A second example for the development and fallout of a real crisis: oil shocks - 1970s

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来自 University of Geneva 的课程

Meeting Investors' Goals

977 个评分

University of Geneva

Meeting Investors' Goals

977 个评分

课程 2（共 5 门，Specialization Investment Management）

In this course, you will dive into the concepts of rationality and irrationality and understand how they impact our investment decisions and what the consequences can be at the market level. You will first explore the different biases that we, as humans, are subjected to when facing investment decisions and how they may impact the outcomes of these decisions. Moreover, you will see how emotions and ethical concerns such as honesty and trust influence market participants. When they are considered as a group rather than individually, you will discover how rationality and irrationality can drive asset prices to and away from their fair value. Finally, you will be presented with different portfolio construction methodologies and investment styles that make up the landscape of today's portfolio management industry. At key points throughout the course, you will benefit from the practical knowledge of experts from our corporate partner, UBS, in how to build and manage clients' portfolios.

从本节课中

Market Efficiency, Bubbles & Crises

In this third week, we will have a look at investors’ behavior as a group. How does it impact asset prices? How do these prices reflect available information? What does it imply for the profitability of some trading strategies? What can go wrong in this price formation process and how can (and did) it cause financial bubbles and crises? This week also features as special guest: Prof. Jean-Pierre Danthine, former vice-chairman of the Swiss National Bank, who will offer insights into some of these issues.

Overview of different origins of financial crises3:44

A first example for the development and fallout of a real crisis: the VW scandal4:51

A second example for the development and fallout of a real crisis: oil shocks - 1970s8:23

A first example of an anticipation crisis: 1987 - The "Fed Model"9:23

A first example of an anticipation crisis: 1987 - The crash8:52

A second example of an anticipation crisis: 200010:14

The perfect storm: the global financial crisis - Global imbalances9:40

The perfect storm: the global financial crisis - Policy errors9:24

The perfect storm: the global financial crisis - Lax regulation7:09

与讲师见面

University of Geneva- Tony Berrada
SFI Associate Professor of Finance
Geneva Finance Research Institute
University of Geneva- Jonas Demaurex
Teaching Assistant
Geneva Finance Research Institute
University of Geneva- Rajna Gibson Brandon
SFI Senior Chaired Professor of Finance and Managing Director of the GFRI
Geneva Finance Research Institute
University of Geneva- Michel Girardin
Lecturer in Macro-Finance - Project Leader for the "Investment Management" specialization
Geneva Finance Research Institute
University of Geneva- Kerstin Preuschoff
Associate Professor of Neurofinance and Neuroeconomics
Geneva Finance Research Institute
University of Geneva- Olivier Scaillet
SFI Senior Chaired Professor of Finance and Vice-dean (research) at GSEM
Geneva Finance Research Institute
University of Geneva- Philip Valta
SFI Assistant Professor of Finance
Geneva Finance Research Institute

[MUSIC]

Hi there. In this set of two videos,

we're going to have a look at the second example of a real crisis.

We're going to be talking about oil prices and oil shocks.

We're going to have a look at what impact the oil price may have on the stock market

and we're going to see that it depends a lot whether it's supply or demand driven.

Now, let's take a look at the first oil shock,

what is known as the first oil shock, and this goes back to 1973.

At that time, the Arab members of OPEC decided to go on an oil embargo.

Basically, they took the decision that at $4, the oil price was way too low.

And what they did is they did an embargo.

So no more oil was going through the pipelines, and

this lasted until March, 1974.

By that time, the oil price had quadrupled from $4 to $16.

Today, it's much more than that and it has been going way above the $16.

But just imagine, in just six month the oil price goes from $4 to $16.

That's a shock I can tell you.

So economists and academic research, when they have to

analyze what impact the oil market and the oil price is going to have

on the stock market, basically we have to find out whether it's

an increase in the oil price is due to a restriction of supply,

like here the embargo in 1973, or

whether the increase in oil prices Is due to a booming demand.

And we'll see that the implication for the stock markets are completely different.

Basically, if the increase in the oil price is due to a supply constraint,

this is an exogenous shock.

Whereas if the increase in the oil prices is due to a booming demand,

this is an endogenous increase in the oil price.

And it has very different implication for the stock market.

Let's illustrate this with the following chart, which depicts here in red and

on an inverted scale, you know how I like inverted scales.

[LAUGH] So here you have one.

You see the red line.

So when it's dropping, it's actually an increase in the oil price.

Why do I do this?

Because I want to see whether this increase in the oil price that we see for

instance in 1973, as we just saw.

When the oil prices increases by a peak of 170%, you see that

on the left hand scale, and you see that it coincides, we have a recession.

That's the blue bars and they're pointing south.

They're pointing downwards, and this is US GDP, so negative growth recession.

So typically, oil shock, supply constraint, recession.

Why?

Because basically, when the oil prices goes from four to 16, basically,

the purchasing power of the consumer and we know that this is the driving force of

the US economy, it was then, it still is today, they get hit, badly hit.

And so, you have less money to spend for

other items, more money that you need to spend for oil and energy.

So you trigger a recession.

So what I have identified here is that whenever the oil prices

increase by more than 30%, we see each time that the oil price

has risen over history by more than 30%, generally this has

been followed by as either a sharp slow down of economic activity,

we're talking about U.S. but we can see this on a more larger

scale in the rest of the world and this is also true.

It's either a sharp slow down or a recession.

Possible exception, we'll see that in a minute,

is the example where, again, the increase in the oil price does not reflect

a decision by the producer countries to restrain supply, but

it's due to maybe a new actor coming into the economy and

a booming economy, so increase in the demand for oil.

And here we think of China, and we'll see that in a minute.

Equivalently, an increase of the oil price here,

I do the same as with the previous chart, but I put the oil prices in real terms.

Economists like to analyze the oil price in real terms.

So it's basically the evolution of the oil price,

as compared to the Consumer Price Index, what we call the core inflation rate.

So it's the Consumer Price Index.

Less food and energy, because they don't have to have energy and

compare it to an index which also has energy.

And here we see that whenever this real oil price increases

by more than 20%, it coincides soon after or

immediately after with either a sharp slow down or a recession.

So then the key question you should ask you self whenever you see

an increase in the oil price is that what is the central bank going to do with this.

Does it think that this is going to be a shock on inflation and

hence it's going to raise interest rates, and then trigger possibly a recession?

So this is one mistake which was done in the 70s.

Central banks at that time were over worried,

were worrying too much about inflation, and they were not making enough of

a difference between demand pull inflation and cost push inflation.

When you have a constraint on oil production and

the oil prices go through the roof, inflation may rise,

but it will trigger a recession, as we just saw.

And if on top of that the Central Bank raises interest rates,

then you're throwing oil on the fire.

And this will exacerbate the recession even further.

So in conclusion of this first video, we need to

assess when we experience an increase in the oil price, whether it's

going to be a problem more for inflation, or for the economy, or possibly both.

As we see from this chart, you see these purple bars,

the vertical bars, they indicate a recession in the US.

And we see the evolution of the oil price in red, and this is in real terms,

and in blue, it's the inflation.

And you'd see that at sometimes you have a sharp increase in inflation.

And concomitant to that, at the same time, we have a recession.

So this we call stagflation.

So again here, it's very important to know we have an increase in the oil price.

If it's due to a constraint on supply or supply is restricted,

then it's a mistake for a central bank to go in this environment and

raise interest rates, because you will be throwing oil on fire.

You have already the increase in oil price,

which is going to slow down the economy and lead it possibly into recession.

And if on top of that, a central bank hikes interest rates, because it sees

inflation, you have more chances of the economy going into recession.

So in the next video, we'll see how an increase in the oil price can actually be

seen as a positive, both for the equity market and the economy.

[MUSIC]

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