What would LTPZ or its post-facto equivalent have been doing around the time of the Cuban Missile Crisis? My model says ‘no prediction’; they’ll have done whatever. Afterwards somebody will make up a story about it in hindsight, but it is not the sort of thing where history says that long complicated analyses are remotely reliably good at doing it in advance.
In appendix 3 the authors cite a paper which looks at more-or-less this precise thing:
Figure 4.6: Observed Treasury and aggregate-equity movements around President Kennedy’s 22 October 1962 19:00 EDT Cuba address. For the cumulative value-weighted CRSP return, a positive value on a date up to and including that of the address indicates a negative return through the date of the address, and a negative value after the address indicates a negative return from the first trading day after the address.
It seems like government interest rates didn’t change much? But I don’t think I understand this graph.
Inflation linked bonds are recent, so virtually all historical analyses are going to use nominal rates. I think this is a tradeoff well worth making to say something about asset pricing under existential risk. For the effects to be wrong because of nominality, the Cuban missile crisis would have had to affect market perceptions primarily because of… inflation expectations. I feel comfortable rejecting that as a story.
In appendix 3 the authors cite a paper which looks at more-or-less this precise thing:
It seems like government interest rates didn’t change much? But I don’t think I understand this graph.
Those look like nominal rates, not real rates.
Inflation linked bonds are recent, so virtually all historical analyses are going to use nominal rates. I think this is a tradeoff well worth making to say something about asset pricing under existential risk. For the effects to be wrong because of nominality, the Cuban missile crisis would have had to affect market perceptions primarily because of… inflation expectations. I feel comfortable rejecting that as a story.