The Bangladeshi butter-production theory of asset prices

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In my post Wednesday about asset-price bubbles and income inequality, I cited finance scholar Richard Roll’s 1987 discovery that economic data and news seemed to explain less than 40% of the stock market’s movements. I had totally forgotten about superquant David Leinweber‘s subsequent—and totally brilliant—discovery: that butter production in Bangladesh, U.S. cheese production, and sheep population in Bangladesh and the U.S. together “explained” (in a statistical sense) 99% of the annual movements of the S&P 500 between 1983 and 1993. (The paper in which he demonstrates this can be downloaded here.)

Sadly, this correlation fell apart after 1993. But a friend just alerted me to the fact that Leinweber has a new book coming out on June 9 (the same day as mine), titled, Nerds on Wall Street: Math, Machines and Wired Markets. I’m sure it will contain an irrefutable explanation of the movements of stock prices (I’m hoping it’s all about Greek yogurt production, because I eat a lot of Greek yogurt).

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