Prof. Ralph Koijen: Demand System Asset Pricing & Inelastic Markets (EP.212)

<p>If you’re ready for a serious education on market elasticity, demand system pricing, and stock market flows, you’ve come to the right place (disclaimer: don’t expect light entertainment). Today’s guest is Ralph Koijen, AQR Capital Management Professor of Finance and Fama Faculty Fellow at the University of Chicago, Booth School of Business. Tune in for a fascinating conversation about some of the most fundamental characteristics of our economy. To say we learned a lot from this conversation is an understatement, and we’re sure you’ll walk away with just as many lightbulb moments and impactful lessons as we did.</p> <p> </p> <p><strong>Key Points From This Episode:</strong></p> <p> </p> <ul> <li>Ralph provides an in-depth explanation of demand system pricing. <strong>[0:02:48]</strong></li> <li>An example of how valuations can be affected while the connection between fundamentals and valuations remain relatively unaffected. <strong>[0:08:18]</strong></li> <li>How Ralph’s model for demand system asset pricing differs from other models. <strong>[0:41:26]</strong></li> <li>The two components that investor demand is made up of. <strong>[0:14:54]</strong></li> <li>Exploring the concept of latent demand and how to estimate it. <strong>[0:17:57]</strong></li> <li>How the price impact from institutions and elasticity of markets has changed over time. <strong>[0:20:34]</strong></li> <li>Understanding the surprising impact of households on stock market volatility in 2008. <strong>[0:20:34]</strong></li> <li>How latent demand can be used to predict differences in expected returns. <strong>[0:25:46]</strong></li> <li>Examples of factors that drive latent demand. <strong>[0:30:42]</strong></li> <li>The most impactful group of investors (and why this is the case). <strong>[0:33:17]</strong></li> <li>An overview of what would likely happen if the most influential investors switched to market cap indexing. <strong>[0:35:22]</strong></li> <li>How huge firms influence the setting of prices. <strong>[0:36:25]</strong></li> <li>Ra