Monday, December 22, 2008
I see my book that is in the process of being published is listed at Amazon. The description is sufficiently vague that it really doesn't explain why anyone other than my mother should buy the book, but that makes sense because currently a wily editor (actually, a Wiley editor) is doing what editors do. It's my first book, so I'm not sure how this will go exactly, that is, how detailed or substantive the suggestions will be.
It's scheduled for a June release, because I guess the monks who transcribe books are very busy this time of year, and I'm trying to get blurbs from a subset of David Smick's 50 or so admirers (I wasted no time reading it!--Lawrence Summers). I'm obviously excited about it, but given it has several months to release and I don't want to get ahead of myself, I'm not going to say too much about it now, other than it discusses why current models of risk and return are wrong as an approximation, working only for a few special cases. Basically, you see a positive risk-return trade-off from 0 to epsilon riskiness for alpha-less investments (eg, Baa-Aaa spread, short end of yield curve), then a generally flat relationship, and then the lowest returns for the most violently risky assets. Supposedly a spooky risk factor reconciles this with the standard model, but I highlight how absurd this would be even if this wraith were ever identified consistently for more than a business cycle, and how the evidence has been tendentiously presented to support the framework (akin to the Flying Spaghetti Monster's 'noodley appendage' at work). There are some general implications (eg, buy low risk assets), but also more subtle ones. It outlines ways for finding alpha taking into account the petty incentives and information biases of the parties inevitably involved (eg, investors and bosses), with various examples. It was fun to write.