Comments on The Psy-Fi Blog: Correlation is not Causality (and is often Spuriou...

Securities and Exchange Board of India( SEBI ) has...

2011-01-03T12:41:29.551Z

Securities and Exchange Board of India( SEBI ) has approved the National Stock Exchange NSE’s tie-up with a number of regional exchanges including Calcutta, Vadodara, Jaipur and Madhya Pradesh.
This will help Members from these exchanges to trade on a much wider country-wide trading platform–the NSE a press release issued here said. for more details please visit to:-http;//wwwpuntercalls.com

Spending comes before Christmas therefore spending...

2010-11-18T22:27:59.581Z

Spending comes before Christmas therefore spending causes Christmas.

Hi Frank Agree with both points but think there a...

2009-05-16T20:14:00.000+01:00

Hi Frank

Agree with both points but think there are a couple of exceptional circumstances to be considered. Mostly asset correlation is useful in hitting the efficient frontier (ok, I know ...) but in extreme cases of fear I think this breaks down. We don’t get many examples of this in a lifetime but in both the ‘90’s Asian crisis and last year there was a flight to “quality” and damn the correlation. The real surprise is the lack of a flight to gold, but perhaps that says something about the stability of the world we think we live in?

On inflation and equities I agree but think the argument can be extended a bit – those companies that can pass on inflationary costs in increased prices are very good defences against inflation, those that can’t will get hurt. I’ve some numbers somewhere on the effect of hyper inflation on stocks in Germany in the 1920’s – a clear case of where holding ‘safe’ fixed income bonds was a one-way ticket to penury.

P.S. To any readers I recommend clicking through to Frank's blog, it's a refreshing dose of reality :) http://www.badmoneyadvice.com/

Good post. I don't think that Treasuries and stoc...

2009-05-16T19:34:00.000+01:00

Good post. I don't think that Treasuries and stocks are really inversely correlated, although it sure looked that way in the fall. I believe that all investments are positively correlated with each other to some extent. After all, they all compete with each other for investment dollars.

I also think that the widely held belief that inflation is bad for stock returns is a good example of the false correlations that you discuss. There's really no theoretical justifiation for it, as stocks are a real asset, but as it happens periods of high inflation have tended to also be periods of poor economic performance and low confidence, so the numbers seem to suggest a (false) link.