Weekly Top 5 Papers – May 27, 2019

1. The Rise of Trump, the Fall of Prejudice? Tracking White Americans’ Racial Attitudes 2008-2018 via a Panel Survey by Daniel J. Hopkins (University of Pennsylvania) and Samantha Washington (affiliation not provided to SSRN)

2. How to Read a Legal Opinion: A Guide for New Law Students by Orin S. Kerr (University of Southern California Gould School of Law)

 Like a lot of papers with tons of downloads, this paper has an audience outside academic specialists. It’s a paper for new law students on how to prepare to start law school.  With around 40,000 new law students entering law schools every fall, it draws a lot of downloads every August.  I’ve been told that a lot of law schools assign it as part of the first week of reading, too.  Either way, it is by far my most read article. Go figure. – Orin S. Kerr

3. A Review of Nancy Maclean’sDemocracy in Chains: The Deep History of the Radical Right’s Stealth Plan for America by David M. Levy (George Mason University)

The review is a spinoff of a forthcoming book co-authored with Sandra Peart, Towards an economics of natural equals: a documentary history of the early Virginia school due out this winter from Cambridge. We have been long troubled by the willingness of students of the history of economics to collapse past debates into a single dimension – the size of government. In a way, we find ourselves in Abbott’s Flatland where the unperceived dimension is what separates the Knightians of the Virginia school from their orthodox colleagues. For the Virginia School a commitment to democratic consensus is a commitment to government by discussion and from that comes the endogenizing of group goals. Simultaneously, with the increasing use of archival research in the history of economics conjoined with an academic practice that does not require publication of the underlying data sources, the problem of replication, well-known in applied econometrics, appears. We were quite far along when Professor MacLean’s book arrived and provides an ideal opportunity to explore these issues. Her appeal to the views of Murray Rothbard to illuminate James Buchanan’s views even though their views on democracy differ radically illustrates the dimensional collapse. Her important contribution, the attention she pays to the Warren Nutter-Buchanan school voucher proposal, is spoiled by a failure to notice that when the proposal was republished in a Virginia School working paper in the mid-1960s, racially segregated schools were explicitly excluded from the financing. – David Levy

4. A Brief Introduction to the Basics of Game Theory by Matthew O. Jackson ( Stanford University – Department of Economics)

5. Time-Series Momentum: A Monte-Carlo Approach by Clemens Struck (University College Dublin) and Enoch Cheng (University of Colorado at Denver – Department of Economics)

During my days as an undergraduate student, my professors showed me a set of very simple trading strategies such as the carry trade. Such strategies are usually referred to as “factor investment”. Bringing prior trading experience to the degree, I found it hard to believe that one can make serious money by following a set of naïve trading rules. Not surprisingly, many factor investors have experienced disappointment by the real-life performances of such strategies.
 
An observation I made early was that all of these rules seem to work fine in historical backtests over very short periods of time usually not longer than 10 or 20 years. Often, the sample periods contain only a single extreme market situation (e.g. a larger recession) that determines the overall performance of a strategy. Effectively, there is just one observation. 
 
While I see the need for historical backtests, I believe these tests are insufficient. Bootstrapping has been suggested as an alternative. I think we need to go one step further as bootstrapping repeats the same extreme events again and again. Thus, when you bootstrap from a historical sample with one extreme event, you repeatedly analyze the same extreme event. That’s why we looked out for something else and found Monte-Carlo approaches in the risk management literature and hand-tailored them to assess factor investment strategies. – Clemens C. Struck

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