Enron chief accountant expected to plead guilty - report - Forbes.com

Well you knew someone would talk (first mover advantage--LOL)..From Forbes:Enron chief accountant expected to plead guilty - report - Forbes.com: "he former chief accountant at Enron Corp is expected to plead guilty to one or more criminal charges related to the collapse of the energy company, the Wall Street Journal reported.In its online edition, the newspaper cited sources familiar with the

Text book prices too high? Hope is either here or coming soon!

Just had another of those "The World is Flat" moments. I started working on my syllabi for the spring semester today and while cleaning off my desk I found an advertisement for FreeLoadPress. Have you heard of them? It is a very cool idea. I have not used their books, but am very tempted.The basic idea is that they offer text books for free or next to free in return for sponsorship. For

USATODAY.com - More funds lower fees after scandal in 2003

YEAH!!! Fees and expenses eat away large portions of your "nest egg" over the long haul, so every cut is a good thing!

USATODAY.com - More funds lower fees after scandal in 2003: "Fund-tracker Lipper says 2,830 funds reduced their management fees in 2004, compared with 622 that did so in 2003.

Those fee reductions were not one-time cuts but contractual agreements with the funds' investment

USATODAY.com - Pension funds pin target on CEO pay

USATODAY.com - Pension funds pin target on CEO pay: "Runaway CEO pay, a longtime pet peeve of shareholder activists and corporate governance experts, is about to take center stage in Washington, D.C.At least that's the hope of 10 pension funds from the USA, Canada and Europe. In a confidential letter sent to the Securities and Exchange Commission on Nov. 30, representatives of the funds, which

What's the Return on Education? - New York Times

Want to include education in the "market portfolio"? It is not as easy as you would hope!

What's the Return on Education? - New York Times: "Economists have tried for decades to quantify the impact of education. They still don't have all the answers, but their work can shed some light on what Americans are getting for their investment."

Thought provoking article!

Taking a View: Corporate Speculation, Governance and Compensation by Christopher Geczy, Bernadette Minton, Catherine Schrand

SSRN-Taking a View: Corporate Speculation, Governance and CompensationYou know the standard class spiel:"... identify your core business exposure, then find ways to hedge it by taking a derivatives position that moves in the opposite direction. In this way derivatives are not bets on market movements, but as an insurance policy against things outside the firm's control (i.e. macro risk factors."

Dilbert Comic Strip Archive - Dilbert.com - The Official Dilbert Website by Scott Adams - Dilbert, Dogbert and Coworkers!

Yesterday's Dilbert comic strip acknowledges the importance of incentives and brings up the question of whether we should rewrite underwater options.

Which just happens to be a topic we will be covering this Friday in class.

The Bonds That Fight the Monster Called Inflation - New York Times

Another interesting article NY Times article that is useful for introductory investment (or money and banking) classes.The Bonds That Fight the Monster Called Inflation - New York Times: "The I Bonds offer a two-part interest-rate mechanism. The first is a fixed rate for the life of the bond. That rate is now 1 percent, applying to all I Bonds issued in the six months that started Nov. 1. The

Giving Yourself a Tax Cut on Investments - New York Times

The NY Times has several good tips on lowering tax bite on your investments. Giving Yourself a Tax Cut on Investments - New York Times: For instance:"Every year in late November or December, mutual funds distribute to their shareholders the gains they realized by selling stocks that year."and"So-called tax-efficient funds, which manage money with taxes in mind, are also considered a relatively

USATODAY.com - 'Consensus estimate' may be from one analyst

USA Today ran an interesting look at analyst coverage. Many stocks have a surprisingly small analyst following.

USATODAY.com - 'Consensus estimate' may be from one analyst: "Currently, more than half the 8,416 public companies have no analyst coverage, says Ashwani Kaul, chief spokesman for Reuters Estimates. An additional 7% of publicly traded companies are covered by just one analyst.

Most

Wow has it been a while

I don't know whether to beg forgiveness or put up a white flag. It has so long. This semester has been very hard: much traveling, classes every day, plus helping to plan a large trip to the Gulf for the spring. But the semester is winding down, tonight's hotel has wireless internet, and I have had more than my share of planning for now, so I will turn my attention to finance. :)

Hands On USA : Thanksgiving video

Oops, this was supposed to go on My Randomtopics2 blog, sorry!!!A Thanksgiving video is up. VERY good!!!So many familiar faces!But since I have you attention, why not consider coming down with us when we go back? Check out our plans here. It will be a GREAT trip!

Most corporate fraud found by luck: study - Yahoo! News

Most corporate fraud found by luck: study - Yahoo! News: "Despite tough regulations aimed at improving corporate governance, financial fraud is still on the rise around the world, and most is still detected by chance, a study from auditing firm PriceWaterhouseCoopers (PWC) showed on Tuesday""For the roughly one-third which said they could quantify the cost of the fraud, the total losses exceeded

Is Stock Picking Declining Around the World? by Utpal Bhattacharya, Neal Galpin

SSRN-Is Stock Picking Declining Around the World? by Utpal Bhattacharya, Neal Galpin:Short version: Bhattacharya and Galpin examine the relative use of indexing vs. stock picking in various equity markets around the world. They find that indexing is increasing pretty much everywhere but especially in more developed markets. They also estimate that the "long run steady state" fraction of stock

Please, Sir, I Want Some More - How Goldman Sachs is Carving Up its $11 Billion Money Pie

New York Magazine has an interesting look at Wall Street bonuses.

Please, Sir, I Want Some More - How Goldman Sachs is Carving Up its $11 Billion Money Pie: "The standard portion of net revenue (total revenue minus interest expense) earmarked for compensation at Wall Street firms stands at an astonishing 50 percent. That?s because talent is the most precious commodity on Wall Street; it?s what

New Email Service

Once again you guys have come to the rescue!I mentioned that many people had requested an emailed newsletter since they could not access blogspot from work. Jeff from MBA Depot suggested Feedblitz. It is great. It allows you sign up and receive emails of the most recent blog entries.In their words:"It's easy too! No gurus required. The basic service is free to all - no restrictions, no ads.

moneyscience.org : SmartMoney Interview: Nassim Taleb

If you have never read Fooled by Randomness, you owe yourself a present for the Holidays. Money.science found an interview with the aurthor Nassim Taleb. Good stuff.

Short version of the book: many traders are just lucky and they take way too many chances because they think they are good.

moneyscience.org : SmartMoney Interview: Nassim Taleb: "Good call TaylorTree for spotting this interview

Writely - The Web Word Processor

Eric Briys did it again! The person who turned me onto blogging and the person behind Cyberlibris and the cyberlibris blog sent me a note today mentioning Writely.com.I checked it out and wow! It is so cool. It is an online word processor that multiple people can use at the same time. It will be perfect for co-authoring papers etc. Indeed, you can pretty much make it a "wiki" world.I have

Update on things

Sorry I have been such a spotty poster of late. Between travel, tests, my own research, and other things (including a dog that got into macadamian nuts--a definite no-no!), I have not had much time.just some quick updates on various topics:1. Due to several requests (especially on the NYC trip) I will somehow be bringing back the newsletter yet again. It is such a pain to do, but there does seem

Gone for a few days

I am off to the Southern Finance Association meetings. I will be back on Friday. (yeah short trip). Depending on how much time is available and connection speed, I will try to give updates from the conference. But no guarantees.

Nasdaq to allow 1,2,3 letter symbols

Well, you can keep your phone number when you change carriers, so why not your ticker if you change markets?Latest News and Financial Information | Reuters.com: "From Jan. 31, 2007 it will be able to support one-, two- and three-character stock symbols for Nasdaq-listed and NYSE-listed stocks, in addition to the four-character symbols it currently uses.The single-character stock symbol carries a

Capital structure lesson

It worked!

Want to hear a class? Here is my finance 401 class lecture on capital structure. Some studnets actually asked me to put them online :)

This is a senior level course.

Take a listen ;)

At the request of the authors

The post on abnormal returns accruing to elected officials was removed at the request of the authors.

Voting and Rationality

In much of the US today is Election day, so I will devote some time to politics and how it can be used to demonstrate finance (and economic) topics. In the first of two blog entries dealing with politics, we will begin off with a seemingly simple question: Why vote? It is a question that has pained economists for years. Why? The odds are very very high that you will not be the marginal

How 1+1+1+1 Can Equal Less Than 4 - New York Times

This was in yesterday's NY Times. It is another supporting article for the diversification discount.How 1 1 1 1 Can Equal Less Than 4 - New York Times: "over the long haul, conglomerates, on average, perform worse in the stock market than the typical focused company. One likely cause is that they tend to do a poor job of allocating capital among their various divisions. Of course, if

International Calendar Effects

"December and January Effects around the Globe: Evidence from US and International Panel Data"Salimi, Wang, Yakovlev, and Roychoudhury provide further evidence that the January and December effects. The authors describe these effects as:"When investors do not sell winner stocks in December but postpone their sale to January so that capital gains will not be realized in the current fiscal year,

Why indexing is less controversial now

Joanthan Clements has long been one of my favorite WSJ writers and once again he nails it! In his most recent article (Nov. 6, 2005) he suggests that the reason indexing has finally caught on is because brokers and advisors no longer have as much of an incentive to fight it.WSJ.com - Getting Going: "Yet the widespread acceptance of indexing has come only in the past few years. Indeed, as recently

CFOs tell us what they think of SOX

Survery of CFOs on SOXI will start this one with my standard discalaimer whenever I review a paper that is based on a survey data: be forewarned, survey data is often notoroiously inaccurate and biased. Thus, view the folloiwng with a good deal of skepticism.The warning given, the paper itself is intersting. Peng, Dukes, and Bremer survey 1,312 CFOs who were in the Financial Executives

Who is Jay Cooke?

Looking for an unsung hero of the US Civil War? You could do much worse than picking Jay Cooke. Jay Cooke was what we would now call an investment banker.. He had made quite the name for himself selling all types of securities but especially state bonds---his Pennsylvania and Texas bond sales are particularly interesting and could be the focus of a future entry just by themselves

FRB: Speech, Ferguson--Monetary Credibility, Inflation, and Economic Growth--November 3, 2005

Very useful for a money and Banking class!FRB: Speech, Ferguson--Monetary Credibility, Inflation, and Economic Growth--November 3, 2005: "By now it must be universally agreed that low and stable inflation is a primary and essential goal for monetary policy, in large part because we believe it brings stability to financial systems and fosters sustainable economic growth over the longer run. In

Leverage and Investment

Leverage and OVER investment--Yet another "ARGHHHH--why didn't I think of that!" paperShowing that leverage leads to underinvestment is standard fare for any corporate finance class. Indeed, I had planned on doing it today. However, as Lyandres and Zhdanov point out, it might be better to say that leverage influences investment, but that the direction of the bias is firm-dependent (which once

Higher moments and finance

Incorporating Higher Moments into Financial Data Analysis--James M. SfiridisOh boy, here we go! Hold on tight and let's tag along for the ride. This could change some things!Virtually everything we do with respect to risk and return centers on the assumption of normality (that is that the normal distribution correclt explains returns, or minimally the log of returns).The problem is nearly

Delaware Incorporation and Bonds

"Does Delaware Incorporation Affect Bondholder Wealth?"by Francis, Hasan, John, and Waisman.First the answer: Yes.Bonds rarely spark the interest of stocks, but this one is sort of cool. Francis, Hasan, John, and Waisman examine the interest rates spreads of corporate issues based on where companies are incorporated. They find that firms that are incorporated in Delaware pay a penalty (in the

Is long run IPO underperformance driven by lack of liquidity?

Is Long-run IPO underperformance driven by lack of liquidity?What a roll! Maybe it is time to talk about momentum blogging! ;) Yet another cool paper!Roychoudhury and Abbott tie long run underperformance of IPOs (See Ritter 1991 or Loughran and Ritter 1994) to a lack of liquidity (the Amihud and Mendelson 1986 idea).In Roychoudhury and Abbott's own words:"We construct portfolios of IPOs with

SSRN-Corporate Governance and Acquirer Returns by Ronald Masulis, Cong Wang, Fei Xie

SSRN-Corporate Governance and Acquirer Returns by Ronald Masulis, Cong Wang, Fei Xie:Some takeovers are good (value enhancing), others are bad (value destroying). Why the difference? One easy explanation is that managers often have incentives (such as empire building, hubris, pay tied to size, ego, diversification) to do a merger that is not in shareholders’ best interests. Masulis, Wang, and

SSRN-Strength of Analyst Coverage Following IPOs by Christopher James, Jason Karceski

James and Karceski report that firms who have poor IPO performance get more than just price stabilization in the after market. However, while price stabilization tends to end relatively quickly, the firms whose IPO did poorly also get longer term more favorable coverage in the period following their IPO. This supports the "booster shot" hypothesis."Firms with poor aftermarket performance are

KSAT.com - Money - Report: Bush Set To Name Bernanke As New Fed Chief

Seemingly a very good choice!

KSAT.com - Money - Report: Bush Set To Name Bernanke As New Fed Chief: "We're expecting to hear later today who the White House wants to succeed Alan Greenspan as head of the Federal Reserve.

An announcement is expected at 1 p.m. EDT.

Greenspan has been expected to leave his post as the nation's top central banker at the end of January."

Do managers play games with R&D?

What an interesting paper!As most anyone in industry will tell you, managers often play games with R&D spending. Whether it is for their own "pet projects" or to further some cause within the firm. Of course, this should not be surprising as no where are information assymetry probelms more severe than in R&D spending.Bange, De Bondt, and Shrider now provide empirical evidence of this game playing

Good example of diversification discount

Cendant is giving us a near perfect example of the diversification discount. The basic idea is that firms sell for less when they are made up of multiple lines of business. This has been the a edbate as to whether this is real or whether we are measuring the wrong thing. For instance we do not see the firms' apart from the start.

That said, it appears that most now acknowledge the existence

Equity Risk Premium

It is not new, but we just covered it in class and I think many of you might be interested. It is a brief overview of the Equity Risk premium through time by Clark and Silva. Short version: Expect the equity risk premium to be lower moving forward.From the paper:"Expectations for the long-run equity risk premium play an important role in asset allocation decisions because the policy asset mix

Financial Engineering News Financial History Timeline

Financial Engineering News is really increasing their product line. They have added a comic strip and a really cool timeline.

Vernimmen.com

Vernimmen.comWhat a great site!When I was gone I recieved a message from the authors of Corporate Finance by Vernimmen, Quiry, Le Fur, and Salvi.The book, newsletter, and website are all very interesting and useful. The book is 48 chapters (about 1000 pages) full of corporate finance. I have to agree with the authors "It is a book in which theory and practice are constantly set off against each

I'm back from Biloxi

Well that was quite a week! All I can say is that the destruction in the Gulf Coast region from Hurricane Katrina is awful. I went to Biloxi MS with a group from SBU. We worked with HandsonUSA. I have uploaded many pictures and am in the process of posting essays on what it was like. I would encourage you all to volunteer down there. If you are interested, a large group of us are going down

Does a "no vote" matter?

Continuing our look at some papers from the FMA Meetings, Del Guercio, Wallis, and Woidtke give us a look at whether boards of directors actually listen to their voting shareholders and if they do hear shareholders, what the reaction is.The answer may surprise you!From the abstract:"Overall, our findings support the argument that existing tools are insufficient to induce pro-shareholder change at

TradeSports Pays a fine to CFTC

Thanks to Chris Masse for pointing me to it this interesting story. TradeSports got fined for trading option contracts to US citizens without regulatory approval and oversight.From the CFTC's press release:"The U.S. Commodity Futures Trading Commission (CFTC) today announced the filing and simultaneous settlement of charges under the Commodity Exchange Act (CEA) that

The American Academy of Accounting and Finance :: 2005 Annual Meeting

Katrina shut down New Orleans, so there is a new locale for the American Academy of Accounting and Finance annual conference.

Just announced:

"The American Academy of Accounting and Finance will hold its 12th annual meeting in St. Pete Beach, Florida, on December 8, 9, and 10, 2005."

For more information check out their website.

St. Bonaventure students join relief teams

This has almost no finance content, but it is about our finance club, so some of you might be interested. It is from the Olean Times Herald.Bradford Publishing - HOME - 10/03/2005 - St. Bonaventure students join relief teams: "the St. Bonaventure Finance Club, along with members from Students in Free Enterprise, plan to take a trip to Mississippi during their mid-term break, scheduled from

Cash Holdings and Governance

What better way to start our look at conference papers than by a paper on Cash Holdings and Corporate Governance by Jarrad Harford, Sattar A. Mansi, and William F. Maxwell that will be in the first session of the FMAs in Chicago.Short Version:The authors use a corporate Governance index to examine cash holdings by firms. They report evidence that firms with weaker governance waste the cash

Midwest Finance Association 2006 Annual Meeting

Speaking of conferences, I would be remiss if I did not mention the upcoming deadline for the Midwest Finance Association's annual meeting:Midwest Finance Association 2006 Annual Meeting: "The Midwest Finance Association's 55th Annual Meeting will be held March 23 - 25, 2006 at the Chicago Marriott - Michigan Avenue in Chicago, Illinois.The MFA Distinguished Scholar Lecture will be given by .

Finance Conferences: FMA and SFA

Finance conferences are great learning opportunities. Unfortunately the vast majority of people interested in finance do not get to experience these conferences since they are largely for academics.So, I will try to bring the Financial Management Association and the Southern Finance Association's Annual meetings to you.Each is an excellent conference and the programs are now online. Over the next

Busy Day

I may or may not get anything online today. Have to make out a test and finish correcting projects. I will try.In the meantime, I suggest you check out two recent posts (or collections of posts) at FreeMoney Finance.1. Is about monkeys investing (it really can not get much better than that!). Short version: Due to market efficiency (or thereabouts) indexing, while not perfect, is good way to

Hurricane Brings Miss. Real Estate Frenzy - Yahoo! News

This is one of those things I realize from an intellectual point of view I should be happy about, but that said, it still saddens me.

From Yahoo News (the AP)
"The Mississippi coast, wracked by Hurricane Katrina, is caught up in a real estate rush, as speculators and those looking to replace their own wrecked homes pinpoint broken and battered waterfront neighborhoods. In the weeks since the

Don't Let Your Portfolio Get Caught Speeding [Fool.com: Commentary] September 28, 2005

What great timing! We just covered bonds this week in class. So if you are in my class, you better read this one. It reviews the types of bonds and what bonds add to your portfolio.Don't Let Your Portfolio Get Caught Speeding [Fool.com: Commentary] September 28, 2005: "we tend to focus most of our time and energy on stocks, believing that equities are the best way to stay ahead of the erosive

Executive Stock Options and Earnings Management - A Theoretical and Empirical Analysis by Ohad Kadan, Jun Yang

Executive compensation has changed in the aftermath of the corporate governance "crisis" (where we saw Enron, Tyco, Adelphia, WorldCom and others fall precitously due to accounting scandals). One such change is a shift away from stock options. Microsoft is the classic example but many other firms have also scaled back option progams for restricted shares (share that can not be sold for some

FPA Journal - Post-Modern Portfolio Theory

What is risk? It pains me greatly that we do not have a better measure of it. I remember when I took my first finance class and was told that risk was measured by standard deviation and was immeditely put off. Why? Because how many people are worried about making too much money?Ask a person on the street (Main Street or Wall Street) and they will tell you a closer description of risk than the

Valuation from 2003 FMA Conference

I realize this is not cutting edge (2 years old) and that I have mentioned the presentations before, but with the transient nature of a blog's readership, it is worth mentioning again! And besides, I want my class to watch at least one of them! All are from the FMA 2003 conference and are available at FMA Online.

Aswath Damodaran and Tim Opler on valuation. They are excellent!

I guess I like

Corporate Investment and Asset Price Dynamics: Implications for SEO Event Studies and Long-Run Performance by Murray Carlson, Adlai Fisher, Ronal

Using option theory to understand and explain firm and investor behavior often yields important insight. This is no exception. Carlson, Fisher, and Giammarino (CFG) use real option analysis (real options are essentially the application of option theory to “real” assets) to investigate the stock behavior around seasoned equity offers (SEO). Many researchers (probably most notably Ritter

How Informative are Analyst Recommendations and Insider Trades? by Jim Hsieh, Lilian Ng, Qinghai Wang

Mixed signals. They happen all the time in and out of finance. Take for instance the starting pitcher saying he can go another inning while wearily dragging himself onto the field, or the spouse who is crying while saying things are fine, or the CEO selling shares while stock analysts write ringing endorsements.While Hsieh, NG, and Wang may not be able to help you interpret the mixed signals on

Financial Advice-KISS

I was asked recently by FreeMoneyFinance for a brief piece on the best financial advice possible. Unfortuntately I was too busy at the time to do it, but FMF was nice enough to run it anyways. The following is what I wrote. KISS-Keep It Simple Stupid. Oftentimes financeprofessors tend to make things too complicated. Such is the often the case when it comes to investing. Sure, we might be

-Political Connections and Corporate Bailouts by Mara Faccio, Ronald Masulis, John McConnell

SSRN-Political Connections and Corporate Bailouts by Mara Faccio, Ronald Masulis, John McConnell:Faccio, Masulis, and McConnell report that politically connected firms are more apt to receive government bailouts. This fits with prior evidence that leverage ratios at politically connected firms are higher. Thus, it may be inferred that lenders are more apt to make loans if they feel that the

Financial Fruition: Crappy TV -- Jim Cramer's Mad Money -- Let's Turn It OFF!

Financial Fruition has a pretty interesting article on Jim Cramer of CNBC. Cramer probably will not be sending FF a Chirstmas card anytime soon:


Some highlights:

** "Jim Cramer and the ill effects of active trading and preaching to to a world-wide audience. "

** "Yes, Cramer says he is just giving advice to those that have side money and want to dabble in the market, but does he know if that

Is It Better to Buy or Rent? - New York Times

Is It Better to Buy or Rent? - New York Times: "But renting might deserve another look right now. After five years in which rents have barely budged while house prices in New York, Washington, Los Angeles and elsewhere have doubled, renting has become a surprisingly smart option for many people who never would have considered it before"Something I have been saying for quite a while. Renting is

HoustonChronicle.com - Cash in demand, but supply short

HoustonChronicle.com - Cash in demand, but supply short"Cash-hungry residents who had to deal with Hurricane Rita also drained automatic teller machines throughout the city.Machines at some of Chase's 37 Houston branches, which were open for part of Thursday, ran out of cash, spokesman Greg Hassell said. He wasn't sure how many.'We weren't able to get cash in because of the roadways, and there

SSRN-Effects and Unintended Consequences of the Sarbanes-Oxley Act on Corporate Boards by James Linck, Jeffry Netter, Tina Yang

SSRN-Effects and Unintended Consequences of the Sarbanes-Oxley Act on Corporate Boards by James Linck, Jeffry Netter, Tina Yang: "Effects and Unintended Consequences of the Sarbanes-Oxley Act on Corporate Boards"Using firms in the Disclosure database, Linck, Netter, and Yang report that the Sarbanes-Oxley Act has increased the size of boards and has created more committees within boards. They

SSRN-Brand New Deal: The Google IPO and the Branding Effect of Corporate Deal Structures by Victor Fleischer

Brand New Deal: The Google IPO and the Branding Effect of Corporate Deal Structures Fleischer provides us with a series of case studies that shows that firms use contract design to signal various traits about the firm to stakeholders. In the author's own words:"This Article claims that the legal infrastructure of deals sometimes has a branding effect - that is, an effect on the brand image of the

How the BBC, Fortune and the New York Times went overboard claiming that the prediction markets had foreseen the name of the new pope!

This deserves another look. Hopefully this afternoon. But for now I at least wanted to point the article out to you.Super Short version: The bettering markets (decision markets) may not have done as well in predicting the pope as the NY Times and others suggested.From ChrisMasse.com"The questions I pose today to Enterprise Commanders are these: * How did the prediction markets at TradeSports/

India's MBA Gold Rush

India's MBA Gold Rush: "To get an edge in the country's exploding economy, more Indian students are seeking business degrees -- both abroad and at home "Given that one of my classes has an extra credit assignment of reading "The World is Flat" I really could not skip this one! Remember, there is a great deal of competition from all corners of the earth! Study hard!

Emotionless Trading

Sorry, I liked the title Emotionless Trading better than Yahoo's version:
"Psychopaths could be best financial traders?"


Not sure what to say about this one. Just that it goes to show emotions should not play a roll in investment decisions.


In a study of investors' behavior 41 people with normal IQs were asked to play a simple investment game. Fifteen of the group had suffered lesions

Kimmunications: Investment Return Doesn't Mean Diddly

Even when the stock market goes up, investors may lose out if they try to time the market. The extent to which market timing occurs is debateable but no doubt substantial. That is the gist of a recent blog entry over at Kimmunications. Kimmunications cites a Dalbar study that finds individual investors lose a great deal as a result of this attempt to time the market. "over the 19 year period

Modern Finance vs. Behavioural Finance: An Overview of Key Concepts and Major Arguments by Panagiotis Andrikopoulos

It is about the time of the semester when many finance classes turn their attention to market efficiency. Thus, it is perfect timing for Andrikopoulous' refresher comparing and contrasting Modern Fiance and Behavioural Finance.SSRN-Modern Finance vs. Behavioural Finance: An Overview of Key Concepts and Major Arguments by Panagiotis Andrikopoulos: A quick look in: "Modern Finance has dominated

IESE Insight - Finance

Jeff B. just sent me an email about this site. It had somehow slipped under my radar. Man do I feel stupid. It is really, really good! Recap of what the people at IESE are doing.
IESE Insight - Finance

Articles include fascinating looks at the "bubble", M&A in Europe, and the Euro.

I definitely bookmarked this one and will add it to my FinanceProfessor Links as well.

(PS Thanks Jeff!)

Look at Me Now: The Role of Cross-Listing in Attracting U.S. Investors by John Ammer, Sara Holland, David Smith, Francis Warnock

SSRN-Look at Me Now: The Role of Cross-Listing in Attracting U.S. Investors by John Ammer, Sara Holland, David Smith, Francis Warnock:Ammer, Holland, Smith, and Warnock provide an interesting look at what leads non-US firms to cross-list (sell their securuties on US markets).Several key points:* relatively few foreign firms do cross list. * cross listed firms are owned by US investors at a

Apology

Hi everyone...I just wanted to let you know that contrary to popular opinion I have not gone anywhere, just a tad busy. I got a bit too involved in a few different relief "missions" (not sure if that is the right word or not) for the Katrina Victims.One for the animal victims (we are collecting and shipping down pet supplies, medicines, towels, etc) and then organizing a trip down for the finance

Are casinos really important for national security?

Don't do it France! I hope they come to their senses. This would entrench management even more.


Sectors on the list, already confirmed by the Finance Ministry, include several over which most states retain tight control, such as arms manufacturing and encryption.

But the decree also covers companies with activities in biotechnology, data security, casinos and antidote production -- fueling

Who Loses from Trade? Evidence from Taiwan by Brad Barber, Yi-Tsung Lee, Yu-Jane Liu, Terrance Odean

Who Loses from Trade? Evidence from Taiwan by Brad Barber, Yi-Tsung Lee, Yu-Jane Liu, Terrance Odean:In a paper that finds the exact opposite of San 2005, Barber, Lee, Liu, and Odean report individual investors lose when trading with individuals. This finding, which fits with previous work much more than San's surprise finding, is based on stock trades in Taiwan from 1995 to 1999.From the paper:"

The Firing of a manager

One of the coolest things about finance, and in particular about teaching finance, is that almost any news item can be used to demonstrate various finance lessons. Indeed, just today Kimmunications gives us financial lessons we can take from the Hurricane Katrina disaster. The story I wanted to point out however has received very little national coverage. Indeed, it really is not that

Brain Regions Blamed for Bad Investment Ideas

How cool is this? Behavioral finance meets neural science.Brain Regions Blamed for Bad Investment Ideas:"Researchers say two different brain regions may be involved in making risky vs. conservative investment mistakes, a finding that may eventually help economists build better models of people's investment behavior.'Overall, these findings suggest that risk-seeking choices (such as gambling at a

Why we should not cap gas prices

I found this when I was researching gas prices for a friend who is convinced that prices should be capped. I disagree! Let markets work.The FinancialRounds does a good job of explaining why capping is not a solution:"we have to have some mechanism to allocate the available gas among the peoplewho want it. You can do it by lottery, by government fiat (i.e. you get a"ration card"), by random chance

Assorted Topics

Trying to catch up some: FreeMoneyFinance is doing an amazing thing. Matching donations upto $5000 for aid to Hurricane victims! GO and give now! I hate to make cyclists pay extra, but in this case, I want him to pay the full amount ;) Speaking of the Hurricane, a few more financial points to note. The IRS has relaxed some rules and deadlines for those affected and even has advice for those

Explanation for lack of posts

Just wanted to apologize for paucity of posts in recent days. The combination of watching too much Katrina news, classes starting, and network problems have combined to eat up any posting time. I think the computer problems are past so hopefully I will be back posting either tonight or tomorrow. BTW if you have not done so, please donate to the charity of your choice for the hurricane victims.

Is the sky falling?

I had an email this week from a former student. I answered him today. The answer was very long but I do think it may interest some of you. I guess it should be labeled as an editorial, so it is an editorial. A quick look:"As for your questions on the gloom and doom that you feel pervade the world. Please do not take this personally, but totally disagree. In fact that is why I waited a while

Dr. James Lorie

I missed this totally. The finance profession definitely owes the late Dr. Lorie a great deal. He is one of the people behind CRSP.Victor Niederhoffer and Laurel Kenner: Daily Speculations:" Much of the mystery shrouding the stock market dissolved when James H. Lorie began documenting the historic rise and fall of stock prices.The idea was simple but laborious: chart stock prices from 1926

SBU's response to Hurricane Katrina

Do me a favor, pass this one on. I played a small part in the idea so I really want it to work. St. Bonaventure is offering free room and board and one-half tuition scholarships to students from higher education institutions in areas affected by the hurricane so those students can continue their studies here at St. Bonaventure on a temporary basis. “Our doors — and our hearts —

Seasonal, Size and Value Anomalies by Ben Jacobsen, Abdullah Mamun, Nuttawat Visaltanachoti

SSRN-Seasonal, Size and Value Anomalies by Ben Jacobsen, Abdullah Mamun, Nuttawat Visaltanachoti: "Uh, oh. Here is one that will cause my notes to be redone!Jacobsen, Mamum, and Visaltanchoti use the Fama-French data library to look at three types of anomalies. Their findings may surprise you!The anomalies are broken down into three categories: Seasonal--the Halloween Effect (that is that

Corporate Governance in the US and Europe: Where Are We Now? by Tom Kirchmaier, Geoffrey Owen, Jeremy Grant

SSRN-Corporate Governance in the US and Europe: Where Are We Now? by Tom Kirchmaier, Geoffrey Owen, Jeremy Grant:This one is long but very interesting! It is really a book more than a paper. It is "based on a conference organised by the London School of Economics and New York University, held in London on November 4th and 5th, 2004.The conference brought together academics and practitioners from

The New York Times Dealbook

The beginning of a semester is always a good time to put in a free plug for the NY Times DealBook. In many ways it is the best source of online business news I am found.

It is a daily newsletter that gives summaries and links to news from a multitude of sources (NY Times and not). HIGHLY RECOMMENDED! and FREE!

The New York Times> E-mail Preferences> Dealbook

Sarbanes-Oxley after Three Years by Larry Ribstein

SSRN-Sarbanes-Oxley after Three Years by Larry Ribstein:I am sure many of you have been wondering whether Sarbanes-Oxley has been successful or not. I know that I have been! Unfortunately, it is a very difficult thing to test. While the costs are relatively easy to measure, the benefits are not. Moreover, even like any regulation, the passage is anticipated and thus normal event studies get

NYSE and ArcaEx Merger Update

NYSE and ArcaEx to Merge-- Writing in Financial Engineering News, Cynthia Harrington updates us on the NYSE and ArcaEx merger. While not exactly news, the report does have some interesting updates and would make excellent out of text book reading for any Instititions (or Money and Banking) class.Highlight: Figure 1. It shows the amazing drop in average spreads since 1994. WOW! As late as 2000 the

SSRN-Core Finance Trends in the Top MBA Programs in 2005 by Kent Womack, Ying Zhang

SSRN-Core Finance Trends in the Top MBA Programs in 2005 by Kent Womack, Ying Zhang:Following Friday's mention of the DeAngelo, DeAngelo, and Zimmerman paper that looks at what is wrong with MBA programs at some universities, I was sent the following paper by Womack and Zhang. They survey MBA programs to see what trends exist.The good news? More finance! "Five of the nineteen schools responding

The Fed's "meeting" in Jackson Hole

If you have not been watching the annual Central Bank meeting (sponsored by Kansas City Fed) taking place in on in Jackson Hole, you have missed a great deal.A few highlights:The NY Times reports on Greenspan's own comments:"Fed chairman implicitly took aim at both the torrid run-up in housing prices and at the broader willingness of investors to bid up the prices of stocks and bonds and accept

What's Really Wrong With U.S. Business Schools? by Harry DeAngelo, Linda DeAngelo, Jerold Zimmerman

What's Really Wrong With U.S. Business Schools? by Harry DeAngelo, Linda DeAngelo, Jerold Zimmerman:Wow, it sounds bad. I am very glad I chose a small university (St. Bonaventure). However, the choice leads me to not really comment on the paper since being at a small university removes me from many (but not all) of the problems cited in the paper. Moreover, I do not feel I can add any value to

Measuring the True Cost of Active Management by Mutual Funds by Ross Miller

SSRN-Measuring the True Cost of Active Management by Mutual Funds by Ross Miller:Yet another WOW paper!Miller decomposes mutual fund returns into an active portion and a passive portion. He then shows that the fees are for the active portion are much higher than most investors would suspect.Longer version: It is well known that actively managed funds are highly correlated with market indices.

SSRN-Who Monitors the Mutual Fund Manager, New or Old Shareholders? by Woodrow Johnson

Who Monitors the Mutual Fund Manager, New or Old Shareholders? by Woodrow Johnson:Johnson looks at the behavior of mutual fund investors to determine whether shareholders who have held the shares for longer behave differently than new shareholders. He finds that there are differences in behavior. Specifically he finds little relation between fund performace and selling behavior of existing

India's turn in the spotlight

It is always fascinating to notice how reading something makes you more aware of other articles on the same topic. Given that I recently finished ristening to Thomas Friedman's The World is Flat (which I HIGHLY recommend! One of best books I have read this year!) it should be of little surprise that yesterday I blogged an article on China and today it is India's turn.In the past 24 hours I have

Do Online MBAs Make the Grade?

Are online MBAs as good as in-person MBAs?I am sure many of you have been asked (or have asked yourself) this question before.BusinessWeek tries to answer with a very qualified "yes". Why? Because a few bad apples are spoiling things for the rest of us.Do Online MBAs Make the Grade?: "Many of the online MBA programs are well-regarded and offer a way for busy people...to get advanced education

Podcasts: a new tool for teaching?

I hestitate to put this online so soon as I am not totally satisfied with the quality yet, but as the internet generally (and blogs more specifically) are about sharing information and ideas, I figured I would put this out there and see what others think and seek comments/help.As many of you know podcasts are the new 'hot thing" on the internet. They are essentially online radio shows made

China's Financial System

Allen, Qian, and Qian give a fascinating look at China's Financial System. The auhtors do an excellent job both explaining what exists and hypothesizing as to what will happen in the future as a result of current conditions.Some highlights: The paper comes to 4 broad conclusions. In the authors' words: "...the current financial system is dominated by a large but inefficient banking sector, and

Chinese Walls in German Banks

Yes, I confess, I picked this one for its title, but upon reading it, the paper turned out to be interesting!Chinese Walls in German Banks by Lehar and Randl.The short version? Chinese Walls leak not just in the US but in Germany. This leakage results in affiliated analysts having superior information.A slightly longer version:Chinese Walls are supposed to exist. We have seen that time and again

Corruption, Firm Governance, and the Cost of Capital

Garmaise and Liu present a model that has several important implications in their paperCorruption, Firm Governance, and the Cost of Capital.In the paper they "develop a model of a firm owned by shareholders and administered by managers who may be either honest or dishonest. When managers have an informational advantage but shareholders retain control, dishonest managers can make false reports

Corporate Governance in Cyberspace - A Blueprint for Virtual Shareholder Meetings by Dirk Zetzsche

SSRN-Corporate Governance in Cyberspace - A Blueprint for Virtual Shareholder Meetings by Dirk Zetzsche:This article "analyses the rules regarding the internet-based exercise of shareholder rights for public corporations incorporated in Canada, France, Germany, the U.S. (DelGCL & RMBCA), the UK and Switzerland"A few highlights: "...this paper asserts that the transition from the traditional

SSRN-Who Gains More by Trading - Individuals or Institutions? by Granit San

SSRN-Who Gains More by Trading - Individuals or Institutions? by Granit San:Wow, if proven true this could change some things!San finds that individuals outperform institutions when it comes to trading! So much for individuals as noise traders!A quick peek inside:* "individuals buy low and sell high, and that they realize superior gains by selling"* "findings suggest that due to holding winners

To buy or to build?

Margsiri, Mello, and Ruckles provide a thoughtful article that models the "grow vs buy" decision.SSRN-To Build or to Buy: Internal vs. External Growth by Worawat Margsiri, Antonio Mello, Martin Ruckes: "This paper relates growth via acquisitions to the characteristics of the possibility to grow organically"As in most modeling papers, this should come with the standard warning that "while the

A Discrete-Continuous Choice Model of Climate Change Impacts on Energy by Erin Mansur, Robert Mendelsohn, Wendy Morrison

This may not be strictly finance, but it is something that I have often wondered (but never investigated): if global warming happens, what will be the net effect on energy consumption?I would imagine that people will use more electricity for air conditioning and probably drive more, but will this be offset by lower heating expenditures?Mansur, Mendelsohn, and Morrison say no. In fact they

Banks and Credit Derivatives

Minton, Stulz, and Williamson have an important look at banks' usage of credit derivatives. The short version? Very few banks are using them! In 2003, only about 6% of banks with over $1B in assets report using this form of derivatives. Consistent with what we have seen on other derviatve usage, these banks tend to be much larger than average. Best guess as for the low usage? Transaction costs

CareerJournal | Retirement Plans - Retirement Planning - Pension Plans

CareerJournal | Retirement Plans - Retirement Planning - Pension PlansThis past Sunday the Buffalo News ran an article by the Wall Street Journal's Kelly Greene on the problem facing many retirees who expected their expenses to drop more than they have. The short version of the article was that because of more traveling, more consumer spending, and higher energy bills, post retirement expenses

The Gambler's Fallacy and the Hot Hand: Empirical Data from Casinos

The Gambler's Fallacy and the Hot Hand: Empirical Data from CasinosMoneyscience.org points to the paper by Croson and Sundali (in the Journal of Risk and Uncertainty) who use video from a casino to document the existence of both a gambler's fallacy (the idea is that because some event has not happened in a while it is "due" and the hot hands fallacy (I am on a roll, so I will remain lucky).A few

Market timing and capital structure

Jay Ritter and Ronbing Huang give us more evidence that firms do time security issuance. From their paper:"publicly traded U.S. firms fund a much larger proportion of their financing deficit with external equity when the cost of equity capital is low. Small growth firms rely heavily on debt financing, and only resort to equity markets when the cost of equity is low." It is also important to note

'Do you Expect Me to Pander to the Students?' The Cold Reality of Warmth in Teaching by Robert Bruner

Robert Bruner has a really good piece on teaching. He discusses the ability to bring "warmth" to the finance classroom.Do you Expect Me to Pander to the Students?' The Cold Reality of Warmth in Teaching by Robert BrunerA quick intro:"It is entirely possible to be warm and a tough teacher; to be warm and teach a dry technical subject; and to be warm even when you don’t feel like it. The effective

It's all relative!

Everything is relative.

Yeah we knew that, but there is a new study out that suggests even happiness is realtive. It is being widely reported today, but I do think it has a big impact in finance. Short version: everything is realtive.

Obviously this is not new. Indeed there was quite a bit on it Gregg Easterbrook's Progress Paradox.

Scotsman.com News - UK - Happiness is besting Joneses

Dollar Cost Averaging passes the test!

In Dollar Cost Averaging Brennan, Li, and Torous presents evidence that dollar cost averaging (investing equal amounts whether the market is up or down) actually works! In their words:"evidence supports the view that the individual investors who follow this strategy in purchasing individual stocks to add to an existing portfolio are better off than if they followed the 'rational' strategies

FPA Journal - Focus: Finding Career Paths

The Journal of Financial Planning has a cool article that is really a "roundtable" on what it is like to work as a Financial Planner. It really should be required reading for anyone considering gettting into the field!
FPA Journal - Focus: Finding Career Paths: "New planners and veterans alike voiced strong opinions on career opportunities and obstacles in the planning profession. While some

Change is Good or the Disposition Effect Among Mutual Fund Managers by Anna Scherbina, Li Jin

Previous research has shown that individual investors often hold on to losing stocks for too long. It has largely been assumed that this is because individuals are reluctant to admit their mistakes. Empirically this has been shown by many including Odean 1998.There is some, although less persuasive evidence that professional money managers are less likely to make this financial error. Short

ISLAMIC MORTGAGES: Faith, finance forge new path

Kim Norris of the Detroit Free Press presents an interesting look at Islamic Mortgages. Islamic mortgages are different than traditional mortgages since many Muslims believe interest is wrong.ISLAMIC MORTGAGES: Faith, finance forge new path: "In Islamic mortgages, an intermediary such as a bank buys the property, and the homeowner eventually obtains the home through a lease-to-own arrangement."A

Optimism and Economic Choice by Manju Puri, David Robinson

Puri and Robinson give us a new look at the old idea that optimism matters.They identify optimists by looking at people's self-reported life expectancy. The findings are that not only do optimists work harder, but they buy more individual stock than their more pessimistic peers. .SSRN-Optimism and Economic Choice by Manju Puri, David Robinson:Short version:"Optimists are more likely to believe

Do Investors Reinvest Dividends and Tender Offer Proceeds? by Elias Rantapuska

SSRN-Do Investors Reinvest Dividends and Tender Offer Proceeds? by Elias RantapuskaShort answer: Not really.Rantapuska asks two interesting questions: Are dividends and the proceeds from tender offers really reinvested? Are the proceeds from cash flows from tender offers treated differently than those from dividends. Using data from Finland, the author finds that a relatively small

Socially Responsible Investors

I hate it when the WSJ "scoops" me, but that is where I found out about this paper. It is by Bollen and Cohen.Socially Responsible Investing has been studied a great deal. Most of the work has looks at whether investors receive lower returns as a result of the SR criteria. Financial theory suggests that the more constraints placed on a portfolio, the lower the returns should be. (To put it

SSRN-Options and the Bubble by Robert Battalio, Paul Schultz

Time to rewrite my class notes.....Like many people I have been telling my classes that at least a portion of the reason that Internet stocks were allowed to get so overpriced during the so-called bubble was that short-sale restrictions prevented investors from shorting the shares to drive down prices.However, in their Options and the Bubble paper Robert Battalio and Paul Schultz show that even

Reputation Effects in Trading on the New York Stock Exchange by Andrew Ellul, Robert Jennings, Robert Battalio

Reputation matters. Once again we see that reputation and relationships matter. This papers presents evidence that trading costs on the NYSE are, in part, a function of the interpersonal relationships of floor traders.

SSRN-Reputation Effects in Trading on the New York Stock Exchange by Andrew Ellul, Robert Jennings, Robert Battalio: "reputation plays an important role in the liquidity

Do Managers Influence their Pay? Evidence from Stock Price Reversals Around Executive Option Grants by M.P. Narayanan, Hasan Seyhun

SSRN-Do Managers Influence their Pay? Evidence from Stock Price Reversals Around Executive Option Grants by M.P. Narayanan, Hasan Seyhun: "Consistent with the hypothesis that managers influence their pay, the reversals are positively related to grant size and the seniority of the manager, and negatively related to the firm size. "The size of this reversal is staggering."The market-adjusted return

They're back!

The US Treasury announced that the 30-year T bond will be making a return. (get it? I couldn't resist ;) )"Treasury is re-introducing regular semi-annual auctions of the 30-year nominal security beginning with a bond that will mature on February 15, 2036." Treasury Press ReleaseFrom the Seattle Times: "It is good because it will help the U.S. government finance its huge deficit and debt at

Don't Worry About China. Learn From It. - New York Times

Don't Worry About China. Learn From It. - New York Times: While there is a debate about the actual size of the Chinese economy, very few really have a grasp on the actual size.From the article:"range of estimates, but generally the gross domestic product of China in the year 2004 is estimated to be substantially less than $2 trillion. That would roughly make it one-sixth the size of the United

The McKinsey Quarterly: Sizing the emerging global labor market

Thomas Friedman's Flat World meet academia. McKinsey Quarterly reports on the impact outsourcing will have on the global economy. Short Version:Outsourcing is here to stay, will continue to grow as more jobs can be digitized, this will increase per capita income in developing economies without "major discontinuities in overall levels of employment and wages in developed countries."Of course that

FinanceProfessor.com trivia

I had a request for my old trivia page that had been taken off the website. So here it is. I had not looked at it in years. Some are pretty interesting.FinanceProfessor.com triviaFor instance:#34. Ronald Reagan was the first president to visit the NYSE#36. Arnold Schwarzenegger was a finance major#41. The Founder of Merrill Lynch (Charles Merrill) played semi-pro baseball prior to coming to

Low-Carb Pioneer Atkins Files Chapter 11

Projecting sales is difficult. Indeed, it is probably the hardest part of valuation and it can have large implications if we are wrong. Therefore, it is covered in virtually all investment and corporate finance classes at least to some degree. Well we now there is a new example to use: Atkins Nutritionals.

As the low carb diet fad cooled, not only have grocery stores left with unsold

RadioEconomics interview

As I warned/promised you last week, here is the RadioEconomics' interview I did. I just listened to it. I definitely did not break any new ground, but it does give a background on FinanceProfessor.com as well as some of the synergy between the site, the blogs, my research, and my classes.

Radio Economics

be sure to listen to some of the other interviews as well. Especially the Becker and

moneyscience.org : Islamic mortgage market to expand

From Moneyscience.org
moneyscience.org : Islamic mortgage market to expand

"The Islamic mortgage market is set to grow by 47% a year and could be worth £1.4bn by 2009, market research group Datamonitor has said. There is a growing demand from the UK's 1.8 million Muslims for mortgages that comply with Sharia law. The law forbids interest payments;"

While Islamic banking is growing rapidly in

Financial history/trivia from the 1700s

I had so much fun with the 1600s, I decided to go on to the 1700s. Enjoy! Some more financial history/trivia. This is from the 1700s. I think it is worthwhile to note how some things really do not chnage that much. Indeed that is a major reason why I love history so much. In 1703 England and Portugal reach an agreement to jointly lower tariffs in order to increase trade. (Methuen Treaty)

SSRN-Firm Size, Debt Capacity, and Corporate Financing Choices by Senay Agca, Abon Mozumdar

Firm Size, Debt Capacity, and Corporate Financing Choices by Senay Agca, Abon Mozumdar:Yet another paper on the pecking order! This one is by Agca and Mozumdar. You will definitely want to read it!There is a large debate in the financial world as to whether Myers' and Majluf's pecking order holds. Their famous hypothesis states that firms want to use internally generated funds first, and then

Free Money Finance: Carnival of Personal Finance #6

While I often try not to make this too much of a personal finance page, I think this one deserves mention. It is Free Money Finance's "Carnival of Personal Finance." Many good tips and ideas! Free Money Finance: Carnival of Personal Finance #6

Some Financial history/trivia from the 1600s

Some Finance trivia for you. All from the 1600s. How profitable was the spice trade? VERY! If (and this is a big if) the ships made it back safely. In 1618 it was estimated that 3000 tons of spices were bought in what is now India and the surrounding area. The spices cost about £91,000. By the time they reached the eastern Mediterranean they were worth almost £800,000! So it is easy to

Volume and returns

Do investors trade more when stocks have performed well? John M. Griffin, Federico Nardari, and René M. Stulz report that investors do trade more following strong market performance.From their paper:Their key finding:"There is on average a positive relation between past returns and turnover in our sample of countries. Using a trivariate Vector Autogression (VAR) of market return, market

The NFL Draft and Market Efficiency

NFL and Finance by Massey & Thaler Massey and Thaler use football (the NFL) to demonstrate that markets may not be "rational."From their abstract:"Using archival data on draft-day trades, player performance and compensation, we compare the market value of draft picks with the historical value of drafted players. We find that top draft picks are overvalued in a manner that is inconsistent with

The Value of Financial Flexibility by Andrea Gamba, Alexander Triantis

SSRN-The Value of Financial Flexibility by Andrea Gamba, Alexander Triantis:Gamba and Triantis look at the relationship between financial flexibility and Investment flexibility. Not surprisingly, they find the two are related."We find that firms with greater investment flexibility derive less value from financial flexibility, indicating that these two dimensions of flexibility are substitutes to

SSRN-Long Horizon Mean Reversion for the Brussels Stock Exchange: Evidence for the 19th Century by Jan Annaert, Wim Van Hyfte

If people look at the same data over and over again, it should not be surprising that eventually people find things. Moreover, if different people look at the same data set, they are likely to find the same things. For this reason, it is always nice when there is an out of sample data set that can be used to verify the initial findings. Annaert and Van Hyfte provide us this opportunity.SSRN-Long

Who's Afraid of China Inc.? - New York Times

With all of the discussion of late about China and the Flat (or Not so flat) World, it is worthy to note that not all are looking forward to a "one world," Particularly, many are afraid of China.

This issue has come to a head of late with the attempted takeover of Chevron.

It is into this environment where NY Times runs their article on US-China business relations. I had to laugh at the

Radio Economics

If you have not been introduced yet to podcasting (I would describe it as audio blogging), check our RadioEconomics.

Dr. James Reese of the University of South Carolina Upstate has started a cool site that plays interviews of various economists (and soon financeprofessors ;) as well.

Radio Economics

You can listen on your IPOD or on any computer.

Recent interviews include Skip Saur,

Speaking of Freakonomics

FYI: From Freakonomics On July 26 at noon EDT, Levitt and Dubner will conduct a one-hour Microsoft online "live meeting," open to anyone.

Moodgrapher: The World according to LiveJournal

Moodgrapher: The World according to LiveJournalFreakonomics is absolutely right on this one! A veritable plethora of paper ideas come out. I wonder if past data is publicly available.Just a few ideas: Can we explain the weekend effect by looking at mood swings? Do people actually buy stock more when happy? Do credit spreads change as a result of mood swings? Can we time when we should sell a

Corporate Governance Mechanisms and Corporate Cash Holdings by Yuanto Kusnadi

Kusnadi gives us a look at cash holdings and corporate governance from Singapore.SSRN-Corporate Governance Mechanisms and Corporate Cash Holdings by Yuanto Kusnadi:Long time readers of my newsletter and/or blog know that my dissertation at Penn State was on High Cash firms. Consequentially, I still am interested in virtually any article on the behavior of firms with high cash.In fact, I will take

Aha...surprise helps learning

Cool article...at first glance, there appears to be little (if any) finance content, but given that many of you are teachers, I think you might be interested.Short version: The surprise "or aha" moment that comes about from something unexpected, improves recall of the material. So in class, if we can "create scenarios", find surprises, and not spoon feed the students too much, it may increase

Implied Volatility wins out again!

Ok, so it is sort of cheating to post work on which I am a co-author, but given I just spent the entire afternoon on the phone, I am short on time, so this will have to suffice.SSRN-Forecasting Power of Implied Volatility: Evidence from Individual Equities by Jonathan Godbey, James Mahar:1) implied volatility is a better forecaster of realized volatility than either historic volatility or GARCH

BBC NEWS | Business | Warning signs for the funding of terror

The BBC documents some of the difficulties facing investigators who try to track terrorist funding. The short version is that there are MANY ways that are used to fund terrorists and many of the ways are not not easily traceable.

BBC NEWS | Business | Warning signs for the funding of terror: "Investigating the money trail of attacks such as the London bombings or 9/11 can be a frustratingly

China Says It Will No Longer Peg Its Currency to the U.S. Dollar - New York Times

China Says It Will No Longer Peg Its Currency to the U.S. Dollar - New York Times: "China said Thursday it will no longer peg its currency to the U.S. dollar but instead let it float in a tight band against a basket of foreign currencies"From the BBC:"In effect, this strengthens the yuan by 2.1%, to 8.11 to the dollar. More importantly, this is seen as the first step in a complete

SSRN-Sources of Hedge Fund Returns: Alphas, Betas, and Costs by Roger Ibbotson, Peng Chen

SSRN-Sources of Hedge Fund Returns: Alphas, Betas, and Costs by Roger Ibbotson, Peng ChenWith the growth of hedge funds in recent years, it is good that Ibbotson and Chen investigate whether these funds actually do as well as they often claim. And the answer? They do well, but not as well as claimed.Some of the more serious problems in studying hedge funds are data related. Specifically,

Social Norms versus Standards of Accounting by Shyam Sunder

I have not had many accounting articles of late. It has not been intentional (and definitely is not a commentary on their importance), but I just do not find as many that are strictly relevant to finance. However, that changed today as I was sent the following:SSRN-Social Norms versus Standards of Accounting by Shyam SunderA few highlights from the paper:*"Historically, norms of accounting

Commanding Heights: Home | on PBS

Commanding Heights: Home | on PBS

If you are teaching an International Finance Class, this one is a must. It it updated PBS show on globalization. I am not teaching International Finance this semester, but I might buy it anyway!

How Does Investor Short-termism Affect Mutual Fund Manager Short-termism by Li Jin

SSRN-How Does Investor Short-termism Affect Mutual Fund Manager Short-termism by Li Jin: "How Does Investor Short-termism Affect Mutual Fund Manager Short-termism"Do stock prices reflect all future cash flows or is the market myopic and looks too much at recent performance and near term cash flows? This is an enormously important question. Jin tries to answer it in the context of mutual fund

SSRN-Football and Stock Returns by Alex Edmans, Diego Garcia, Oyvind Norli

First of all, I have to play ugly American and remind readers they are really talking about soccer and not real football ;) (I am kidding!!!)SSRN-Football and Stock Returns by Alex Edmans, Diego Garcia, Oyvind NorliShort Version:"This paper investigates the stock market reaction to the outcome of international football competitions, such as the FIFA World Cup, a variable shown in psychological

The World is Flat (or at least flatter)

I do not know where to put this one. It is definitely economics and business, but I am not sure how to tie it to finance per se, so I will put it on my RandomTopics2 blog, but make a note of it and provide a link to it here. It is a discussion of the book The World is Flat by Thomas Friedman.Whether or not you agree with everything in it, it is well worth your time to read (or risten) to the

St. Bonaventure University: SBU prof's site named one of top 10 finance blogs in the country

LOL...the SBU news got a hold of the blog story....probably a tad too flattering, but I do like the synergy section! I think that really is the key: doing the blog is both doing research and preparing for class! St. Bonaventure University: SBU prof's site named one of top 10 finance blogs in the country

NPR : Home Owners Increasingly Betting on Interest-Only Loans

Only time will tell whether these interest only loans are more evidence of a real estate bubble, impatient buyers, or just a good example of financial innovation, but regardless, the link is interesting.

The short version is that Interest-Only loans are becoming increasingly popular. Moreover, they are not just popular for those who can not afford to pay the principle. There are of course

Call for papers

Received this today. I have never been to this conference so I can not say much about it, but it is in Las Vegas in December. So it can not be all that bad!Call for papers The 2005 Financial Research Association Meeting December 17 and 18, 2005 Aladdin Resort and Casino Las Vegas, Nevada The program committee of the Financial Research Association seeks finance papers of general

Supply and Demand Shifts in the Shorting Market by Lauren Cohen, Karl Diether, Christopher Malloy

Yet another interesting paper from the EFA Moscow Meetings!SSRN-Supply and Demand Shifts in the Shorting Market by Lauren Cohen, Karl Diether, Christopher MalloyUsing a "proprietary database of lending activity from a large institutional investor" the authors examine Whether shorting impacts future returns? If shorting is important, is it "short supply" or "short demand"? Is shorting

Information Acquisition and Portfolio Under-Diversification by Stijn Van Nieuwerburgh, Laura Veldkamp

SSRN-Information Acquisition and Portfolio Under-Diversification by Stijn Van Nieuwerburgh, Laura VeldkampVan Nieuwerburgh and Veldkamp (V&V) help us to understand the importance of information costs (as learning capacity) on portfolio decisions. They model the portfolio (diversification) aspect along with the learning (information) costs necessary to hold a diversified portfolio.The authors

The Impact of Clientele Changes: Evidence from Stock Splits by Ravi Dhar, William Goetzmann, Ning Zhu

SSRN-The Impact of Clientele Changes: Evidence from Stock Splits by Ravi Dhar, William Goetzmann, Ning Zhu (btw Shane Sheperd is also listed on the actual paper, but not on this link, not sure why, but Shane, I am not purposely not giving you credit!!!)Ever since the first event study (Fama, French, Jensen, and Roll 1969), people have puzzled at stock splits. Why should splitting a stock matter?

History of Wall Street

In response to the historic stock price mention in the last post, I received a link to this History of Wall StreetBTW a bit of trivia: Most of you know that the NYSE was basically started with the Buttonwood Agreement. What type of tree is a buttonwood?Yes, the Sycamore. The nickname was earned because of the seeds that look like buttons.A few linksOhio State Forestry, TreeTotem (which suggests

Old stock data from Will Goetzmann's Home Page

I am trying to review a stock split paper (I strated it yesterday and never finished) and SSRN was down, so I figured I would Google it. And what a treat! Will Goetzmann has links to many sources of old (as in from the 1800s!) stock data as well as his own papers and many other cool sites.

Will Goetzmann's Home Page
Will Goetzmann's Home Page

I already have a paper in mind. If anyone is

Trading Halts: new evidence from Istanbul

Bildik gives us a interesting look at trading halts. While the data and the halts he looks at are from the from the Istanbul stock market, most of what he writes is similar worldwide.Trading halt papers are always interesting and often controversial. This controversy comes in part from the underlying controversies surrounding the halts themselves."The stated purpose of trading halts is to allow

The New York Times Deal Book

The New York Times > Member Center > Deal Book

The NY Times Deal Book is by far my favorite business news newsletter. It is so great. It gives a look at all of the major stories and links to them. For instance, among the many stories in today's newsletter were stories on:

The Deal.com gives us an update on the Japanese banking sector:
"
I"t has taken Japan nearly 15 years to restructure the

Is growth good for shareholders?

I love articles that turn the conventional wisdom on its head (and I held this view long prior to ristening to Freakonomics), but that said, this one surprised me. What is more, in doing looking at growth and returns, Ritter offers valuable insights into what matters in forecasting expected returns.Jay Ritter finds that shareholder returns are negatively correlated with economic growth.In his

Governance and CEO Turnover: Do Something or Do the Right Thing? by Raymond Fisman, Rakesh Khurana, Matthew Rhodes-Kropf

SSRN-Governance and CEO Turnover: Do Something or Do the Right Thing? by Raymond Fisman, Rakesh Khurana, Matthew Rhodes-KropfConventional wisdom suggests that replacing a manager if the stock price is falling is good. Along the same lines we often view (and teach) that managerial entrenchment is bad. However, maybe that is too simplistic of view. Entrenchment can play a positive role in reducing

Thomas Friedman and Energy Independence

To those of you who have read, or are reading/ristening to The World is Flat, you will be very interested in this. It is an interview with Thomas Friedman. While it is largely a gloom and doom piece about the need for an energy program (possibly with good reason), there are some interesting tidbits.For instance: he calls for the creation of an "energy Axis" between the West, India, and China to

SSRN-Reconciling Efficient Markets with Behavioral Finance: The Adaptive Markets Hypothesis by Andrew Lo

I will write more about this one later. But I just found it and it is a definite keeper!

SSRN-Reconciling Efficient Markets with Behavioral Finance: The Adaptive Markets Hypothesis by Andrew Lo

Super short version from abstract:

"The battle between proponents of the Efficient Markets Hypothesis and champions of behavioral finance has never been more pitched, and there is little consensus as

Investments and Life Insurance are not independent decisions

SSRN-Human Capital, Asset Allocation, and Life Insurance by Roger Ibbotson, Peng Chen, Moshe Milevsky, Xingnong Zhu: "Human Capital, Asset Allocation, and Life Insurance"Executive Summary (Don't you think that sounds better than abstract?)You should look at life insurance as another asset in your portfolio.Ibbotson, Chen, Milevsky, and Zhu tell us that we can not make investment and life

Conflicts of Interest, Regulations, and Stock Recommendations by Leonardo Madureira

Does regulation change behavior? That is the question that Madureira asks. To examine this question Madureira examines whether regulations on sell-side research recommendations changed following the "increased scrutiny of their equity research business regarding conflicts of interest driven by investment bank relationships."And the answer? Yes. Behavior (at least in the short run has changed.)

Publishing Advice from the Marginal Revolution

As Paul Harvey would say: "This is closed circuit for the academics"The Marginal Revolution blog has some good advice on how to get articles published. And yes reading the list may smart a bit.Ouch! But I guess that is the intent of any spur. FTR: I am not endorsing all of these views, but do appreciate them none-the-less.As an aside, the Marginal Revolution also had an intriguing look at grade

Reputation matters-a lot!

In light of the recent Tyco trial and this week's sentencing of the Rigases, it might behoove us to remember that the market, and not the SEC or the courts, is the real disciplinarian. The market penalty (as measured by the drop in value of the firm) is much greater than the out of pocket fine imposed by the legal and regulatory system.Until recently we have only had antectodal evidence of this (

Ten Money Blogs Everyone Should Read from Yahoo! Finance Special Edition

Yeah, I am really biased on this. A #6? will have to work on that ;)

Yahoo! Finance Special Edition: Welcome to the Blogosphere

Another charity opportunity!

Just what you wanted! Another chance to give money to a great charity.

I have decided to ride in Roswell Park 100K this weekend. THe money goes to help fight cancer.

So if you want to give, click through the below link. THANKS!
Roswell Park Alliance Foundation:

The Risk Return Tradeoff in the Long-Run: 1836-2003 by Christian Lundblad

SSRN-The Risk Return Tradeoff in the Long-Run: 1836-2003 by Christian LundbladLundblad looks at US stock data from 1836 and finds sure enough that risk and return are related. SHOCK!Key quote:"I obtain a positive and significant relationship between the expected market return and conditional market volatility regardless of how the model is specified."Whew. Risk and return are related. Not that I

SSRN-All that Glitters: The Effect of Attention and News on the Buying Behavior of Individual and Institutional Investors by Brad Barber, Terrance Ode

Ladies and gentlemen, we have now have more proof of what you may have long suspected: that investors do buy stocks that are in the news at a greater rate than other stocks.If you remember, this idea was mentioned back when we were talking about the NCAA basketball tournement. It ws suggested that trying to pick winners (rather than going with the favorite) was in part because of the glamour of

Future of Archipelago boss hangs on judge's ruling

Who is going to head thecombined NYSE-Acheipelago? Well officially it appears that there will be co-presidents, but that may change depending on a court ruling:

Future of Archipelago boss hangs on judge's ruling: "Putnam, chief executive of Archipelago, stands to become a co-president of the NYSE if the deal closes. But he also stands accused of cheating a former business partner out of a stake

Adelphia founder sentenced to 15 years - Yahoo! News

Adelphia founder sentenced to 15 years - Yahoo! News: "John Rigas, founder of cable operator Adelphia Communications Corp. (Other OTC:ADELQ - news), was sentenced on Monday to a lower-than-expected 15 years in federal prison for concealing loans and stealing millions from the company.
ADVERTISEMENT

The sentence for his son, Timothy Rigas, is expected later on Monday"

While it may be "

A Consumption-Based Explanation of Expected Returns

Research-Finance.com (one of my favorite sites!) pointed out this gem that links stock returns and consumption. It is forthcoming in the Journal of Finance.Yogo: A Consumption-Based Explanation of Expected ReturnsIn the author's words:"This paper proposes a simple consumption-based explanation of both the cross-sectional variation in expected stock returns and the countercyclical variation in the

A look around at a few blogs

I have not done one of these look around pieces in a while, so why not? Freakonomics has an update on the discussion from the book on real estate agents. If you have not read/ristened to the book, in the book Levitt points out a study that finds that real estate agents behave differently when selling their own homes than when they are selling homes for clients. SHOCK! It now seems that the

BBC NEWS | Business | Tyco two guilty of stealing $150m

CEO fraud may decrease somewhat after this verdict!

BBC NEWS | Business | Tyco two guilty of stealing $150m

"Former Tyco chief executive Dennis Kozlowski and finance chief Mark Swartz have been found guilty of stealing over $150m (£82m) from the US manufacturer.

They used the cash to fund opulent lifestyles, splashing out on expensive jewellery, luxury apartments and giant $2m Mediterranean

SSRN-Irrational Diversification: An Experimental Examination of the Diversification Heuristic by Thierry Post, Guido Baltussen

While I am not always a fan of experimental economics (or finance in this case), this one is interesting and it gets to whether people diversify rationally or not.SSRN-Irrational Diversification: An Experimental Examination of the Diversification Heuristic by Thierry Post, Guido BaltussenShort version: people do an OK job, but not optimal and how the diversification topic is framed, influences

SSRN-Systemic Risk and Hedge Funds by Nicholas Tung Chan, Mila Getmansky, Shane Haas, Andrew Lo

Continuing the discussion on Hedge Funds and their regulation, Chan, Getmanksy, Haas, and Lo have some important contributions to make. Their paper Systemic Risk and Hedge Funds by Nicholas Tung Chan, Mila Getmansky, Shane Haas, Andrew Lo (which is being presented at the 2005 EFA conference paints a picture of banks being exposed to the hedge fund industry and the hedge fund industry being quite

To regulate or not? A look at Hedge funds

The decision to regulate or not regulate hedge funds is a tough one. On one hand is the view that more regulation is needed since the funds have grown so large and often take large risks. The big fear in this camp that a "blow-up" could lead to major market declines. (Sort of the LTCM scenario).On the other hand is the view that by their very nature hedge funds are difficult to regulate and

The future of text books?

Megginson and Smart Introdcution to Corporate Finance--Companion Site Wow. I think we may have a glimpse into the future of text books with this one. It is the new Introduction to Corporate Finance by William Megginson and Scott Smart.From videos for most topics, to interviews, to powerpoint, to a student study guide, to excel help...just a total integration of a text and a web site! Well done!At

SSRN-Research Roundtable Discussion: The Diversification Discount by Belen Villalonga

I finished up a paper today so it is time to start a new one. In doing preliminary research for the new paper, I stumbled upon this roundtable on the Diversification Discount. It is excellent! Very interesting. And yes it is two years old, but still well worth your time!

SSRN-Research Roundtable Discussion: The Diversification Discount by Belen Villalonga: " Villalonga, Belen, 'Research

Brad DeLong's Website: An Historical Document: Long-Term Capital Management CEO John Meriwether Asks for Money

If this is real, it will definitely be discussed in class. However, I am not sure if it is. A letter from John Meriwether during the collapse of LTCM.Brad DeLong's Website: An Historical Document: Long-Term Capital Management CEO John Meriwether Asks for MoneyThanks to MoneyScience and Brad Delong for pointing it out.

Public offer vs private placement

Have you ever wondered why some firms issue convertible debt privately whereas other firms choose to issue their debt publicly? Well wonder no more! Devrim Yaman has answered at least the majority of our questions in her Bquest article. Information story explains public vs private choice

and the answer? Where information asymmetry problems are great, firms choose private placements. Which is

Monkeys, risk aversion, game theory, inflation, and more

Steven Levitt on monkeys and investors:

Monkey Business - New York Times: "...economics is increasingly being recognized as a science whose statistical tools can be put to work on nearly any aspect of modern life. That's because economics is in essence the study of incentives, and how people -- perhaps even monkeys -- respond to those incentives. A quick scan of the current literature reveals

Roger Lowenstein on hedge funds

Seeking Alpha and MoneyScience.org point out a great article on Hedge Funds by Roger Lowenstein (yes, the author of When Genius Fails etc).
Very interesting....I would comment on it, but seeking Alpha already has so I will link to those comments:
Seeking Alpha: Roger Lowenstein on hedge funds

a quick quote:
"It's a good time to be a financial-disaster writer. Disasters abound, and even when

A list of finance blogs

I was recently asked what blogs I try to follow. So I decided to make a list of the finance/economics blogs I have in my readers.
List of Blogs Enjoy!

George Mikan and Executive Compensation

George Mikan the NBA Hall of Fame Center died this week. Absolute all reports of the man that I have read say he was nothing but a great guy.

For instance: Yahoo! Sports - NBA - Shaq offers to pay for Mikan's funeral: "Mikan died Wednesday night at a rehabilitation center in Scottsdale, Ariz., following a long fight with diabetes and kidney ailments. He was 80....`He was a great man. We had

A look at the Andersen Verdict

First the news announcement: From the NY Times:"WASHINGTON, May 31 - With a brief, pointed and unanimous opinion, the Supreme Court on Tuesday overturned Arthur Andersen's conviction for shredding Enron accounting documents as that company was collapsing in one of the nation's biggest corporate scandals."From The BBC:"Chief Justice William H Rehnquist said the instructions were too vague for the

The Role of the Media in the Internet IPO Bubble by Utpal Bhattacharya, Neal Galpin, Rina Ray, Xiaoyun Yu

SSRN-The Role of the Media in the Internet IPO Bubble by Utpal Bhattacharya, Neal Galpin, Rina Ray, Xiaoyun Yu Bhattacharya, Galpin (Yes, a SBU GRAD), Ray, and Yu provide an intriguing look at the financial media. As the title suggests, the paper is centered on coverage of IPOs in and out of the Internet Bubble period, but in getting to that topic, the paper brings up many roles the media

Goldman loses in price stabilzation game

A great look at price stabilization from the NY Times. The case deals with Goldman Sachs' (and syndicate's) attempt to keep Lazard's stock price high."Last week, Goldman said in a filing that it was left with $15 million in losses after underwriting Lazard's initial public offering and trying in vain to prop up the stock as it began falling in the first days of trading"Also later on in the

Floor traders, hamburgers, and bowling balls

Newsweek has an interesting (albeit short) piece on what will happen to Wall Street (residential properties?!?!) as well as specialists after the NYSE merges with archipelago.Just a Street? - Newsweek Business - MSNBC.com:My favorite part:Thain (the CEO of the NYSE) to a group NYSE floor traders:"'You can walk out the door and get a job at McDonald's,'' noting those who add value to the new NYSE

Want to go for a bike ride? Or donate to a good cause?

I have registered to ride in the MS 150 series. It is a two day 150 mile (actually 169 mile in this case, but who is counting ;) ) bicycle ride to raise money for the MS society.It is a good cause so if you would like to learn more about the ride (or a ride near you--it is a national series that I HIGHLY recommend!!!---or if you want to donate to them, why not do it through this link. :)thanks in

FRB: Speech, Ferguson--Asset prices and monetary liquidity--May 27, 2005

With real estate prices (and possible bubbles) being on everyone's mind, Fed Governor Roger Ferguson took an opportunity to speak on the link between liquidity and asset prices.Some highlights:FRB: Speech, Ferguson--Asset prices and monetary liquidity--May 27, 2005: "...asset prices, especially the prices of equities and residential real estate....Because these assets are the most widely held by

Great advice from Free Money Finance

I am excited about this-- A new finance web site by a football fan and a serious cyclist. It is a total given that I am going to link to it and mention it. What makes this even better is that the site is really good!

It is Free Money Finance.
Free Money Finance

It is not an academic finance site, but it is excellent for those of you looking for solid information about your personal

A new spin on spin-offs

Chemmanur and Nandy provide an interesting look at Spin-offs. I will post more about it later..for now a link and a quote:"We show that the improvement in the average productivity of plants following spin-offs is driven primarily by improvements in the productivity of plants continuing with the parent firm, and not from productivity improvements in plants belonging to the spun-off entity.

How to use VAR, ETL in Excel

Estimating Risk Measures

I wish I could retroactively require an article to be read! If I could, this would be it for my Portfolio class (Fin422).

Writing in Financial Engineering News, Kevin Dowd explains how to use Excel to calculate VAR and other risk measures. This will be VERY HELPFUL in class!!!

For instance: "To estimate the daily VaR at, say, the 99 percent confidence level, we

Presidential Address

If you have 40 minutes and want to learn a great deal about finance, listen (and/or watch) Rene Stulz's presidential address. He gave this at the 2005 AFA meetings in Philadelphia.The basic theme of his speech is globalization. He points out that the world is not yet flat and the "impact of financial globabilization has been limited." Why? "...because of the “twin agency problems” that arise

SSRN-Executive Stock Options: Early Exercise Provisions and Risk-taking Incentives by Neil Brisley

SSRN-Executive Stock Options: Early Exercise Provisions and Risk-taking Incentives by Neil Brisley: "...proposed 'progressive performance vesting' can allow the firm more efficiently to rebalance risk-taking incentives for the manager."Pretty cool idea...short version: if stock price goes up significantly (you can index it if you want), then options vest earlier in order to lessen the increased

Improved Forecasting of Mutual Fund Alphas and Betas by Matthew Spiegel, Harry Mamaysky, Hong Zhang

Maybe mutual funds do beat the market more than previously reported?SSRN-Improved Forecasting of Mutual Fund Alphas and Betas by Matthew Spiegel, Harry Mamaysky, Hong ZhangSpiegel, Mamaysky, and Zhang look at measurement errors in measuring mutual fund performance and find that past researchers have not always gotten it right. In fact, when correct betas are used, it seems that find managers do

Who Gambles in the Stock Market? by Alok Kumar

Option theory meet portfolio selection. It fits the theory perfectly, even though I am less sure of some of the non economic aspects (for instance, why would Catholics be more likely to take chances), but it sure is an interesting paper that does fit with theory.Short version: the poor take bigger chances. (gee, Option theory would predict that perfectly!)SSRN-Who Gambles in the Stock Market? by

China allows some FOREX trading, but not yet the Yuan

A day after the US threatened financial penalties if the yuan is not soon allowed to float, China took what some see (although China denies), as a small step in that direction. You can now trade otehr currencies in China--but not yetthe Yuan.

Latest News and Financial Information | Reuters.com:

"China, whose currency has been pegged near 8.28 per dollar since the 1997-98 Asian financial

A quick look at three interesting stories

Hedge Funds, Sarbanes-Oxley, and SoccerADhD still too bad for a longer story ;) but three quick articles of note before I try and clean my office...1. The Washington Post has an interesting look at Hedge Funds. Not only how they have grown so much in size and number, but also how they are playing a major role in proxy votes. With the increased importance comes worries that these largely

Call for papers--New Orleans!

From John Gill:"The American Academy of Accounting and Finance (www.aaafonline.org) will hold its 12th annual meeting in New Orleans, Louisiana, on December 8, 9 and 10, 2005 (Thursday, Friday, and Saturday). You're invited to submit a proposal, abstract, or manuscript for presentation." The submission deadline is September 30, 2005. "The annual meeting will be held at the elegant

I will return shortly

With finals etc I just needed a short break. I hope to get back at it within a day or two. Thanks to those who have asked. I am fine :) jimwho may come back with a newsletter this week

The FASB takes on block valuation

Short version: if you own a large block of shares, the selling of those shares may change the price of the shares. So how do you value them for accounting purposes?

CFO.com reports that FASB is considering allowing more judgement when it comes to the valuation of these blocks. Currently this is only for brokers and dealers, but the same logic can be applied to nearly all large block holders.

NASD Research Grant Funding

From Christine at the NASD:NASD Investor Education FoundationResearch Grant Funding AvailableImproving Disclosure to InvestorsDeadline August 26, 2005The NASD Investor Education Foundation invites eligible organizations to submit competitive grant proposals for research projects that comprehensively examine what constitutes effective and meaningful disclosure to investors.· Successful projects

The Effect of The Sarbanes-Oxley Act of 2002 on Market Liquidity by Pankaj Jain, Jang-Chul Kim, Zabihollah Rezaee

Continuing the regulation theme of the previous post, Jain, Kim, and Rezaee give evidence that market liquidity improved following the passage of the Sarbanes-Oxlet Act in 2002.

SSRN-The Effect of The Sarbanes-Oxley Act of 2002 on Market Liquidity by Pankaj Jain, Jang-Chul Kim, Zabihollah Rezaee: "We detect wider spreads, lower depths, and higher adverse selection component of spreads in the

SSRN-Do Financial Companies Benefit from SEC Regulation? by Irene Aldridge

SSRN-Do Financial Companies Benefit from SEC Regulation? by Irene AldridgeAldridge uses event study methodology to measure the impact of SEC regulations. She finds that while the volatility of Financial firms drops following new regulations, returns do not appear to change. This finding does not fit with the SEC's stated purpose nor the "existing regulation theories...Stigler (1971), Peltzman (

FRB: Speech, Greenspan--Risk Transfer and Financial Stability--May 5, 2005

Greenspan spoke today on derivatives. Really interesting, but alas I am making out finals and have no time to comment.

So in his words, the SUPER short version:
FRB: Speech, Greenspan--Risk Transfer and Financial Stability--May 5, 2005: "Perhaps the clearest evidence of the perceived benefits that derivatives have provided is their continued spectacular growth. As a consequence of the

Economics in the real world by Steven Levitt

This is an audio presentation by Steve Levitt, but it is really interesting. Levitt talks on market efficiency (in horse racing and stocks), parenting, dealing drugs for minimum wage, and even Rudoplh the Red Nose Reindeer! (Honest!!) A fun listen!

NPR : Talking 'Freakonomics' with Steven Levitt

Transfer Pricing

A cool article on transfer pricing--no it is not an oxymoron!Reichelstein, Baldenius, and Melumad look at transfer prices and remind us that transfer pricing, the price that firms charge for internal "purchases", is a balancing act between tax reduction strategies, internal controls, and incentives. “What most people think about is transfer pricing as a tax optimization issue,” Reichelstein

Forbes.com looks at Morgan Stanley

The Street Purcell Is Paving - Forbes.com

Given how much has been written on the troubles at Morgan Stanley, it is interesting to see a new angle. Forbes writes that the firm is suffering as many of the firm's stars are leaving and looking for work elsewhere.

Two key points to to take from it

1. Intangible assets can often walk away, so be careful (this has repercussions not only to

Shareholder group opposes Icahn

We just covered corporate governance and the difficulty of those opposed to management being elected to the board of directors in class. So Carl Ichan's attempt to win a seat on the Blockbuster Board is perfectly timed to encourage maximum learning ;)Shareholder group opposes Icahn - Entertainment and Leisure - Retail - Services/Consulting - Media - Company Announcements - Newsmakers: "Considered

Increased Transparency in security issuance!

HURRAY!!! Finally it seems that there will be increased transparency in security issue process. This should reduce information asymmetries and result in less negative market reactions to SEOs and less IPO underpricing. From Investment Dealers' Digest:*"The Wall Street equity underwriting process, which sets prices and allocations when companies go to market to raise capital, may seem arcane and

Two Plus Two Equals What?

Both the NY Times and the Washington Post have interesting articles on the NYSE-Archipelago and Nasdaq-Instinet Deals.

Two Plus Two Equals What?:

Highlights:

* "Former SEC chairman Arthur Levitt said he thought the NYSE's new structure would improve the independence of its regulatory arm, not weaken it, by fully removing it from any influence by brokerage and trading firms.

'By breaking up

'The World Is Flat': The Wealth of Yet More Nations

The New York Times > Books > Sunday Book Review > 'The World Is Flat': The Wealth of Yet More NationsI got to see much of Friedman's 3 hour interview on C-Span. It was very interesting! I Highly recommend it! A few of the highlights from Today's NY Times Book Review by Fareed Zakaria:*"The metaphor of a flat world, used by Friedman to describe the next phase of globalization, is ingenious. It

Susan Schmidt Bies on corporate and personal finance

Fed Governor Susan Schmidt Bies gave an interesting speech on trends in both corporate and personal finance. She also called for increased financial education.A few highlights:*"The improvement in corporate balance sheets in the past few years has been substantial. Most noteworthy are the gains achieved in balance sheet liquidity. Firms have taken advantage of low long-term interest rates to pay

Plagiarism Resource Site Windows Software Page

End of semesters often mean term papers. Here are a few source of anti-plagirism software that might make your job a tad easier.

From the University of Virginia Plagiarism Resource Site Windows Software Page

From the University of Washington

Another site that discusses many free sources for both teacher and student.

This is not to say I have had a problem lately, but it is always better

NYSE, Nasdaq mergers seen changing landscape

NYSE, Nasdaq mergers seen changing landscape - Banks - Financial - Financial Services - IPOs - M&A - Markets/Exchanges - Market News

A follow-up on last week's the announcements of the NYSE and NAsdaq.

"By Steve Gelsi, MarketWatch
Last Update: 2:30 PM ET April 28, 2005

NEW YORK (MarketWatch) -- With the financial markets business weighing the New York Stock Exchange's planned $3 billion

NPR : Post-Scandal Regulations Boost Accounting Industry

For the accountants among us :)

NPR : Post-Scandal Regulations Boost Accounting Industry: "All Things Considered, April 27, 2005 "The accounting scandals of the past few years produced a regulatory crackdown known as Sarbanes-Oxley, which has made audits much tougher and restricted who can be on a company board. Many companies hate the new rules, but they've been a boon for the accounting

Economist.com | Environmental economics

Economist.com | Environmental economicsAs Matt S. points out: "IRR and NPV pop up in the strangest of places." Actually not strange at all! Just in areas where the average non-finance person would not expect them.Short version: NPV and IRR can (and should) be used to evaluate environmental decisions as well. the problem however is that these costs and especially benefits are often difficult to

Texas Finance Festival

From Michael Jensen: "In cooperation with Baylor University, FEN announcesthe 2005 7th Annual Texas Finance Festival abstracting journal.This abstracting journal, available to all subscribers at no charge,contains abstracts of the festival papers with links to thefull text in the SSRN eLibrary.""HOW TO SUBSCRIBE You can subscribe to the 7th Annual Texas FinanceFestival abstracting journal by

Adelphia, Deloitte, and the Rigases all agree to make payments

http://www.cfo.com/article.cfm/3908471/c_3908480?f=financeprofessor.com,sbu.edu ">Deloitte Settles Adelphia Case for $50 Million - - CFO.com

Well there is some closure at least. After about 3 years, the Adelphia case may be over! In a move seen as both an attempt to stay out of Jail and to clear the way for a pending takeover, the Rigases, Adelphia itself, and the former Auditors all agreed to

What is the expected return on options? Zero? RF rate? Or something else?

FEN has a great article on some of the limitations of Black-Scholes World! It is by Ross Miller and it is definitely worth your time!!! It is both thought provoking and funny at once. A great combo!!!


Be Careful What You Model

A few quick highlights:

* "You have in your hand (or on your screen) an at-the-money call option with a year until it expires. Because you are in BSW, you know

Nasdaq finalizes acquisition of Instinet

The market consolidation continues with the Nasdaq and Instinet finalizing their widely rumored deal on the heels of the NYSE Archipelago deal.

From Reuters (the previous majority owner of Instinet):
" As a condition of the deal, Reuters will sell Instinet's electronic trading network to Nasdaq."

Latest News and Financial Information | Reuters.com

From Bloomberg:

" Chicago-based Archipelago,

NYSE to acquire Archipelago

Talk about major stories! The NYSE has announced plans to acquire the Archipelago stock market! With the NYSE losing marketshare to ECNs, it has long been speculated as to what the Big Board's response would be. It appears that this is it!From the NY Times:"The New York Stock Exchange, whose shouting traders and frenzied activity have become a global symbol of capitalism, announced yesterday

Six Degrees of Separation: Examining Back Door Links between Directors and CEO Pay - Knowledge@Wharton

Six Degrees of Separation: Examining Back Door Links between Directors and CEO Pay - Knowledge@WhartonForget 6 degrees of Kevin Bacon. Now we can play the game for real and see how CEOs and their boards are connected and how the connection impacts executive pay!Executive Compenstaion is always an interesting topic and Larker, RIchardson, Tuna, and Seary have made it more so! They look for

Yes it is a commercial, but actually quite interesting!

Not sure if you have seen this 4 page ad (in PDF format) for GE Lending or not, but it is quite interesting. It discusses capital structure for midsized firms. An area that does not get as much coverage from academics or many investment bankers.
recap_april05.pdf (application/pdf Object)

Some of the highlites for those who opt not to click through to the PDF file:

1. "As businesses grapple

Is risk increasing or decreasing?

IPO Vintage and the Rise of Idiosyncratic Risk by Jason Fink, Kristin Fink, Gustavo Grullon, James WestonWhile well documented, increased risk (and in particular increased firm specific risk) has been a puzzle for researchers for quite some time. With improve transparency and deeper markets, one could speculate that risk should be decreasing, but researchers have not been finding this. For

Do Fundamentals or Emotions Drive the Stock Market? - - CFO.com

Do Fundamentals or Emotions Drive the Stock Market? - - CFO.com


WELL DONE! Markets are not perfect, but they sure are pretty good. A few highlights:

* "We agree that behavioral finance offers some valuable insights — chief among them the idea that markets are not always right, since rational investors can't always correct for mispricing by irrational ones. But.... significant deviations from

ABC News: Nestle CEO Faces Opposition on Added Title

Bucking the trend of breaking up the CEO and Chairman positions, Nestle is trying to "reward" the CEO with the dual titles.ABC News: Nestle CEO Faces Opposition on Added Title: "The global food company says giving CEO Peter Brabeck a double mandate at the company's annual shareholder meeting Thursday is in the interest of its investors because it assures 'strategic continuity and long-term value.

BusinessWeek Online: 2005 Executive Compensation Scoreboard

The 2005 Business Week Executive Compensation "scoreboard" is now online!
BusinessWeek Online: 2005 Executive Compensation Scoreboard

In the accompanying article, Louis Lavelle writes "BusinessWeek's 55th annual Executive Pay Scoreboard found that increases were moderated in 2004 by the continued impact of corporate reform, an ongoing shareholder revolt over astronomical pay levels, and pending

Still not convinced you can teach ethics

Teaching ethics is hard and as the WSJ reports, colleges are not having an easy time of it.
CollegeJournal | MBA Track: "Three years after coming under attack for their M.B.A. graduates' involvement in the many corporate scandals, schools are still grappling with how to teach ethics more effectively."

How can you teach ethics? My best advice is to attempt to show why it really is in your best

Who will replace Greenspan?

Rueters has an interesting article on who will replace Greenspan when the time comes. Preseason favorite? Ben BernankeLatest News and Financial Information | Reuters.com

Another look at Capital Structure and Market Timing

Market Timing with respect to capital structure changes is an interesting and controversial topic that combines capital structure theory with market efficiency theory. On one side of the aisle pure market efficiency proponents maintain there is no place for market timing as the current price is always right. The other side of the discussion is held by those who believe that capital structure

Risk Free?

This is not my editorial comment, I just thought it was funny. President Bush was disparaging the safety of the IOU's held by the Social Security Trust.

The New York Times > Opinion > Editorial: Shameless Photo-Op

For the record, all bonds are just IOUs! And as for the credit worthiness of the debtor, let's hope we don't need to worry about that!It is the US!!! Maybe President Bush does

SSRN-Do Analyst Conflicts Matter? Evidence from Stock Recommendations by Anup Agrawal, Mark Chen

SSRN-Do Analyst Conflicts Matter? Evidence from Stock Recommendations by Anup Agrawal, Mark Chen

Agrawal and Chen have a really cool paper that looks at conflicts of interest with investment bankers and their affiliated brokerages. They find sure enough that the conflicts of interest do influence recommendations. However, the authors also make a pretty convincing case that these conflicts and

SSRN-Portfolio Concentration and the Performance of Individual Investors by Zoran Ivkovich, Clemens Sialm, Scott Weisbenner

SSRN-Portfolio Concentration and the Performance of Individual Investors by Zoran Ivkovich, Clemens Sialm, Scott WeisbennerIt is always nice when research confirms what we had theorized. For instance Ivkovich, Sialm, and Weisbenner show that when investors take highly undiversified positions, they on average earn higher returns than when they are diversified. However before you scrap all

What is the role of the Fed with respect to asset price bubbles?

Latest News and Financial Information | Reuters.comThere is always a debate as to the role of the Fed when it comes to asset "bubbles." For instance, the Fed was criticized by many after the internet bubble. What is the correct role? Hands off? Active interventionist?Fed Governor Edward Gramlich gave his view to a "conference hosted at Princeton University." His view? Basically hands off:"You've

A summary article on volatility forecasting

When I was looking at research-Finance.com,I stumbled upon this one by Andersen, Bollerslev, Christoffersen, and Diebold.They provide a very interesting look at the volatility forecasting. The piece is largely a summary article that shows what has been done and the results. VERY good! It is part of a forthcoming Handbook of Economic Forecasting edited by Elliott, Granger, and Timmermann.A warning

More Fuel for the Fire on social security reform

I hope you have been following the "discussion"--via comments at the end of my last blog entry on Social Security reform. The discussion is very interesting. My views have not been changed, but interesting discussion none the less.Today I was reading what some others have to say about Social Security Reform. Harvard's Robert Barro is against privatization but not for the normal reasons. He is

Are Super Star CEOs bad for firm? It seem so.

In my MBA 610 class we now devote a bit more than a week to corporate governance. One of the lessons is that Super Star CEOs are rarely good for the long term prospects of the firm.The NY Times has an interesting article that largely endorses this view: The New York Times Lo! A White Knight! So Why Isn't the Market Cheering?Before getting to the article, let me suggest that at least some of

The New York Times > Business > Your Money > If I Only Had a Hedge Fund

An artcile on hedge funds that mentions the Counting Crows. It is a lock to get mentioned :)
The New York Times > Business > Your Money > If I Only Had a Hedge Fund: "15 years ago, hedge funds managed less than $40 billion. Today, the figure is approaching $1 trillion. By contrast, assets in mutual funds grew at an impressive but much slower rate, to $8.1 trillion from $1 trillion, during the

USATODAY.com - Public cool about heart of Bush's Social Security plan

There are things that I just do not understand. From Yesterday's USA Today:USATODAY.com - Public cool about heart of Bush's Social Security plan: "The heart of President Bush's plan for Social Security, allowing younger workers to create personal accounts in exchange for a lower guaranteed government benefit, is among the least popular elements with the public""Younger workers would have the

A Defense of Economics

Economics Wins, Psychology Loses, and Society Pays by Max Bazerman, Deepak MalhotraThe short version of the Bazerman and Malhotra chapter is that the authors believe that economics has come to dominate (to the exclusion of other fields) the social sciences and political arena. (Somewhat analogous to the idea that rational economics has dominated in finance to the detriment of psychology and

Is ICE hot or cold?

Ok, so the joke was really bad, I couldn't resist! (not that I tired...lol)...Latest News and Financial Information | Reuters.com: "Energy and commodities exchange IntercontinentalExchange Inc., owner of Europe's biggest energy bourse, may raise up to $115 million in an initial public offering of stock, "As we have often seen, it is not only industrial corporations that go public, more and more

SSRN-Sharpening Sharpe Ratios by William Goetzmann, Jonathan Ingersoll, Matthew Spiegel, Ivo Welch

SSRN-Sharpening Sharpe Ratios by William Goetzmann, Jonathan Ingersoll, Matthew Spiegel, Ivo WelchMeasuring fund manager performance is not as easy as it sounds. Sure you know the basic measures: Sharpe Ratio, Treynor measure, and Jensen's alpha.Sharpe: (Return-Risk Free)/ Standard DeviationTreynor: ( Return-Risk Free)/ Beta)Jensen's Alpha: Return = RF + Beta (Market Risk Premium) + AlphaBut

A look at IPO price stabilization by Lewellen

Katharina Lewellen provides is an interesting look at price stabilization in the IPO market.Price stabilization is the practice of investment bankers going into the secondary market to support the price of newly issued shares. There has been much debate in the academic literature as to the rationale and the extent of this practice. For instance, is it a reward to institutional investors as some

Rodney Paul at Forbes.com: Ten Betting Tips For March Madness

Forbes.com: Ten Betting Tips For March Madness

Rodney Paul is in Forbes again. This time for his comments on betting on the NCAA basketball tourney. SHort version: market is pretty efficient. But don't take my word for it, watch the video--No it is not of him.

I am convinced that NCAA pools can tell us quite a bit about stock market investing. For instance, if we acknowledge the existence of

Signs of spring and market efficiency!

Sure signs of Spring: spring training, seeing robins, March Madness, now finance articles about baseball! (ok, so the last one is a stretch).Hakes and Sauer (yes the same Skip Sauer who has the excellent Sports Economist Blog) have an interesting paper that looks at the premise of Michael Lewis' Moneyball book. WHat makes the paper interesting is what it says about markets in general. For those

Air Grasso??

New York Post Online Edition: business: "Former New York Stock Exchange chairman Dick Grasso turned the Big Board's corporate jet into Air Grasso."

It seems like it is 2003 all over again: not only is Worldcom front and center , Eliot Spitzer is investigating firms, and Richard Grasso is back in the news.

Why? There is now evidence that he used the NYSE's corporate jet as his family's own jet.

A quick look at the Bernie Ebbers case

Of course there is just a ton of coverage on the Bernie Ebbers' conviction today. If you have somehow missed it: He was found guilty on all charges and faces up to 85 years in jail (although USAToday reports 25 years is more likely.Some interesting quotes from various sources:USAToday: "John Coffee, an expert in securities law at Columbia University. "But the 'CEO as dupe' defense did not sell

Why do firms go public?

In a piece of fortuitous timing given that last night in class we began a section on raising capital and IPOs, today's NY Times DealBook mentions two firms that are selling shares so that the firms' current owners can cash out a portion of their shares. From the NY Post: "National Lampoon Inc., the media company that cast comedian John Belushi as an irreverent fraternity boy in "Animal House"

Where have you been?

Sorry for the infrequent posts of late. I made and gave out 4 tests last week. Coupled with three papers in various states of completeness, I just have been a bit short on time. But the tests are done (and graded), one of the papers is 99.9% done, and I should be back to a more normal schedule later today. (I hope :) ) Sorry for any inconvenience!jim

A Non-Technical Introduction to Brownian Motion by Don Chance

A Non-Technical Introduction to Brownian Motion

Wow--I wish I had had this during the Financial Econometrics class at Penn State. I was quite lost for the better part of the semester in that one! I have since made some sense of it, but the description from Financial Engineering News by Don Chance is a nice review and description! Definitely recommended!

Accounting games: How Banks Pretty Up The Profit Picture

Commentary: How Banks Pretty Up The Profit Picture

Need another example of why cash flow matters more than accounting numbers? BusinessWeek and the Financial Accounting Blog provide us with examples of how banks can play with their loan loss reserves to "manage" their earnings.

FRB: Testimony, Greenspan --Economic outlook and current fiscal issues-- March 2, 2005

Network television executives must hate me. I almost never see anything on their networks except sports, but I am watching Cspan at 1:40 AM. Why? Because Alan Greenspan is talking! Most of his talk (and definitely the Q&A session that followed his remarks) focused on social security reform.Short version? The economy is strong but deficits (including budget, social security, and Medicare) pose

A daily review of the Wall Street Journal (European version) and The Financial Times

Review of the Financial Press

Don't have time to read both the WSJ and the FT? Then I have a free solution! Vincent Colot summarizes some of the most interesting articles from both the Wall Street Journal Europe and the Financial Times. It is updated every morning.

Oh yeah, it is in French. Can't read French? Google's translation service does a manageable job.