Inflexible regime, inflexible prices

There is a deep connection between political mechanisms and economic mechanisms, at least according to Ajay Shah.

Price flexibility

Ajay Shah has a post called Jittery regimes fix prices. It is well worth reading the whole piece (which isn’t very long anyway).  Here’s an excerpt:

Flexible prices are constantly disruptive. Every day, there are a few pockets of the economy that are really getting hurt in the creative destruction. It requires a confident regime to take these fluctuations in its stride. A jittery and illegitimate regime may be more likely to clamp down on price fluctuations since it fears these could destabilise it.

Pollution of the market

There is a paper called Air pollution and stock returns in the US (arriving via FinanceProfessor).  From the abstract:

[This study] examines the relationship between air pollution and stock returns using data from the Air Quality Index, and stock returns from four stock exchanges in the US. We find that air pollution is negatively related to stock returns, even when controlling for other variables.

This version, at least, is behind a paywall.

The effect seems believable to me, but I would hypothesize that the effect would be very small now given that decision-making is dispersed around the country.  I wasn’t able to discover the time period for the data.

Regime switching in and out of momentum

I’ve previously discussed momentum versus mean reversion. Quantivity has a post Delay embedding as regime signal about a strategy for estimating a regime switching model of momentum versus mean reversion.

I have no idea if it is a wonderful scheme or completely idiotic, investigate further at your own discretion.

Revenge of the nerds

It is celebration time for nerds everywhere — CalTech won a basketball game (by one point).

They’ve won at least one other basketball game — in 1985.  If records are to be trusted that far back in history, that game was also won by one point.

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