Macro-Investment Analysis: An Overview of the Work

This is an Electronic Work-in-Progress, a form of communication that is both new for and poorly understood by its author. It is very much in progress. This means that it will grow over time and that the material will undergo substantial revisions. Some material may even presume that the reader has knowledge scheduled to be included in other, as-yet-unwritten sections. The reader's (browser's?) indulgence is requested as the overall edifice is constructed.

The Subject

It is not an easy matter to describe the subject of a Work of this sort. This is especially true in the early stages, when it is still under construction. However, a few paragraphs from an early section may prove useful.

Some may regard the Work as a sort of electronic Investments text, but the focus is more specific. This is reflected in the title, which is, at the writing, unique. All three components of the title are relevant. The focus is on techniques of analysis that can lead to sensible top-level (macro-) investment decisions.

It is helpful to personalize some of the roles that concern us. An Investor must ultimately select positions in various types of investment vehicles. In doing so, he or she can be assisted by an Analyst. Importantly, many of the investment vehicles used by investors are themselves packages of more fundamental positions -- packages provided by Investment Firms.

In essence, we concentrate on a multi-level approach to investing, with the Investor at the top level, assisted by the Analyst, a set of Investment Firms at a second level, and the securities of corporations and government agencies at yet lower levels.

Such a multi-level approach to investing is found both among individual and institutional investors. Individuals utilize shares of publicly-available investment funds which in turn hold securities of individual corporations. Large institutional investors such as pension funds use commingled funds or separately managed accounts which serve much the same purpose. Both can also make use of many types of derivative securities, the values of which reflect the performance of major sectors of various capital markets.

Traditionally, investments textbooks have been directed to investors who plan to build portfolios of the securities of corporations and public agencies. However, in the real world such investors are becoming fewer and fewer. Increasingly, the construction of portfolios from individual securities is an activity undertaken by Investment Firms, whose goal is to provide components that may usefully be employed by investors. The ultimate investor then focuses on finding an appropriate combination of such components, not on building an overall portfolio security by security.

This work is designed to provide the analytic skills needed to aid such investors. It is thus explicitly directed to the Analyst. However, knowledge of its contents should help Investors utilize and evaluate the services offered by Analysts. In addition, Investment Firms familiar with its contents should be able to design products that will better meet the needs of Investors.

If you want to help an investor build and manage a portfolio of mutual funds or similar vehicles in sophisticated ways, this Work is for you. If not, it still may have much to offer. Take what you will.


The Work is divided into three sets of material:

Principles and Techniques

This first body of material will eventually resemble an on-line textbook. Indeed, some or all of it might eventually appear in a traditional printed form. Except for issues of organization and exposition, the material should be subject to relatively few changes. To oversimplify: good theory is timeless. This material is intended to stand on its own and (eventually) to be read in the sequence shown.

Empirical Analyses

The second body of material will include estimates of parameter values, tests of hypotheses, etc.. As in most empirical research, results are subject to change as more people process more data in more ways. Each of the analyses will be described in sufficient detail so that the reader can at least get the sense of the methods used and the key results. Those who desire a deeper understanding should read the discussions provided under Principles and Techniques .

Computer Material

This material includes programs, procedures, functions and spreadsheets designed to illustrate and implement key principles and techniques. Some of the material has also been used in the Empirical Analyses. Coverage is partial, at best, and there is no guarantee that the routines are efficient, elegant or always correct. The reader is invited to use them at his or her peril.