Reuter and Zutzewitz on the Bias in the financial press

SSRN-Do Ads Influence Editors? Advertising and Bias in the Financial Media by Jonathan Reuter, Eric W. Zitzewitz'

Super Short Review:

In a paper that will be presented in the American Finance Association's Annual Conference (AFA) this coming January, Reuter and Zitzewitz (R&Z) examine mutual fund recommendations from "major personal finance magazines (Money, Kiplinger's Personal Finance, and

Mark Cuban's New Hedge Fund - Blog Maverick - www.blogmaverick.com

New Hedge Fund - Blog Maverick - www.blogmaverick.com

Mark Cuban is starting a Hedge fund that will gamble. Literally! Forget stocks, forget bonds, the money will be used to make bets.

(In case you do not know, Mark Cuban is the Billionaire owner of the Dallas Mavericks and former owner of Broadcast.com.)

The article is great. It has so many interesting and thought provoking lines I really

More evidence that governance matters

Giannetti and Simonov find that some investors are more concerned with corporate governance than others.

Short version: Corporate governance does not affect all shareholders equally. Individual investors and this with no connection to the firm, are more apt to invest if the firm has a strong governance system. On the other hand, insiders apper to either not care or be more apt to invest if there

A look around at a few blogs

Last week before going to the Southern Economics conference in New Orleans, I noticed the SportsEconomist (who I had the good fortune of meeting in New Orleans) did an blog reading by quickly discussing a few of the interesting stories he had been reading on other blogs (including FinanceProfessor :) . Well, I liked the idea so much, here is my version of the same.

Jeff Horton at Synergyfest has

NPR's Talk of the Nation on Social Security, equity ownership, and home ownership

NPR's Talk of the Nation had a very interesting segment on "ownership". It was advertised as being focused on President Bush's supposed plan to create 100% home ownership (it won't happen) in ten years. But it really is part of a larger move towards more ownership of equity, real estate and other assets.

Frank Luntz a Republican Pollster, Stephen Moore of the Cato Institute, and James Surowiecki

The value of hedging revisited...

Does Hedging with Derivatives REDUCE THE MARKET Risk Exposure by Bali, Hume, and Martell

Put your thinking caps on for this one!

Short version: Hedging, at least as it is currently being done, may not add to firm value. Longer version: In a Modigliani and Miller world nothing really matters. This includes dividend policy, capital structure, and hedging. Hedging is the idea that by buying or

SSRN-Are Busy Boards Effective Monitors? by Eliezer Fich, Anil Shivdasani

SSRN-Are Busy Boards Effective Monitors? by Eliezer Fich, Anil Shivdasani

The answer? No. That is the finding of Fich and Shivdasani who look at firms whose board members sit on multiple boards. The authors find that these firms trade at a discount relative to their peer firms. As Fich and Shivdasani put it:

"We show that firms where a majority of outside directors hold three or more board

Impact of Baby boomers from Porterba

I was just sent this paper. It is by James Porterba. Given the recent post on the Geanakoplos, Magill, and Quinzii paper that concluded stock prices may be negatively impacted when baby boomers retire, I think this may give some further perspective to the issue.

Short version: Porterba concludes that not all assets will fall when the boomers retire and that past population booms have been

Right angles in event studies are good :)

In running or biking I am not a fan of 90 degree angles, but in event studies, I love them! An abrupt (straight up or straight down-i.e. a right angle) price movement following an "event" suggests that the news was both unanticipated and the market quickly incorporated the new information.

A right angle going forward suggests that the market not only was quick about incorporating the news, but

Salary Cap Football and Ratio analysis: what they teach us about markets

I am in a fantasy Salary Cap Football League through Yahoo. It is really fun and keeps me interested in all the teams.

But as much as I like picking the team, I think it is almost as fun to see how the market operates. For instance, earlier today I was researching various ratios that Yahoo provides for the players. These ratios include points/$. Since it is a salary cap league (example of hard

Flannery and Rangan: more proof of the trade-off model

Have you had your fill of capital structure papers yet? Of course you have not! You can never have too many! So here is yet another paper on capital structure (with a similar finding) is to be presented at the AFA meetings.It is by Flannery and Rangan. In the paper entitled Partial Adjustment toward Target Capital Structures they show that firms do have targets for their capital structure and do

Alti finds Market Timing's leverage impact is largely transitory

Two for the price of one today! We have two papers today that both give us more evidence that suggests that firms do “time the market” with respect to capital issuance (and consequently capital structure), but that the firms try to get back to their targeted capital structure quite quickly.

What makes it interesting (and not repetitive) is that each paper (Flannery and Rangan and Alti) each

When a crisis really is a crisis

In a paper to be presented at the upcoming American Finance Association Meetings, Pasquariello asks the interesting question "
Are Financial Crises Indeed 'Crises?'

The question is interesting for several reasons and on multiple levels.

For starters, if it is a crisis and has economic repercussions, then we may want to invest more to prevent the crisis in the first place. On the other hand, if

Michael Brennan on the Stock Market Bubble

Michael Brennan provides an interesting (and cutting) analysis of how the stock market climbed so high in the late 1990s. He writes that there was plenty of blame to go around and that even FinanceProfessors should take their share of the blame.

He begins by documenting the major bull market from 1980 to 2000:
"Between January 1980 and August 2000 American stock prices as measured by the S&P500

The McKinsey Quarterly: Internal rate of return: A cautionary tale

The McKinsey Quarterly: Internal rate of return: A cautionary tale

I was just preparing for class and came upon a great article from McKinsey Quarterly (published by Wharton) that gives some reasons why the Internal Rate of Return may not be all that it is cracked up to be.

Short version:

IRR may lead to the wrong investment decision more often than we thought! And to make matters worse,

The Pecking Order--Dead or Alive?

What a treat we have! It is by Colin Mayer and Oren Sussman. It is on the pecking order.

The last we visited the pecking order was January's FinanceProfessor.com newsletter:
Myers and Majuf's famous 1984 pecking order hypothesis attempts to describe how firms raise capital. The authors hypothesized that firms are driven by information asymmetries and transaction costs to use internally

The Sports Economist--Sports, Globalization, and Protectionism

The Sports Economist has an interesting article looking at global competition in sports. The basic idea is that competition has become global. As Skip Sauer (the Sports Economist and Clemson Economics professor) writes:
Over the past century, the scale of sporting competition has increasingly moved from the local to the national and international stage. The great Brazilian soccer players no

Ljunqvist and Wilhelm: Prospect theory and IPOs

In trying to explain IPO underpricing, Loughran and Ritter (2002, RFS) suggested that CEOs may not be concerned about leaving money on the table in IPOs because the losses are netted against the rises in stock price in the secondary market.

Ljunqvist and Wilhelm now test this and find that it seems to hold. How do they do this?

From my class notes:
"Let's talk about grocery stores for a while.

House Cleaning

When I started FinanceProfessor.com I envisioned it largely as a repository of summary articles. Well things changed some, but in my mind at least, the heart of the page is still the summary section (of which I sort of include the newsletters).

That said, a lack of time has often intervened, but finally I got around to partially updating the short summaries for Corporate Finance. It does not yet

Iowa Electronic Markets ~ Current Markets: 2004 US Presidential Winner Takes All Market

Iowa Electronic Markets ~ Current Markets: 2004 US Presidential Winner Takes All Market

For many reasons polls can be biased and inaccurate. For instance: do you answer your phone? I rarely do unless I know who is calling. Or do you tell the pollster what you thing they want to hear? Many do.

However, people are much less likely to lie if there is money at stake, so it is worthwhile to see what

Commercial banking and Investment banking-Yasuda

In a forthcoming Journal of Finance article, Yasuda adds significantly to our understanding of the relationships between corporate borrower, commercial bankers, and investment bankers.

It is rare that an abstract summarizes a paper's findings as well as this one, so I will let the abstract give his findings:
"[Commercial] bank relationships have positive and significant effects on a firm’s

Trends in Corporate Governance--Hermalin

In a forthcoming Journal of Finance article, Hermalin does a great job of showing how the various trends we see in corporate governance may be linked.

Some of the trends that are investigated include more "diligent boards", more outsiders being hired as CEOs, shorter tenures as CEO, and of course more CEO pay.

In the author's own words:
If regulatory and other pressures are leading to, say,