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Data drives nearly every aspect of modern life, from the algorithms suggesting what you should watch tonight to the autonomous vehicles navigating city streets. Yet in the world of finance—where you might expect data to reign supreme—the relationship between information and decision-making is surprisingly complicated (and relatively new).

Professor Mike Gallmeyer pulls back the curtain on this fascinating paradox, revealing why financial markets present unique challenges for data-driven approaches. While Tesla collects millions of data points daily to perfect self-driving technology, investors working with a century of stock market returns have barely over a thousand data points to analyze. This fundamental limitation—what Gallmeyer calls the difference between "big data" and finance's "small data" reality—creates profound implications for how we should think about investment decisions.

The conversation delves into the historical evolution of financial data, from the pre-1960s era when decisions relied heavily on intuition and "soft information," through the development of the CRISP database at the University of Chicago, to today's sophisticated algorithmic trading systems. Gallmeyer explains how market participants continuously adapt to new information sources, creating an ever-evolving landscape where yesterday's winning strategy becomes tomorrow's conventional wisdom. This endogenous change within financial markets makes them fundamentally different from systems where data collection leads to steady, predictable improvement.

For anyone fascinated by markets, data science, or the intersection of human judgment and quantitative analysis, this episode offers valuable perspective on the promises and limitations of data-driven decision making. Whether you're managing your retirement portfolio or simply curious about how markets function, you'll gain insights into why certain problems remain resistant to even our most sophisticated analytical tools—and where human judgment still provides irreplaceable value.

Show Notes:

• Dimson, Marsh, & Staunton, Global Investment Returns Yearbook 2025
• Kim, Muhn, et al., Financial Statement Analysis with Large Language Models (2024)
• New York Fed Staff Nowcast
• Federal Reserve Bank of Atlanta, GDPNow

Thanks for listening! Please be sure to review the podcast or send your comments to me by email at info@not-another-investment-podcast.com. And tell your friends!

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Take everything you thought you knew about how markets work and prepare for a fundamental rethinking. When NVIDIA's stock price skyrockets after negative news, or the Federal Reserve successfully manipulates interest rates through bond purchases, classical economic theories struggle to explain what we're witnessing in real time.

Professor Aditya Chaudhry from Ohio State University joins us to explore the revolutionary concept of "demand-based asset pricing" - a framework that's challenging decades of financial orthodoxy. Traditional models suggest that when investors irrationally pile into a stock, deep-pocketed arbitrageurs should quickly step in to correct any mispricing. But what if there simply isn't enough arbitrage capital available to enforce rational pricing, especially at the macro level?

We dive into groundbreaking research showing that shifts in investor demand might impact security prices up to 100 times more than classical theories predict. This "inelastic markets hypothesis" helps explain everything from market booms and busts to why quantitative easing actually works. The implications extend from central bank policy to government debt issuance, potentially reshaping how we interpret market movements.

The conversation bridges complex financial theory with practical examples, making sophisticated concepts accessible without sacrificing depth. Whether you're trying to understand the current bull market, puzzling over Federal Reserve decisions, or simply seeking to make smarter investment choices, this episode provides crucial context for navigating today's financial landscape.

While uncertainty remains a fundamental feature of markets, the one clear takeaway reinforces timeless wisdom: for most individual investors, passive products remain the most reliable strategy rather than attempting to outguess the market's complex demand dynamics.

Show Notes:

Supply and Demand

Gaigax & Koijen, Inelastic Markets Hypothesis (2023)

Chaudhry & Li, Endogenous Elasticities (forthcoming)

Thanks for listening! Please be sure to review the podcast or send your comments to me by email at info@not-another-investment-podcast.com. And tell your friends!

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Discover the secrets of disciplined investing and strategic asset allocation with Stephen Parker, head of specialized strategies at JP Morgan Private Bank. In our conversation, we explore the nuances of aligning investments with personal goals, focusing on the importance of understanding individual needs, investment horizons, and risk tolerance. Stephen shares JP Morgan's insights on long-term forecasts for over 200 asset classes, emphasizing the critical role of maintaining discipline and the power of staying invested over time.

Ever struggled with market volatility or wondered how to balance short-term needs with long-term growth? We unpack the concept of bucketing in financial planning, a strategy that segments investments into liquidity, lifestyle, and growth categories to meet various life goals. This approach not only helps navigate market fluctuations but also protects long-term plans from being disrupted by short-term market movements. Learn how strategic asset allocation, rebalancing, and viewing portfolio construction as a series of dimmers and dials can enhance your investment strategy.

Join us as we tackle the complexities of economic forecasting, market timing, and the active versus passive management debate. Stephen sheds light on the importance of seeking contradictory information to improve decision-making and the strategic use of alternative investments. Even seasoned investors will find value in the discussion on the role of recessions in investment decisions and the balance between active management and passive strategies. This episode promises a wealth of knowledge to enhance your understanding of disciplined investing, making it a must-listen for anyone eager to sharpen their financial acumen.

Show Notes:

JPMorgan, 2025 Long Term Capital Market Assumptions
Cembalest, Eye on the Market Outlook 2025
Marks, On Bubble Watch (Jan 7 2025)

Thanks for listening! Please be sure to review the podcast or send your comments to me by email at info@not-another-investment-podcast.com. And tell your friends!