I wonder if Brad DeLong trades

Economist Brad DeLong recently posted a short video  (2 minutes, 22 seconds) on the futility of making forecasts of changes in the stock market (except in extreme circumstances), changes in interest rates and the changes in the economic business cycle. It’s the conventional economic thinking that everything is already in the price.

When I studied economics I believed in this view wholeheartedly. When I started working in the real world, however, I observed examples where markets took ages to clear, where inefficiencies seemed to persist. Today, my personal belief is that long-range financial market forecasting is indeed extremely difficult, much like weather forecasting, but I believe shorter time-frames offer exploitable inefficiencies when it comes to trading fixed income and currencies. I perceive this to also be true of the equity markets, but I’m not sure how well it stacks up against the beautiful upward drift provided by a simple, long-term, buy-and-hold strategy. My beliefs are subject to change but they will always will be independent of my trading results. Of course, I wouldn’t be trading unless I thought I could extract a profit from the market.

However, I do agree with DeLong on the impossibility of making accurate long-range economic forecasts. And this makes me wonder whether all the economists providing punditry on the news channels acutally believe in what they are saying or whether they have decided to ‘sell-out’. Afterall, it must be hard lecturing in a university when you can make substantially more working in the private sector.

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2 responses to “I wonder if Brad DeLong trades

  1. How have you been doing in these markets? I have kept slightly ahead of the pack so far.

  2. Hi Banker, so far this week I have achieved a low return, but for this I have paid a good price in terms of reduced risk, so no real complaints at my end. I am content. Unlike equities, fx trading is broadly a zero sum game, so the pack must surely be neutral at all times?

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