It is normal to panic when faced with uncertainty, and the current financial meltdown has given rise to plenty of uncertainty. But how are economic and financial experts investing their own money? As far as I know there is no systematic study on the question, but we do have a few data points:
-- Nouriel "Dr. Doom" Roubini has written many words about the financial crisis, and he's on record as saying that things will get much worse before they get better. But his investment portfolio is comprised entirely of equities, and he keeps contributing every month (ht: DePalma, via Marginal Revolution). (By the way, that entire article, on behavioral finance, is recommended reading.)
-- Atlantic econoblogger Megan McArdle is a firm believer in the efficient markets hypothesis (at least in the long run), and I recall reading (tho I can't find the post right now) that her portfolio is made up of indexed mutual funds, roughly 70% domestic and 30% foreign. McArdle also pioneered the "Don't Look!" philosophy of investing in volatile times.
-- Tyler Cowen has maintained his "buy and hold and diversify" strategy.
-- Princeton economist Burt Malkiel is 80% indexed equities, and ~ 30% foreign.
-- Greg Mankiw is a believer in the efficient markets hypothesis, at least in part: "it may be true enough".
These are only a handful, but all are heavily invested in equities relative to bonds or commodities, and all seem to profess some level of belief in the efficient markets hypothesis. Roubini, McArdle, and Cowen are not at all bullish on the economy's short-run prospects, yet their personal investment strategies have not yet changed. What does this tell us?
Well, it could mean that they are ideologically biased by a prior belief in efficient markets, and are willing to sacrifice their portfolios on the altar of that hypothesis. Or, they might be unsure of which investment strategy is best in volatile times, but they know they are unlikely to profit from short-term buying-and-selling, so they stick with their previous long-term strategies, heavily discount the short-run (since none depend on return from investments as their primary source of income), and hope their long-run strategies are sound.
I'm interested in systematic studies of how experts or academics in economics and finance invest their own money, or even more individual anecdotes. If any readers know of anything like this, I'd appreciate some pointers.
IPE @ UNC
IPE@UNC is a group blog maintained by faculty and graduate students in the Department of Political Science at the University of North Carolina at Chapel Hill. The opinions expressed on these pages are our own, and have nothing to do with UNC.
Bookshelf
Tags
Academia Adjustment Afghanistan Africa AIG America Argentina Austerity Bailout Banking Bargaining Basel Bernanke Bias Blogging Business cycle; recession; financial crisis Cap and Trade capital controls capital flows central banks; moral hazard Chavez China China Trade Climate Change Contentious Politics Cuba Currencies Currency Crises; financial crisis Current Account Data Debt Debt; China; United States; Decession Politics Decoupling Deflation democracy Democrats; Trade policy development Diplomacy Dollar; China; Currency Manipulation; Exchange Rates dollar; exchange rate policy ECB ECB; Fed; Monetary Policy Economic Growth Economics Egypt election EMU; monetary union Environment EU; Agriculture; Common Agricultural Policy Euro Europe; labor; immigration European Union Exchange Rates Farm Bill; Agriculture FDI Fed; Monetary Policy finance financial crisis financial crisis; subprime Fiscal Policy; monetary policy; elections Fiscal Stimulus Foreign Aid Foreign Policy France Free Trade Agreements G-20 G20 Summit Game Theory Germany global recession globalization Grand Theory Great Britain Greece health care reform Hegemony Human Rights Iceland imbalance IMF immigration Incentives income distribution income inequality; globalization India Inequality inflation institutions Interests international finance International Law International Monetary System International Relations Investment IPE Iran Iraq Ireland ISA Italy Japan labor markets Latin America Libya Macroeconomics Marxism Mexico Microfinance Miscellany monetary policy Monetary policy; Federal Reserve moral hazard Narcissism Networks Nobelist Smackdown North Korea Obama Oil PIGS Pirates Political Economy Political Methodology Political Science Political Survival Political Theory Power Protectionism Protests Public Choice Public opinion Rational Choice regulation Research Review Russia Sanctions Security Dilemma security threats Soccer Social Science Sovereign Debt Spain Sports Statistics stock markets Systems Tariffs TARP Taxes TBTF Technocracy technology terrorism Trade trade policy UNC Unemployment United States US-South Korea Venezuela WTO WTO; Doha
Blog Archive
-
▼
2009
(521)
-
▼
March
(25)
- Should Europe Do More?
- Assorted Depressing Links
- G-20
- Ode to Paul
- Pick Your Poison
- World's Biggest Banks
- Yes, But He Has Good Intentions
- More on Punitive Taxation
- The Market Norm of Non-Cooperation
- Pop Quiz
- Cheetahs vs. Hippos: Against "Swiss Bank Socialism"
- The Lone Ranger
- What, Me Worry?
- Can the US Perform Hegemonic Functions?
- Who Fails the Hegemony Test?
- Hegemoaning
- Quants and the Limits of Certainty
- Links for the Weekend
- Broader Unemployment Figure
- Small Change in Cuban Cabinet...
- When Expectations Converge
- Through the Looking Glass...
- The Dynamic Duo
- Gettin' Ugly in Ukraine...
- The Next Iceland?
-
▼
March
(25)
Saturday, March 14, 2009
What, Me Worry?
Subscribe to:
Post Comments (Atom)
2 comments:
Interesting post. Although, McArdle is hardly the pioneer of the "Don't Look" philosophy. All these experts follow what I would have suggested, although I think they need to have an allocation towards bonds and I'd like to see a breakdown of their asset allocation within US stocks. Also, if you're indexing, you're not making bets on individual stocks, which may make you feel better in a bear market.
As far as your research interest - I'd suggest starting by looking at the ways in which brokerage houses invest their own money to see if there are any marked differences between their investment strategy and the strategies their clients take on.
It's interesting for me to read this because I never even thought of pondering how economic experts are holding up in financially tough times like now. I mean I've always thought I was doing pretty good despite the recession, and I've got quite enough savings and I still have my job. Not that I've got money to support me for the rest of my life or anything, that's a whole other scary thought.
Post a Comment