(free download, 16 page PDF via the American Economic Association)
We've looked at the original March 17, 2012 version of the paper (last edited July 12, 2013) a couple times.
That paper "Keynes the Stock Market Investor: The Inception of Institutional Equity Investing" (free download, 54 page PDF) is now the authority on Keynes the money manager although we've also looked at some of the earlier works on Keynes' success in the market.
In April 2012 I differed with the Wall Street Journal's Jason Zweig on the question of Keynes' alpha and did so very reluctantly. Zweig has devoted considerable time and thought to the study of Keynes and his investing and outside of a few academics is probably as close to an authority as anyone. Plus, he's a good guy.
Hat tip on the JEP article to the Conversable Economist, here are our posts:
"Keynes The Stock Market Investor"
We've had a few posts* on Keynes at the market and came to the conclusion that Keynes traded on the knowledge of Great Britain's abandonment of the Gold Standard in September 1931.
In his Weekend WSJ column, "Keynes: One Mean Money Manager" and this morning's blog post "Keys to Thinking About Keynes" the Journal's Jason Zweig isn't buying it. Here's the WSJ's Total Return blog putting it bluntly:
My column this past weekend about the remarkable investing record of John Maynard Keynes provoked an outpouring of comments...
...Thus, several commenters ridiculed the notion that Keynes could have had access to inside information on interest rates and currency values without trading on it. Others insisted that he was front-running his own economic policies, buying gold before he debauched the value of the British pound.
But, to paraphrase Keynes’s friend Bertrand Russell, it’s important to distinguish what you wish were true from what you believe is true.Here's Dimson/Chambers on the question, page 29 of the paper:
You may wish that Keynes traded on privileged information, but that doesn’t make it true. There is zero evidence that he ever traded on inside information; furthermore, as my column pointed out, Keynes’s investing performance improved when he stopped relying on his own macroeconomic forecasts....
...Was Keynes an insider? One difficulty in answering this question is that the investment community then did not have the same view of insider trading that we have today. Other than directors who owed fiduciary duties to their company not to trade on price-sensitive information, insider trading by investors in general was not subject to regulation until 1980 in the UK (Cheffins, 2008: 39–40).From 2013's "Keynes in the Commodities Markets":
It is certain that Keynes was in receipt of what today would be deemed price-sensitive information – he was, for example, aware of a change in the UK bank rate before it occurred in 1925 (Mini, 1995). However, it is impossible to discover how frequently and the extent to which he exploited such information in his trading. What we can say is that he would most certainly have regarded the exploitation of inside information as substantiating the view of stock trading as a “low pursuit” rather than a “game of skill” (CWK XII, 109)....
...Not that there's anything wrong with the insider trading if that's what he did, I bring it up as a component of his alpha generation rather than for legal reasons.
You can download Chambers, Dimson (2012) which is now the paper on Keynes, the Chest Fund and its equity investments at the SSRN link, above.
In 2009's "John Maynard Keynes: Money Manager (Couldn't Trade Lard to Save His Life)" I repeated a comment I had left at Clusterstock:
Neil,and we note:
Although Keynes ran King's College's Chest Fund 12-fold, £30,000 to £380,000, '27-'45,
the record is decidedly mixed.
Drawdowns of 32.4% and 24.6% in '30 and '31 exceeded the losses in the London market and had the fund at 1/2 it's 1927 value.
1932's 44.8% and '33's 35.1% return's were coincident with and subsequent to, Britain's departure from the gold standard.
As an economic adviser to the government Keynes was well aware of the coming devaluation.
Although King's hasn't opened all the trading records, there is strong evidence to suggest that Keynes was trading on inside information.
Some things never change.
...In a 1983 paper "J.M. Keynes' Investment Performance: A Note" the authors are dubious of his performance, without casting the aspersion that I do in my comment. They on the other hand have a great tidbit:One final note, Jazon Zweig is pretty knowledgeable about Keynes, and his views are not to be taken lightly.
...Investments in commodities were more substantial. The highest annual gain was for ₤17,000 from September 1936 to August 1937 and the highest annual loss, mainly in lard, for ₤12,600 in the following twelve months...
For some comments on the Keynes (attributed) quote "Markets can stay irrational..." see Mr. Zweig's MarketBeat post "Keynes: He Didn’t Say Half of What He Said. Or Did He?".
Les choses en sont là.
