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- Product code: 23097
- ISBN: 0470027398,
ISBN13: 9780470027394,
190 pages, hardback
Published by John Wiley & Sons on 2006
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Description of The Liquidity Theory of Asset Prices |
Professional investors are bombarded on a day to day basis with assertions about the role liquidity is playing and will play in determining prices in the financial markets. Few, if any, of the providers or recipients of such advice can truly claim to understand the well-springs of such liquidity and the transmission mechanisms through which it impacts asset prices. This groundbreaking new book explores the belief that at the core of liquidity there is a force which exerts individuals to effect a financial transaction when they would not otherwise do so. Understanding this force of compulsion is a key to understanding a financial market when it appears to be behaving irrationally. This book will enable new and seasoned investors to develop an understanding of the factors, so that costly mistakes can be avoided without the lesson of experience.
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Contents of The Liquidity Theory of Asset Prices |
List of tables, figures and charts
Foreword
The authors
Acknowledgements
Introduction
PART 1. THE MONETARY THEORY
1. Types of Trades in Securities
1.1 Liquidity Trades and Portfolio Trades
1.2 Information Trades and Price Trades
1.3 Efficient Prices
1.4 Expectations of Further Rises or Falls
2. Persistent Liquidity Trades
2.1 Demand for Money
2.2 Supply of Money
2.3 Excess Money in the Economy
2.4 Summary
3. Extrapolative Expectations
3.1 Sentiment
3.2 Intuition
3.3 Decision Taking Inertia
3.4 Crowds
3.5 Fundamental and Monetary Forces in the Same Direction
4. Discounting Liquidity Transactions
4.1 Speculation
4.2 Timing
4.3 Short-Term Risk versus Profits in the Longer Term
Appendix 4.1. Speculation and Market Patterns
5. Cyclical Changes Associated with Business Cycles
5.1 Introduction
5.2 Direct and Indirect Effects of Money on Asset Prices
5.3 Strategy
5.4 Timing
5.5 Sequences
5.6 Triggers
6. Shifts in the Savings Demand for Money
6.1 The Peak of a Business Cycle
6.2 Running Down Bank Deposits
Appendix 6.1 Some Bond Arithmetic
Appendix 6.2. Government Bond Markets
PART 2. FINANCIAL BUBBLES AND DEBT DEFLATION
7. Financial Bubbles
7.1 Detection of a Bubble
7.2 Phases
7.3 Cross-Checks
8. Debt-Deflation
8.1 The Cure for Debt-Deflation
8.2 Fiscal Policy
Appendix 8.1. Ignorance of Irving Fisher's Prescription
PART 3. ELABORATION
9. Creation of Printing-press Money
9.1 The UK in More Detail
9.2 Four Policies
10. Control of Fountain-pen Money and the 'Counterparts' of Broad Money
10.1 Control of Bank Lending
10.2 Bank Capital
10.3 The UK in More Detail
10.4 The. counterparts of broad money
10.5 Relationship Between the Counterparts
11. Modern Portfolio Theory and the Nature of Risk
11.1 Summary
11.2 Expected Yield
11.3 Risk
11.4 Exploiting Skewness
12. Technical Analysis and Crowds
12.1 Trends and Trading Ranges
12.2 Crowd behaviour
12.3 Information
12.4 Trends and Momentum
12.5 Approaching a Turning Point
12.6 Turning Points
13. The Intuitive Approach to Asset Prices
13.1 Intuition that is a Reflection of Monetary Forces
13.2 Intuition that is Not a Reflection of Monetary Forces
14. Forms of Analysis
14.1 Different Languages
14.2 Macro-economic Models
14.3 Disequilibrium
14.4 Intended and Actual Transactions
14.5 Accounting Identities
Appendix 14.1. Direct Estimates of Supply and Demand for Credit in the US
PART 4. EVIDENCE AND PRACTICAL EXAMPLES
15. The UK Markets Prior to 1972
15.1 UK Money Supply and a Combined Capital Market Price Index, 1950-72
15.2 UK Money Supply and the Equity Market, 1927-72
16. The US Equity Market 1960-2002
17. Two Forecasts
17.1 Health Warning
17.2 Prediction of the October 1987 Crash
17.3 Prediction of the Top of the US Equity Market in April/May 2000
17.4 Postscript
18. Debt-Deflation, Practical Experience
18.1 The US in the 1930s
18.2 Japan in the 1990s and Early 2000s
PART 5. MONITORING DATA
19. Monitoring Current Data for the Monetary Aggregates
19.1 Erratic Data
19.2 Which Aggregate?
19.3 A Target Aggregate
19.4 An Expert Approach
19.5 Timing of the Availability of Data.
19.6 Understanding the Current Behaviour of the Market
Appendix 19.1. Monetary Targets in the UK
Appendix 19.2 - Distortions to Monetary Data in the UK
Appendix 19.3 - Velocity of Circulation
20. Monitoring Data for the Supply of Money
20.1 Printing Press Money
20.2 Fountain Pen Money
20.3 The Counterparts of Broad Money
20.4 Forecasts
20.5 Management information
20.6 Discernable trends
20.7 The public sector's borrowing in foreign currency and from abroad
21. The Different Sectors of the Economy
Conclusions
Glossary
References
Index
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About G.P. Pepper and Michael Oliver |
Gordon Pepper has the unusual combination of an economics degree from Cambridge and actuarial training. Immediately after he finished taking examinations, he became a dealer on the Floor of the London Stock Exchange. His 'postgraduate university' was the market place, where he underwent the harshest of disciplines. Forecasts based on conventional theories were often wrong. The inescapable conclusion was that these theories were either incorrect or incomplete. Pepper was the joint founder of W. Greenwell & Co's gilt-edged business (that is, the UK government bond business), which arguably became one of the leading bond-advisory businesses in the world, the advice being about both the best investments and the optimum way to execute business. For more than ten years he was the premier analyst in the gilt-edged market and was often described as the guru of that market. He was the principal author of Greenwell's Monetary Bulletin, which, in the 1970s, became one of the most widely read monetary publications produced in the United Kingdom. Pepper is the author of three books and the co-author of a fourth: Money, Credit and Inflation (1990), Money, Credit and Asset Prices (1994), Inside Thatcher's Monetarist Revolution (1998), and (with Michael Oliver) Monetarism under Thatcher - Lessons for the Future (2001). He is also chairman of Lombard Street Research Ltd, which is one of the UK's leading independent firms carrying out investment research and specialising in analysis of money, credit and flows of funds. Summarising, Pepper's particular strength is the combination of practitioner and academic. Above all, he writes with great authority from his knowledge of what actually happens in the marketplace. Michael J. Oliver is currently Professor of Economics at Ecole Superieure de Commerce de Rennes and a director of Lombard Street Associates, UK. He graduated in economic history at the University of Leicester and was awarded his PhD in economics and economic history from Manchester Metropolitan University. He has held posts at the universities of the West of England, Leeds, Sunderland and has been a Visiting Professor at Gettysburg College, Pennsylvania and Colby College, Maine. He is the author of several books, including Whatever Happened To Monetarism? Economic Policy-making and Social Learning in the United Kingdom Since 1979 (1997); Exchange Rate Regimes in the Twentieth Century (with Derek Aldcroft, 1998) and Monetarism under Thatcher - Lessons for the Future (with Gordon Pepper, 2001). He has just finished co-editing a book (with Derek Aldcroft) entitled Economic Disaster of the Twentieth Century, which is being published by Edward Elgar in 2006. He has contributed articles to Economic History Review, Twentieth Century British History, Economic Affairs, Contemporary British History, Economic Review and Essays in Economic and Business History.
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