Markets

Global Markets Research at Chicago Booth

An introduction to the global markets issue

By Brian Barry,  Anil K Kashyap   
October 01, 2012

From: Magazine

Over the past year, Chicago Booth faculty members have been writing a weekly column for Bloomberg, in which they offer views and analysis related to current problems in business and policy. This column on the Bloomberg View website enables our faculty members to share with the public the wide range of practical insights that they have gained by examining important questions at the frontier of research.

In this issue of Capital Ideas, we highlight five research projects that have formed the background for Bloomberg columns by our faculty during the feature's first year. These offer an overview of the various ways research at Chicago Booth relates to pressing issues that are of widespread interest to the public.

Launching a weekly Bloomberg column written by Booth faculty was a natural extension of an effort that the school's Initiative on Global Markets (IGM) began several years ago: to make the public more aware of how our faculty approach important current problems. As part of this initiative, when the global credit crisis struck in 2008, we launched a new website, the IGM Forum, where our accounting, economics, and finance faculty were able to post views on the sudden changes happening in the markets, as well as their ideas about how to handle the policy trade-offs involved.

Given the many insights that our faculty were able to offer, it became clear that Chicago Booth was well-placed to provide a steady stream of commentary on a wide range of current issues in international business, finance, and economic policy. So when the Bloomberg Media Group launched a new initiative in May 2011 - a website called Bloomberg View offering analyses and opinions by respected columnists - we were excited to team up with them to offer a weekly contribution from members of our faculty.

Research by Steven J. Davis and Amir Sufi, for example, highlights two important channels that appear to have exacerbated the recession in the United States, while two other featured research projects, one by Steven N. Kaplan and the other by Tobias J. Moskowitz, offer keen insights into investment performance. Chad Syverson's research into learning by doing provides a deeper understanding of productivity in the manufacturing process.

Professor Davis teamed up with Nicholas Bloom and Scott Baker of Stanford University to create a novel index of policy-related economic uncertainty. The index is based on detailed information about tax provisions that are due to expire over a 10-year period; market forecasts of fiscal and monetary policy variables such as government purchases; and media references to uncertainty about economic policy. The index has been at high levels during the past few years, suggesting that the policy environment has not been an encouraging one for firms deciding whether to add staff or make new capital investments, nor for individuals making consumption decisions or choosing whether to invest in new skills.

Professor Sufi, in a paper he coauthored with Atif Mian at the University of California, Berkeley and Kamalesh Rao of MasterCard Advisors, analyzed household balance sheets in high- and low-debt zip codes across the United States, demonstrating the role that high debt levels played in driving down consumption once housing prices fell sharply and the economy slumped.

Professor Kaplan, together with Robert S. Harris of the University of Virginia and Tim Jenkinson of the University of Oxford, examined a unique dataset on cash flows from buyout funds to their institutional investors. They show that private equity funds investing in mature companies have generated, over a long period of time, returns that significantly outperform public equity markets.

Professor Moskowitz teamed up with two coauthors at AQR Capital Management - Clifford S. Asness, PhD '94, and Lasse H. Pedersen - to examine how popular investment strategies interact with each other across a range of asset classes worldwide. They show how two well-known strategies that often are thought of as distinct, value and momentum, can be combined to improve risk-adjusted returns substantially in a typical portfolio.

The other research paper we highlight in this issue is by Professor Syverson, who, along with coauthors Steven D. Levitt and John A. List in the University of Chicago's Department of Economics and the College, looked deep inside a car plant to understand how businesses boost productivity. They were able to generate a much-improved understanding of how learning by doing occurs in the manufacturing process, and how workers on one factory shift were able to transfer what they learned to their counterparts on another, sharply driving down defect rates along the way.

We invite you to read more about these pathbreaking research studies in this issue of Capital Ideas. We also encourage you to look through more Chicago Booth faculty columns on Bloomberg, which you can find on the IGM Forum website.

Also on the IGM Forum website, you can find another new feature that we have launched in the past year: the IGM Economic Experts Panel. Each week, our experts, a group of highly respected economists from top universities across the United States, answer a question of general interest.