Finance

Sandra Urie ’85 of Cambridge Associates talks about helping clients find the right level of risk.

The concept of high-risk, high-return is a bedrock belief in finance, confirmed by decades of empirical data. But when Prof. Roger Ibbotson dug deeper into the data, things started to look a little different.

Investment companies including Fidelity, Putnam Investments, and Voya Financial are rolling out tools that tell investors how their retirement savings compare to those of their peers. This social comparison is intended to motivate investors to increase their savings; however, new research shows that it can have the opposite effect.

The choices we make—the cars we drive, the neighborhoods we live in, the gyms we join—are influenced by our social networks, the people we surround ourselves with. Our financial choices are no exception. While thousands of studies have examined peer effects, a new study co-authored by Florian Ederer, assistant professor of economics, is the first to clearly identify the two channels of social influence—social learning and social utility—that explain why our peers’ financial decisions affect our own.

Smart beta is the hot thing in investing strategies, marketed as a new way to diversify and reduce risk. But Eugene Podkaminer ’01 argues that common smart beta strategies recycle long-established methods and likely aren’t the most efficient way to achieve those goals.

Large, investment-grade companies such as Walmart and Home Depot that can easily borrow money in the capital markets often receive financing from their much smaller, credit-constrained suppliers. A new study examines the effects of this pattern of financing and finds that it squeezes small suppliers, creating a cash shortfall and causing them to cut back on capital investments.

Lei Zhang ’02 has been one of the most successful investors in China during a time of unprecedented change. In a conversation with Yale’s Stephen Roach, he talked about rapid shifts in China’s business and culture, the birth of a consumer class, the Chinese innovation model, and the outmoded views of the country that remain prevalent in the West.

Computer-based trading dominates markets, with a majority of trading activity in major markets happening without any human intervention. Robert Litterman, a pioneer of the quantitative investing approach, spoke with Yale Insights about how ruthless competition keeps the field changing and why he believes human judgment remains an essential component of any strategy.

A real estate boom can drive the construction of new homes, commercial centers, and skyscrapers, reshaping cities. The following bust can leave neighborhoods vacant. Have factors like the increasing availability of public information about real estate and the shift toward a global marketplace tamed a cycle that has played out repeatedly over the centuries?

In a New York Times op-ed, Professor Robert J. Shiller explains that stock market movements are driven by popular narratives that spread like “thought viruses.” Secular stagnation—the idea that the global economy may languish for years to come—is the current story driving down the stock market. Whether true or false, the idea alone has the potential to erase five years of gains and create a bear market.