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June 2012

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The Margin Inequality

June 21, 2012 – Comments (0)

In this post, I mentioned the speculative nature of purchasing stock on margin. The risks associated with using margin are many and it may be the case that they cannot all be quantified. I would like to explore one risk associated with margin which can be given a rough model. I call it the Margin Inequality.   [more]

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Stocks are not Well Behaved

June 17, 2012 – Comments (4)

So I stole this idea from Benoit Mandelbrot from his book The Misbehavior of Markets (which is an interesting book btw). I looked at daily % change in the price of the S&P 500 going back to 1950 (which is where yahoo finance's data begins). Here's what it looks like:  [more]

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Minsky's Borrower Schema

June 07, 2012 – Comments (0)

Hyman Minsky proposed what he called The Financial Instability Hypothesis. The basic idea is that in capitalist economies, periods of stablity (due to conservative lending) lead to instability (due to increased risk taking). Lending becomes lax resulting in debt-induced bubbles which ultimately collapse as the riskier borrowers will default on their loans.  [more]

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