Morningstar - Q2 2020 - 45

misses it entirely.

-10

EXHIBIT 3

A Fat-Tailed World All countries shown have a peakedness parameter of less than , and all but South Korea have a negative 0
-20
-10
-5
0
5 fat-tailed. 10
15
20
-25%
skewness,
indicating
that-15
the return distributions
of these
stock market
indexes are
Monthly Return

Peakedness and Skewness Parameters of the Log-Stable Distribution for Monthly Returns (Local Currency) on 33 Morningstar Country Market Indexes,
July 1998 -March 2020
Peakedness

2.0
Japan
Poland
South Africa
Italy
Mexico
Norway
France

Peru

United Kingdom
Australia Denmark
Netherlands
Hungary Canada
India
Belgium
United States
Switzerland
New Zealand
These eight countries
have the most negative
possible skewness,
indicating extremely
skewed left tails.

South Korea's market index has positive
skewness, meaning its distribution tilts
to the right. But its peakedness is below
2.0, indicating it has fat tails.
Chile

Brazil
Taiwan

1.9

Turkey

1.8
South Korea

Hong Kong
Philippines

1.7

Thailand
Sweden

Ireland

Singapore

Indonesia
Malaysia

1.6

Finland

1.5
-1.0
Skewness

-0.8

-0.6

-0.4

-0.2

0.2

Source: Morningstar Direct.

), it was Nobel laureate Paul Samuelson
who popularized Keynes' ideas with his university
textbook, Economics, ﬁrst u l she
). Its th edition was published
(Samuelson
(Samuelson and Nordhaus
).6
in
Monetarist
Nobel laureate Milton Friedman developed the
Monetarist school almost as a direct counter
to Keynesianism. According to Friedman, monetary
policy (changes to the money supply) is more
e ect e tha ey es a ﬁscal ol cy creas
government spending during a recession).
He viewed the business cycle as the result of the
mismanagement of monetary policy. In particular,
he viewed the cause of the Great Depression
as being the large contraction of the money supply
by the U.S. Federal Reserve (Friedman and
).
Schwartz
According to Friedman, the impact of monetary
policy depends on the expectations of the

agents in the economy. If agents are expecting an
increase in the money supply, then increasing
the money supply will lead to an increase in prices
without stimulating the economy, leaving
presidential
unemployment unchanged. In his
address to the American Economic Association,
em has
the role o e ectat o s o the e ects
of monetary policy, Friedman put forth the
oss l ty o h h at o a h h u em loyme t
at the same time, an impossibility according
to Keynesian theory (Friedman
). Friedman
as
cate ur the reat sta at o
of the
s.
New Classical
The New Classical school picks up where Friedman
address,
le t o re ar
e ectat o s h s
Friedman treats expectations as being adaptive;
that is, agents start with expectations based on
the past and modify them as events unfold. Based
), Nobel laureate
on the work of John Muth (
Robert Lucas changed Friedman's assumption

of adaptive expectations to "rational expectations."
Under the assumption of rational expectations,
agents use the correct model of the economy to
form their expectations, based on the information
they have. However, the information that agents
receive could be a blend of local and economywide
e ects or e am le, a ro ucer sees the
price for a good rise, it could be any combination
of a local increase in demand for the good and an
unexpected increase in the economywide
money supply. The producer reacts to the price
increase based on the model of the economy and
the ambiguous information conveyed by the
price increase. In this way, unexpected changes in
the money can have an impact on the real economy,
at least temporarily. According to the New
lass cal school, o ly u e ecte cha es ﬁscal
or monetary policy cause the business cycle.
Austrian 7
The Austrian school of economics originated
in Vienna in the th century. In the th century,

In my freshman year of college, I studied economics with the th edition.
New York University, where I went for my undergraduate degree, is a center for the Austrian school in North America.

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