Dot matrix data

Investors’ Next Move? The Answer Is Probably in the Data

A selection of data visualizations from our Fall issue

If you’re seeking insight into the inclinations of investors, there is much to be learned from the data that document their every move. We encounter quite a lot of data here at Chicago Booth Review, from the timing of investors’ trades to the currencies in their portfolios to abnormal increases in late-night taxi rides around New York’s financial district. Our Fall 2018 issue features about 20 charts and infographics to help tell the stories encapsulated in these data. Here is a selection of some of our favorites.

Inside information from the Fed? Follow that cab

A study of data from millions of taxi rides—focusing on key dates around Federal Open Market Committee meetings—finds an increase in potential face-to-face meetings between insiders from the New York Fed and Manhattan’s financial sector. Here we use a combination of charting styles to build a timetable that shows around-the-clock taxi activity in the days before and after Fed meeting announcements over the course of several years. The resulting visualization offers a clear look at exactly which time slots had a significant increase in taxi rides compared with other dates.

Taxi rides going from commercial banks to the Fed

An alternate view of the same timetable grid focusing on just those fifteen time blocks when there were significantly more taxi rides, with circle sizes indicating how much greater than normal the activity was. The three time blocks that fell right after the communication blackout was lifted stand out as some of the biggest increases.  
 
A color key indicating that bright pink circles denote, with ninety-nine percent confidence, that there has been a statistically significant increase in taxi rides, and that bright orange circles denote ninety-five percent confidence.A timetable grid reporting the average change in the number of taxi rides on a day around a Fed monetary policy announcement versus a normal day. Rows on the y-axis indicate which days the taxi activity took place, and columns on the x-axis indicate time blocks over the course of each day. Over the period of 2009 to 2014, there were significantly more rides taken during fifteen particular time blocks, eleven of which fell during the dayslong communication blackout period for Fed staff, or during the few hours just after it was lifted.

How to read these charts
A surge after the Fed’s communication blackout was lifted: On the night following the day after a Fed policy announcement, there were 0.38 more taxi rides than normal from 1 to 3 a.m. and 0.35 more rides from 2 to 4 a.m., or 94% and 154% greater than normal for those times, respectively.

How to make money on Fed announcements—with less risk

Investors don’t need to hop in a cab to use Fed announcements to their advantage, however. Research finds that US markets move in potentially predictable patterns around monetary-policy surprises, such as the announcement of a federal funds rate hike beyond what investors were expecting. This line chart suggests that a short-term strategy of timing trades after such Fed announcements could reduce an investor’s risk. Also, market movement in the days before the announcements reveals that some investors seem to know the nature of these “surprises” in advance.

Cumulative market returns on days before/after Federal Open Market Committee policy announcements
CRSP value-weighted index of US stocks, daily closes (1994–2009)

A line chart showing cumulative US stock returns, with percentage change on the y-axis, and a timeline on the x-axis surrounding the days that the Fed made a surprising policy announcement during the years of 1994 to 2009. One line starts at about zero percent fifty days before a surprisingly positive announcement and shows a steady rise through the day of the announcement and fifty days beyond reaching nearly five percent. A second line starts at about the same place, then begins a downward trend about twenty-five days before a surprisingly negative policy announcement, dropping below zero percent, and then starting to rise fifteen days later, eventually reaching nearly two percent. 

Neuhierl and Weber, 2018

Invest in foreign currency? No thanks, unless it’s the US dollar

Bond investors around the world strongly prefer to buy assets in their own currency, which can guide companies looking to issue securities outside their home country, according to research. The exception is the US dollar, which maintains a strong presence in international portfolios. These charts, with two different visualizations of the same data, illustrate the increasing international prominence of the dollar, which has gained considerable ground on the euro since the global financial crisis.

How to answer one of the toughest interview questions

Our inaugural Business Practice survey posed the question: How would you respond during a salary negotiation for a new job if you were asked, “How much are you making now?” In the scenario, we asked people to imagine they earned $105,000 at their current company and were negotiating compensation for a position that would pay anywhere from $115,000 to $160,000. Here we chart the performance of the liars—the survey participants who included a salary figure in their answer that was higher than the amount in the scenario. When scored by other survey participants, these responses rated lower than those that surrendered the true $105,000 salary.

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