Correct Prices Are Not Free

Financial industry share of US GDP. Source: Philippon (2007). Estimation based on U.S. Annual Industry Accounts, Kuznet (1941), Martin (1939), U.S. Census, and Historical Statistics of the U.S. (2006).

1. Introduction It takes hard work to maintain prices at their fundamental values. Accurate, responsive and informative prices do not occur by magic. Analysts have to diligently monitor firms prospects and security prices. Market makers have to … [Continue reading]

Dyson Brownian Motion

1. Introduction I outline the construction of Dyson Brownian motion which governs the evolution of the eigen-values of an $(N \times N)$-dimensional stochastic process of Hermitian matrices. For instance, if $A(t)$ is such a process, … [Continue reading]

Business Cycle Patterns

The chart below contains macroeconomic and financial data on the US economy from 1775 to 1943. The chart is from the St. Louis Federal Reserve Fraser Archives. I've run across this chart several times over the course of the past year and I find new … [Continue reading]

Using the Front Door Criterion

Think: Los Angeles = 2.5 × San Francisco.

1. Introduction[1. I am currently working on a paper with Chris Mayer in which we use this identification strategy to parse the causal effect of introducing out of town second home buyers into a housing market on local house prices. In this setting … [Continue reading]