vague, but exciting

the porous city - commerce - investing

/

/

email me

/

about

Incentive schemes that reward successful managers with huge bonuses, without penalizing them for losing years, skew behavior towards risky investment strategies: "...appearing to create excess returns but in fact taking on hidden tail risks, which produce a steady positive return most of the time as compensation for a rare, very negative, return."

Dealbreaker's refutation is pretty unconvincing. First, I doubt that most traders have enough equity to counteract the effect described above. Second, banks being "long volatility" just means that they make more money when the market moves. That has nothing to do with the risk inherent in an investment strategy's distribution of payouts. One can have a trading strategy that capitalizes on volatility but still hedges risk effectively (I mean, it's not easy...)

My guess is that in most banks it's senior management whose equity compensation ratio is enough to make them take the long view. Therefore you'll see more blowups at poorly managed banks, or at pure-play investment vehicles.

Tech
Visual, Security, Automobile, Javascript, Crowdsourcing, Product Management, Data, Hardware, Storage, Mobile, RSS, Social, Open, Collaboration, Audio, WRX, Business, Web analytics, Medical, a11y, Android, s60, Net, Wearables, Energy, Shopping, PIM, Development, barcamp, Web, MacOS, OS

Other
Clothes, Berlin, Travel, Friday, Feminism, San Francisco, Minnesota, Games, Sports, Video, History, Food & Drink, Activism, Life hacks, Statistics, NYC, Personal care, Geography, Agriculture, Toys, Politik, Surfing, Transportation, Podcasts, Bicycling, Housing, Quizzes, Boston, CrowdFlower, L.A., Law

Music
Videos, Mixes, Business, Reviews, Events, Musicians, Mp3s, Hip-hop, L.A., Labels, Shopping, Good tracks, House, Boston, Mailing lists, History, Booking, Streams, Making, Lyrics

People
Meditation, Heroes, Working with, Subcultures, Friends, Family, ADD, Life hacks, Stories, Exercise, Weblogs, Health, Enemies, Vocations, Languages, Me, Gossip, MOTAS

Arts
Poetry, Visual, Events, Burning Man, Outlets, Rhetoric, Spoken Word, Movies, Humor, iPad bait, Desktop wallpaper bait, Sculpture, Literature, Animation, Comix

Commerce
Microfinance, Insurance, Marketing and CRM, Shopping, Management consulting, IP Law, Web, Non-profit, International Development, Taxes, Personal finance, Personal services, Investing, Macroeconomics, Real Estate

Design
Algorithmic, IA, Presentations, Type, Cool, User experience, Tools, Furniture, Architecture, Data visualization, Web, Process

Science
Networks, Physics, Psychology, Statistics and Data, Environment, Zoology

Travel
Uganda, Vagabond '08, Kingdom of Siam, Kenya

Photos
Photos I Wish I'd Taken, Moblog, Friends

Philosophy
Mind

One Acre Fund

Mathematics

Internet classic

Subscribe to this site's rss feed