Scott F Richard

Scott F Richard

Contact Information

  • office Address:

    3257 Steinberg-Dietrich Hall
    3620 Locust Walk
    Philadelphia, PA 19104

Research Interests: asset pricing and the macro-economy.the term structure of interest rates.the global bond market., growth of government

Links: CV

Overview

Scott Richard is currently a Practice Professor of Finance at the Wharton School of the University of Pennsylvania. In November 2008 he retired after 13 years as a Managing Director and Fixed Income Portfolio Manager at Morgan Stanley Investment Management. For the five years prior to MSIM, Scott was a partner at Miller, Anderson and Sherrerd, an investment management firm located in suburban Philadelphia. His other prior experience includes five years at Goldman Sachs & Co. where he was Head of Mortgage Research. Before G.S., Scott was a Professor of Financial Economics at the Graduate School of Industrial Administration (now the Tepper School) at Carnegie-Mellon University from 1972 to 1986. In the academic year of 1986-1987 he was Visiting Professor of Finance at the Sloan School of Management at the Massachusetts Institute of Technology. He currently serves on the Board of the Opera Company of Philadelphia and of the Buck and Doe Conservancy and on the Academic Advisory Board to Kepos Asset Management, a quantitative hedge fund. Scott holds a B.S. degree in Electrical Engineering from M.I.T. and a Doctor of Business Administration from Harvard University.

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Research

  • Allan H Meltzer and Scott F Richard (Draft), A Positive Theory of Economic Growth and the Distrbution of Income. Abstract

    This paper builds on our earlier work, Meltzer and Richard (1981), on the size of government. How does the distribution of income changes as an economy grows? To answer this question we build a model of a labor economy in which consumers have diverse productivity. The government imposes a linear income tax which funds equal per capita redistribution. The tax rate is set in a single issue election in which the median productivity individual is decisive. Economic growth is the result of using a learning by doing technology, so higher taxes discourage labor causing the growth rate of the economy to fall. We consider two economic scenarios. First, in a developing economy the median voter chooses increasing taxes and increasing redistribution which causes the growth rate of the economy to recede from a high level as the economy matures. The increasing tax rate discourages labor and growth causing the distribution of pre-tax income to widen. Second, in a mature economy, the distribution of productivity can widen due to increased technological specialization. This causes voters to raise the equilibrium tax rate and reduce growth. The distribution of pre-tax income widens. We estimate the model using U.S. data from 1967 – 2011 with excellent results.

  • Scott F Richard (Draft), A Non-Linear Macroeconomic Term Structure Model. Abstract

    This model uses three implicit states (Core CPI, the unemployment rate, and the quarterly growth rate of non-farm payrolls) which follow a multivariate continuous-time Ornstein-Uhlenbeck (OU) process.  The instantaneous risk-free rate (Fed Funds) is set using a policy rule (following Black (1995)) which is affine in the implicit states with a lower bound at one basis point.  The policy rule is fixed throughout the sample period from November, 1985 through March, 2013.  While the policy rule is fixed throughout the sample, the economy responds differently when Fed Funds are stuck at their minimum (the Zero Period) than it does when the Fed can use Fed Funds more effectively to influence the economy (the Normal Period). The implicit state OU processes have different coefficients, both physical and risk neutral, in the two response periods.  While market participants may know the implicit states, an econometrician must estimate from them market and macroeconomic data. I estimate the implicit states and the OU processes parameters by maximizing the joint conditional likelihood that the implicit states are close to the government states estimates; that the model accurately determines the yield curve; and that the actual one-month returns are forecasted by the model.  The data are monthly estimates of the state variables published by the government, month-end zero coupon yield curves with maturities from 2 to 30 years published by the Fed, and one month returns for the benchmark 2, 10, and 30 year Treasury zeros calculated from the month-end yield curves from November, 1985 through March, 2013.  Over the entire sample the root mean square error (RMSE) in fitting yield curves is only 4.6 basis points.  I find conditional yield curve responses to changes in the state variables, which are significantly different from the unconditional factors.  The model is tested out-of-sample by fitting Treasury Inflation Protected Securities. I find ample profit opportunities.

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Allan H Meltzer and Scott F Richard (Draft), A Positive Theory of Economic Growth and the Distrbution of Income.
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