Stanford study into “Zoom Fatigue” explains why video chats are so tiring

Fascinating article on the science of so-called “Zoom Fatigue”…
A new study from Stanford University communications expert Jeremy Bailenson is investigating the very modern phenomenon of “Zoom Fatigue.” Bailenson suggests there are four key factors that make videoconferencing so uniquely tiring, and he recommends some simple solutions to reduce exhaustion.

Negative derivatives pricing

In my “Properties of Stock Options” lecture note, a particularly important theorem relates to the notion that derivatives (options) prices must be non-negative.  Interestingly, back in April 2020, prices for oil futures contracts actually turned negative; see the Wall Street Journal article entitled “U.S. Oil Costs Less Than Zero After a Sharp Monday Selloff” (an ungated PDF version is available at https://bit.ly/oilpriceshock). Quoting from that article, “The unusually large difference in price between oil for delivery in May and later has traders filling up tankers and setting them adrift.” Basically, if you had the means to store oil in the meantime, (e.g., offshore in a very large crude carrier) it made a lot of financial sense to be paid to assume ownership of the (negatively priced) May 2020 contract, and sell a later dated futures contract at which time you could deliver the goods! Apparently, somewhere off the coast of South Africa was an especially popular place to anchor due to its relatively equidistant access to markets in Asia, Europe, and the Americas.

In closing, the following related video from wsj.com is well worth 95 seconds of everyone’s time!

U.S. oil futures plunged below zero for the first time in history, signaling the little storage capacity there is. WSJ’s Spencer Jakab explains how we got here and what to expect next.

A Random Walk Down Wall Street

If you were to read only one book about finance, it would have to be “A Random Walk Down Wall Street: The Time-Tested Strategy for Successful Investing” by Burton G. Malkiel. Malkiel’s book (now in its 12th edition) provides a compelling argument in favor of efficient markets theory and investing in (passively managed) index funds.

The efficient market theory implies that stock prices follow a random walk. These ideas were originally conceived of by Professors Paul Samuelson and Eugene Fama in the 1960s, and subsequently popularized by folks like Professor Malkiel. In Finance 4366, we rely extensively upon the notion that prices of speculative assets (e.g., stocks, bonds, commodities, foreign exchange, etc.) follow random walks as we consider the technical details associated with pricing and hedging risk using financial derivatives.

The Real Force Driving the GameStop Revolution

Jason Zweig’s Intelligent Investor article referenced below, entitled “The Real Force Driving the GameStop Revolution” should be required reading for all students of finance. Among other things, the article provides its readers much needed historical context for last week’s GME, AMC, and Blackberry bubbles!
wsj.com
Individual traders banded together this past week to move markets like never before. But the buildup to this remarkable moment has been happening for decades.

Also featured as one of “50 Things That Made the Modern Economy”: The Index Fund

Besides insurance, Tim Harford also features the index fund in his “Fifty Things That Made the Modern Economy” radio and podcast series. This 9-minute long podcast lays out the history of the development of the index fund in particular and the evolution of so-called passive portfolio strategies in general. Much of the content of this podcast is sourced from Vanguard founder Jack Bogle’s September 2011 WSJ article entitled “How the Index Fund Was Born” (available at https://www.wsj.com/articles/SB10001424053111904583204576544681577401622). Here’s the description of this podcast:

“Warren Buffett is the world’s most successful investor. In a letter he wrote to his wife, advising her how to invest after he dies, he offers some clear advice: put almost everything into “a very low-cost S&P 500 index fund”. Index funds passively track the market as a whole by buying a little of everything, rather than trying to beat the market with clever stock picks – the kind of clever stock picks that Warren Buffett himself has been making for more than half a century. Index funds now seem completely natural. But as recently as 1976 they didn’t exist. And, as Tim Harford explains, they have become very important indeed – and not only to Mrs. Buffett.”

Warren Buffett is one of the world’s great investors. His advice? Invest in an index fund

Insurance featured as one of “50 Things That Made the Modern Economy”

From November 2016 through October 2017, Financial Times writer Tim Harford presented an economic history documentary radio and podcast series called 50 Things That Made the Modern Economy. This same information is available in book form under the title “Fifty Inventions That Shaped the Modern Economy“. While I recommend listening to the entire series of podcasts (as well as reading the book), I would like to call your attention to Mr. Harford’s episode on the topic of insurance, which I link below. This 9-minute long podcast lays out the history of the development of the various institutions which exist today for the sharing and trading of risk, including markets for financial derivatives as well as for insurance.

“Legally and culturally, there’s a clear distinction between gambling and insurance. Economically, the difference is not so easy to see. Both the gambler and the insurer agree that money will change hands depending on what transpires in some unknowable future. Today the biggest insurance market of all – financial derivatives – blurs the line between insuring and gambling more than ever. Tim Harford tells the story of insurance; an idea as old as gambling but one which is fundamental to the way the modern economy works.”

Bullish Stock Bets Explode as Major Indexes Repeatedly Set Records

This is a fascinating WSJ  article about recent (historically unprecedented) trading volumes in options markets. The article features a 21-year-old student at Syracuse University named Ben Austin, who apparently “… primarily trades calls to position for big events that have the potential to lift stocks”, and attributes the following quote to Mr. Austin: “There’s way more potential for higher gains in a shorter amount of time.” While this is technically correct (after all, as we shall soon learn in Finance 4366, call options represent leveraged bets on stocks), there’s also way more potential for larger losses in a shorter amount of time, particularly since Mr. Austin is probably not hedging his options positions with positions in the stocks against which the call options are written.
wsj.com
“Options activity in January is building on 2020’s record volumes in the latest sign of optimism.”