Dollars and Jens
Thursday, May 28, 2015
stock market valuations
I feel like, perhaps especially after that last post, I should say something about "Is the stock market overvalued?", which seems to be a popular question.  As usual, insofar as the question is well-formed, the answer is "I don't know", but that's not a fun answer, so, without making too long a post, my answer instead is "The bond market is overvalued."  I (obviously?) don't really know that, either, but if you're comparing stock prices to some sort of flow (dividends, earnings, etc.), the appropriate ratio is surely something that changes with time in a way that should correlate with interest rates, and the estimates I've seen lately of "the equity risk premium" are all higher than historical norms — which is to say (very crudely) that stocks are undervalued relative to bonds relative to their historical relationship. In perhaps more basic terms, if you're looking to sell stocks because you think they're overvalued — not, insofar as it can be made distinct, because you think they're especially risky — then your alternative is basically cash.

I'll add a couple of links here:

I spent more time on this post than I meant to.

Tuesday, May 26, 2015
the modern stock market
There's a paper on SSRN about the modern stock market with its high-frequency traders and dark pools and so on, and I recommend it. I'd like to offer a couple remarks on some small bits of it:

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