound have positive or high Alpha. Stocks that tend go down in these conditions have negative or low Alpha. So, high alpha stocks are less risky under normal conditions.
High beta stocks tend to go up or down faster than the market. Low beta stocks tend to go up and down slower than the market as a whole.
Because of buying stocks, bonds, real estate and commodities on borrowed money and discounting value by interest rates capital markets tend to have more cascading failures than normal curve probabilities would predict: 8% (- 2 or more sd failures) instead of the expected 2%. Since high alpha issues tend to go up when the market isn't doing much they tend to produce far fewer defaults due to inadequate collateral. Low alpha issues tend to get more margin calls regardless of market conditions.
The downswings contribute more to the computation of beta than the upswings because of the way margin calls amplify failure.
So, bring on the counter-arguments.
