Alexander Hamilton's B-day bash?

Alexander Hamilton's Bday party: "The Museum of American Finance, in association with the Smithsonian Institution, will commemorate the 250th (or, some scholars say, 252nd) birthday of Alexander Hamilton, the first U.S. Secretary of the Treasury, with a symposium and reception on January 11, 2007. The event will be held in the Museum's new home at 48 Wall Street - appropriately the former

Toll of the stock options scandal heavy in 2006

Trying to catch up on finance news before I leave for Mississippi for another rebuilding effort. Toll of the stock options scandal heavy in 2006: "Eighteen chief executives swept out. More than 100 public companies underfederal investigation and more than $5 billion in profits erased byrestatements. Indictments so far: five former top executives at two companies,Brocade Communications Systems Inc

Is your fund manager deceiving you? Read on | TheNewsTribune.com | Tacoma, WA

Is your fund manager deceiving you? Read on TheNewsTribune.com Tacoma, WA: "The final week of every quarter is known as “window dressing week.” It’s whenportfolio managers sell stocks that have done poorly during the quarter andreplace them with ones that did well. The idea is to make themselves look good: Reports to investors include snapshots of major fund holdings at the end of the quarter.

Firms cook the books to set executive pay

From the St. Petersburg Times Opinion: Firms cook the books to set executive pay: "Grasso was a poster child for the abuse. His $140-million compensation package was rationalized, in part, by comparing his job to those at companies with median revenues 25 times the size of the exchange, assets 125 times and employee bases 30 times the size.Grasso was hardly alone. Executives have learned that the

Grades are in so I can get back blogging

Finals, correcting projects, and all-around chaos have kept me from writing much of late, but I think things are settling down so I will try to catch up.Hope everyone is doing well. Happy Holidays!! jim

Google Gives Employees Another Option

Google Gives Employees Another Option: "Google (GOOG) plans to give employees a novel method of cashing in their options starting next April. The search giant will let employees sell their vested stock options, which give the holder the right to reap the difference between the initial price and the current price, to selected financial institutions in an auction marketplace it's setting up with

Home Depot may see fallout over options backdating | Reuters Recommends | Reuters.com

Home Depot may see fallout over options backdating | Reuters Recommends | Reuters.com: "On Wednesday, Home Depot said a review by outside counsel found that, for certain stock option grants from 1981 through November 2000, the stated grant date was earlier than the actual time the grants were approved. Errors tied to the grants resulted in unrecorded expenses of about $200 million.'The most

Andrew Metrick: Governance Index Data

I was recently asked where a reader could find the corporate governance index, so I figured others might like to know that it is available through Andrew Metrick's website.Andrew Metrick: Governance Index Data: "Governance Index Data by Firm, 1990-2006"For details on the construction of the Governance Index, see Gompers, Paul A., Joy L. Ishii, and Andrew Metrick, 'Corporate Governance and Equity

TownOnline.com - Local News: BC’s Barry Is best prof on campus

TownOnline.com - Local News: BC’s Barry Is best prof on campus: " Corny jokes and tough tests are the hallmark of the B.C. finance professor, voted as one of the nation’s 'favorite professors' in a recent Business Week magazine student poll. Barry was one of only 22 management faculty members in the country to earn the A+ grade from his students. "

Econbrowser: The yield curve and foreign purchases of U.S. debt

Econbrowser: The yield curve and foreign purchases of U.S. debt: "Some new research that suggests that the current negative spread between long-term and short-term yields may be a little less worrisome than earlier studies had led us to conclude, to the extent that the negative spread in part results from an unusually low term premium on U.S. bonds rather than an expectation of future declines in

A look at Amaranth's Brian Hunter

Sounds much like Nick Leeson at Barings back in 1995.Bloomberg.com: Canada: "Hunter, within 17 months, would be responsible for $6.6 billion in losses, detonating the biggest hedge fund implosion ever. Since Amaranth's sudden collapse, investors have questioned the unusual trust Maounis put in his star trader, now 32. They say Maounis gave Hunter too much latitude and that Hunter, trading more

Billy Beane comes to Wall Street

Thanks to the SportsEconomist for pointing this one out!FT.com / Markets / Wealth - Faith in figures proves to be a big hit: "Beane’s great contribution to baseball – he is quick to admit – has been to apply to it techniques that were first honed by investors on Wall Street. Now, to his evident enjoyment, Wall Street is interested by the lessons it can learn from the world of professional sports.

If you want to keep up on Business news, try DealBook

I know I have mentioned DEALBOOK many times before, but it is just so good and recently when I mentioned it in class no one was using it. So I figured I would give it another plug.Mergers, Acquisitions, Venture Capital, Hedge Funds -- DealBook - New York Times: "DealBook is a financial news service produced by The New York Times. It is published daily, Monday-Friday, except on U.S. Market

Buffalo News - Despite convictions, Rigases live in the lap of luxury

Buffalo News - Despite convictions, Rigases live in the lap of luxury: "Nearly two and a half years after being convicted of bank fraud and other corporate crimes, former Buffalo Sabres owner John J. Rigas and his son Timothy remain comfortably at home in Coudersport, Pa., awaiting the results of their appeal.Meanwhile, many other executives who found themselves on the government's rap sheet in

Incentives and the timing of takeovers

I reader brought this cookl article to my attention:From the NY Times:"...8 of the 20 largest deals in the last four years have taken place in November and December, according to Thomson Financial. How to account for this? ....The urge to merge may be influenced by bonuses for all involved in the deal, especially the bankers. Corporate America’s biggest cheerleaders and boosters need to get paid

Cost of Nymex trading seat falls as screen trading surges

Don't think electronic market is changing the market landscape? Think again! case in point, the price of a seat on the NYMEX fell by a staggering 75%!Cost of Nymex trading seat falls as screen trading surges: "THE cost to lease one of the 816 seats on the New York Mercantile Exchange, the world's largest energy market, has plunged 75 percent as electronic trading overtakes the traditional

The mergers continue

The mergers continue! The last few months have been very busy for the takeover (err- Market for corporate control market). And today is no different:Bank of New York to Buy Mellon for .5 Billion - Mergers, Acquisitions, Venture Capital, Hedge Funds -- DealBook - New York Times: "Bank of New York plans to acquire Mellon Financial of Pittsburgh in a $16.5 billion stock transaction that would

Accounting Snags Push Dresser to Restate - - CFO.com

Some local ties to this one. Dresser is a major employer in the Olean NY area.Accounting Snags Push Dresser to Restate - - CFO.com: "Dresser Inc. said it will restate its financial statements for 2001 through 2003 based on a host of accounting errors. In May, the industrial engineering company had warned that it would restate its 2004 annual filing, its 2004 and 2005 quarterly financial

Study says index fund investors pay more with broker - Nov. 30, 2006

While not exactly ground breaking (I am sure every finance professor in the country has been saying this for years), it is an interesting article and good for introductory investment classes etc.From CNN: Study says index fund investors pay more with broker - Nov. 30, 2006: "Investors who rely on a broker to recommend an index mutual fund could be paying a whole lot more that they have to,

Top 25 Web 2.0 Apps for Money, Finance, and Investment

What a useful site! It has apps that help you do everything to find out good deals if you are renting an apartment to how much you should expect for a salary, to find real estate values to personal budgeting tools. Top 25 Web 2.0 Apps for Money, Finance, and Investment: "This guide to the top 25 web 2.0 applications should help you with the above will come in handy when it comes to managing all

SSRN-Are Elite Universities Losing Their Competitive Edge? by E. Han Kim, Adair Morse, Luigi Zingales

More evidence that the world is getting more flat. I don't have time to discuss it, but will provide the part of the abstract and a link:SSRN-Are Elite Universities Losing Their Competitive Edge? by E. Han Kim, Adair Morse, Luigi Zingales: " "Abstract: We study the location-specific component in research productivity of economics and finance faculty who have ever been affiliated with the top

Costs and Benefits of Regulation

As part of a study on the impact of regulation on market, the Committee on Capital Markets Regulation provides the SEC with several sudies today that try to guage the costs and benefits of regulation.Particularly interesting is Zingales' look at whether regulations following the Governance Crisis of 2002 had a detrimental impact on the relative advantages of a US listing.From the WLS (via

Skirt lengths and Stock prices

A few weeks ago I mentioned this in class and I got many weird looks (even more than normal). I'll admit that the idea that hemlines and fashion could be linked to stock prices does seem quite ridiculous, but there may be some ties. The theory is that as hemlines rise (be it for less risk aversion or some other reason) so too do stock prices. Thus the best time to buy stocks is when hemlines

Grade inflation from HS to Grad school

Three related stories that are not strictly speaking finance but that should be of interest to most in academia.In the first article, which is from the Ottawa Citizen, accelerated and executive MBA programs come under attack for their supposed detrimantal impact on learning in favor of revenue. MBAs dumbed down for profit: "An increasing number of Canada's business schools are literally selling

Marketplace: Was Grasso worth it?

Marketplace: Was Grasso worth it?: "Dick Grasso's critics have long said he was paid too much, particularly for heading what was at the time a nonprofit institution. And that the compensation process was flawed. But the Wall Street Journal reports today that he just didn't do a very good job, at least according to a report commissioned by New York Attorney General Eliot Spitzer.A University of

Google’s Shares Climb Above $500 - New York Times

The New York Times has an interesting look at Google's meteoric rise. Google’s Shares Climb Above $500 - New York Times: "Google’s shares gained $14.60, or 3 percent to close at $509.65, passing the $500 mark for the first time....Not bad for a company that was forced to reduce its initial share price to $85 barely two years ago because of lackluster demand. It quickly confounded the skeptics,

Newswise | Average Investors Shouldn’t be So Confident

Newswise | Average Investors Shouldn’t be So Confident: "An increase in the stock market’s overall performance, like the one that took place in October, can turn inexperienced investors into trade-happy amateurs, according to Brigham Young University business professors in a study published in The Review of Financial Studies.“When investors start off in the market, they tend to trade pretty

SSRN-Payout Policy in the 21th Century: The Data by Alon Brav, John Graham, Campbell Harvey, Roni Michaely

What a cool paper!! By Brav, Graham, Harvey, and Michaely on Dividend payout rations. They essentially redo Lintners' clasic 1956 paper but also provide the data!SSRN-Payout Policy in the 21th Century: The Data by Alon Brav, John Graham, Campbell Harvey, Roni Michaely: "Our findings indicate that maintaining the dividend level is on par with investment decisions, while repurchases are made out

Is it time to rethink accounting?

While I doubt a major overhaul is forthcoming, the fact that accounting firms are calling for the changes is telling and a good step.Institutional Shareholder Services -- Corporate Governance Blog: Accounting Firms Seek Overhaul Submitted by: Tad Kopinski, Staff Writer: "The six biggest international audit firms have called for a complete overhaul of corporate financial reporting as the U.S. and

FMA Online

This has to be one of the most underrated sites in finance!FMA Online: "Feature Presentations (video)2006 FMA European Conference Keynote AddressesMichael Brennan, UCLA and London Business Schoool'Rational (and Irrational) Prices, Returns, and Strategies'Michael Brennan is a professor of finance at both UCLA Anderson and London Business School. His research interests include asset pricing,

Rewriting the Rules for Buyouts - New York Times

Ironically my Depattment chair said this exact thing to me last week too! Rewriting the Rules for Buyouts - New York Times: "MANAGEMENT-LED buyouts, by their very nature, are meant to benefit management and their private equity backers,” Stephen Lowey, a lawyer who often represents institutional investors, said to me last week. He contended that public investors almost always get cheated, and

Red Hat seeks NYSE listing | CNET News.com

In class the other week I was asked why firms choose on market over another. Here is why RedHot is changing from the Nasdaq to the NYSE:Red Hat seeks NYSE listing | CNET News.com:"'We believe that listing on the New York Stock Exchange will increase Red Hat's visibility among investors, reduce trading volatility and offer more efficient pricing,” said CFO Charlie Peters said"

College football contracts are dotted with extras and provisions - USATODAY.com

Not strictly corporate finance, but a very interesting look at some contracts of college football coachesCollege football contracts are dotted with extras and provisions - USATODAY.com: "Head football coaches' contracts with NCAA Division I-A schools can be more than a matter of money."a few examples (for more read the article):*"Cincinnati's Mark Dantonio and Florida's Urban Meyer can be

Study Charts Broad Manipulation of Options - New York Times

Study Charts Broad Manipulation of Options - New York Times: "Abuses of stock option grants are perceived to have spread like a virus among high-technology companies. But a new study suggests that hundreds of old-economy companies may also have caught the backdating bug.In a paper to be released today, researchers estimate that 590 nontechnology companies appear to have manipulated options so

Economist Milton Friedman dies at 94 - Yahoo! News

Economist Milton Friedman dies at 94 - Yahoo! News: "Milton Friedman, the Nobel Prize-winning economist who advocated an unfettered free market and had the ear of three U.S. presidents, died Thursday at age 94.Friedman died in San Francisco, said Robert Fanger, a spokesman for the Milton and Rose D. Friedman Foundation in Indianapolis. He did not know the cause of death."

Compensation Special Report, Parts I & II -- CFO.com

CFO.com hhas a great series of articles in their spoecial report on CFO pay. HIGHLY RECOMMENDED!!Compensation Special Report, Parts I & II -- CFO.com: "Thanks to a growing battle for finance talent, CFOs are making more. Those at big companies saw their pay surge as much as 25 percent. Many firms are seeking to upgrade their finance talent, and the dwindling of the chief operating officer has

FRB: Speech, Kroszner--The Conquest of Worldwide Inflation: Currency Competition and Its Implications for Interest Rates and the Yield Curve--November

Great read: It is from today's speech by Fed GOvernor Randall Kroszner. PERFECT for a money and banking class!FRB: Speech, Kroszner--The Conquest of Worldwide Inflation: Currency Competition and Its Implications for Interest Rates and the Yield Curve--November 16, 2006: "I will begin by providing a few facts about the substantial improvement of inflation during roughly the past decade compared

Utah finance conference

What a cool thing to do if you want to know what is is going on in the field of finance!SSRN : "The Utah 2006 Sixteenth Annual Winter Conference has partnered with the Social Science Research Network (SSRN) to provide electronic journal distribution and online subscription management services.Registration is required to receive the E-mail abstracting journal and free access to the issue’s full

Hedge Manager Is Almost Famous - New York Times

An interesting look at how Hedge funds have become the profit centers for Investment Banks.Hedge Manager Is Almost Famous - New York Times: "More than any other investment bank, Goldman Sachs relies on trading gains to drive its profits. Mr. Agus had a very good year in 2005 — he is estimated to have made $10 million to $20 million — and he will surely get a raise in 2006. His year is further

Risk and Reward Column: The Invisible Problem of Risk Blindness

As the semester begins to wind down, many classes (mine included) take a look at various financial cases and what events led to the problems. Thus the timing of the FENews article on " The Invisible Problem of Risk Blindness is especially good:A few look-ins: "There is an old saying that everything changes, but everything remains the same. This is especially true with financial disasters. The

Small cos problem clouds US Sarbanes-Oxley revamp | Reuters.com

Small cos problem clouds US Sarbanes-Oxley revamp | Reuters.com: "Work on revising 2002's post-Enron Sarbanes-Oxley (SOX) corporate audit reforms is hung up on the question of how small companies should be treated, with U.S. regulators expected to meet on the issue on Sunday.The chairmen of the Securities and Exchange Commission and the Public Company Accounting Oversight Board are expected to

Too Many Regulators For Wall Street? - Forbes.com

We always talk in class, that when the environment changes, so too do the various contracts and relationships that affect the firm. Here is a good case in point:Too Many Regulators For Wall Street? - Forbes.com: "With two pending trans-Atlantic stock exchange mergers, the world's largest futures exchange forming in Chicago and rumors of more consolidation in the markets to come, there is the

VC Deals More Company-Friendly - - CFO.com

VC Deals More Company-Friendly - - CFO.com: "Venture capital backers are getting friendlier. In the past four years, the deal terms they've been handing start-up companies have shifted in favor of fledgling companies, says a new survey released by Dow Jones VentureOne's. Indeed, new deal terms offer improved liquidation preferences and decreased percentages of investor ownership, noted the study,

NYSE Group to cut more than 500 jobs - MarketWatch

I am fascinated at the way the NYSE-Archipelago merger is having concrete results in reducing costs. It will continue to interesteing to see how they mesh the electronic with the floor trading. Stay tuned.NYSE Group to cut more than 500 jobs - MarketWatch: "Since March 2005 -- when the NYSE, Archipelago Holding and Securities Industry Automation Corp. had 3,484 employees on a combined adjusted

Financial page: PBS Frontline: Can You Afford to Retire

Barry over at Financial Page points to an interesting article on the state of retirement planning in the US.Financial page: PBS Frontline: Can You Afford to RetireA quick look-in:" Half of America's private sector workforce are not covered by any retirement savings plan; their retirement will be anchored only by Social Security and whatever they have managed to save on their own. The other 50

SSRN-A Comparison of Five Federal Reserve Chairmen: Was Greenspan the Best? by Ray Fair

SSRN-A Comparison of Five Federal Reserve Chairmen: Was Greenspan the Best? by Ray Fair: "Abstract: This paper examines the performance of the past five Federal Reserve chairmen using optimal control techniques and a macroeconometric model. Each chairman is judged by the actual performance of the economy under his term relative to what the performance would have been had he behaved optimally.

Free Money Finance: Paying Off Your House Early

This topic came up in class recently so FreeMoneyFinance had impeccable timing:Free Money Finance: Free Money Finance Top 10 Most Hated Posts/Themes: #8 Paying Off Your House Early: "Most financial authors, writers, and bloggers would say NOT to pre-pay your mortgage if the interest rate (adjusted downward for the tax savings from having a mortgage) is below what you could earn investing the

Update and where in the world have I been

Hi everyone.What a few weeks. LOL. As Burns would say "the best laid plans of mice and men often go astray." And that is exactly what has happened since the Friday Lunch at the FMAs in Salt Lake City. While in the luncheon my phone vibrated a few times but I did not take the calls. In Hotel's atrium afterwards I did. The most important call was from Josh one of the BonaRespond leaders. He

Online NewsHour: Experts Examine How Brain Makes Economic Decisions -- May 10, 2005

Online NewsHour: Experts Examine How Brain Makes Economic Decisions -- May 10, 2005: "...as it happens, even economists are getting in on the action, asking how and where we humans think economically by seeing which parts of the brain are most active when we're deciding what we want and how to get it. One lesson thus far: The brain isn't quite as rational as the discipline of economics has long

SSRN-Corruption and International Valuation: Does Virtue Pay? by Charles Lee, David Ng

SSRN-Corruption and International Valuation: Does Virtue Pay? by Charles Lee, David Ng: "Abstract: Using firm-level data from 44 countries, we investigate the relation between corruption and international corporate values. Our analysis shows that firms from more corrupt countries trade at significantly lower market multiples. The effect is both economically and statistically significant. "

Live from Salt Lake City

Hi from Salt Lake City! I am here attending the Financial Management Association (FMA) meetings. I figured that if I could blog from Biloxi weeks after Katrina, I could make some time to do so from a conference. Finance conferences are pretty much all day events. Today’s started at 8:00 AM and papers went until after 5:00 at which time there was a reception. (I confess I skipped the

Slow and steady still wins the investing race - MarketWatch

Thanks to the Unknown Professor over at Financial Rounds for pointing this one out. Short version: Morningstar is going to report the dollar-weighted returns! And shock of all shocks, these are lower than the time weighted returns.Slow and steady still wins the investing race - MarketWatch: "...Morningstar, Inc...announced that it was going to start reporting mutual funds' returns in a new way,

Yale's Money Guru Shares Wisdom with Masses

This one is really good! It is an NPR piece on David Swensen who manages Yale's Endowment fund. While Swenson has done remarkably well, his basic strategy is easily replicated and fits very well with the idea of market efficiency and diversification taught in almost every finance class, although not as well as Swenson does it!NPR : Yale's Money Guru Shares Wisdom with Masses:On his relative

A cool way to protect property rights

Ok, this might not strictly speaking be finance, but property rights are always an interesting topic that has financial ramifications (we usually cover them in International finance classes) and htis is just so cool that I had to share it.It deals with how YouTube is satisfying the Music companies.YouTube’s Video Poker - New York Times: "Potentially most significant, Mr. Hurley pointed to a deal

FRB: Speech, Bernanke--The Coming Demographic Transition: Will We Treat Future Generations Fairly?--October 4, 2006

More on the changes that may be brought about by the retiring of the baby boom generation. This is from Fed Chairman Ben Bernanke. FRB: Speech, Bernanke--The Coming Demographic Transition: Will We Treat Future Generations Fairly?--October 4, 2006:Short version: increase savings to increase productivity. And rely on FinanceProfessors to save the day ;) Ok, so maybe that was added.Some

Will stocks go Boom?

Canada's National Post gives us all something to worry about it its series on the impact of an aging labor force. In the second part of the series, the paper examines whether as baby boomers retire if they will drive down stock prices.Will stocks go Boom?: "In the United States, for example, the ratio of workers to retirees is expected to fall to just 2.6 in 30 years, from 4.9 today. In Japan,

USATODAY.com - Easy credit can mean long-term hardship for college students

I am torn on this one. On one hand it is inarguable that many people (including no doubt a higher percentage of college students) do get into financial difficulty stemming from excessive use of credit cards. However, the ban on marketing of the credit cards on campus does seem a tad much. Credit cards do have their upsides as well: they help build credit and lower transaction costs.On the

Financial Rounds: Who are My Picks For the Nobel Prize in Economics

It's that time of year again: time to bet on who will be the next Nobel Prize winner in Economics. The Unknown professor over at Financial Rounds does a good job with his two picks. Who are My Picks For the Nobel Prize in Economics: "....speculation seems to be heating up for who will get the next Nobel Prize in economics. I'll cast my vote for Eugene Fama of the University of Chicago for his

Amaranth update

Interesting. Things could have been worse.Bloomberg.com: U.S.: "The New York Mercantile Exchange told Amaranth Advisors LLC that the hedge fund's natural gas bets were too big a month before the trades led to a $6 billion loss, said two people with knowledge of the meeting.Amaranth unwound some of its natural gas positions after the warnings, according to the people, who asked not to be named

Time to throw a penalty flag

First, the good part: Tuesday Morning QB does a great job of laying out the issue and demonstating one problem with boards setting pay . From last week's TMQ which appeared on ESPN.com: Page 2 : The five-month NFL forecast:"Much news and sports commentary focuses on the ever-larger paychecks of professional athletes. But even Peyton Manning is a day laborer compared to the modern Fortune 500

Continuing the inflation theme

Continuing the inflation theme:While inflation can obviously lead to many problems, there is an important bias that must be considered (especially when you think of inflation measured by government statisticians.) As the NY Times so aptly points out, this problem can be illustrated with the humble snow-blower.Life Is Better; It Isn't Better. Which Is It? - New York Times: "...the benefits of the

And you think the Fed has it tough?

Post WW I Germany often is the example of hyperinflation used in Money and Banking texts, but for a more timely example you may want to consider Zimbabwe.BBC NEWS | Business | Zimbabwe's inflation tops 1,200%: "Zimbabwe's annual inflation rate continues its upward surge, reaching a record high of 1,204.6% in August, and adding greater strain to the economy."Why is hyperinflation such a problem?

The sleuth who exposed backdating scandal

I always like to see finance professors in the news!Philadelphia Inquirer | 09/21/2006 | Sleuth who exposed backdating scandal:A few "look-ins":"From his second-floor office at Iowa's Tippie College of Business, [Erik] Lie spent months analyzing data to demonstrate how companies were illegally and retroactively timing, or backdating, stock option grants to fatten bonuses paid to top executives. "

Basketball superstar meets superstar investor

I'd guess it was a pretty big tip for the waitress!LeBron shoots the breeze with Letterman, Buffett - NBA - Yahoo! Sports: "A few days earlier, James had lunch in Omaha, Neb., with billionaire Warren Buffett. ...James, who signed a three-year, $60 million contract extension with the Cavaliers in July, may have been seeking some off-the-court business advice from Buffett, the self-made billionaire

HP Spy Scandal Hits New Weirdness Level: Financial News - Yahoo! Finance

This just keeps getting more bizzarre! Like I said two weeks ago, I want movie rights!HP Spy Scandal Hits New Weirdness Level: Financial News - Yahoo! Finance: "Not only did investigators impersonate board members, employees and journalists to obtain their phone records, but according to multiple reports, they also surveilled an HP director and a reporter for CNet Networks Inc....They even

Breaking Down Silos at Yale

While curriculum discussions generally bore me, this one is the exception for the size of the changes and the potential ramifications. Yale's business school has done a major facelift to its offerings. Some look-ins thanks to Business Week:Breaking Down Silos at Yale: "...not just at Yale, but at any of the curricula that you would look at any of the major business schools, they were broken

Deja vu all over again? Hedge Fund Shifts to Salvage Mode - New York Times

As Yogi Berra would say "Deja vu all over again." Amaranth's troubles may be more serious than previously thought. Indeed, they have the potential of being the next Long Term Capital Management.Hedge Fund Shifts to Salvage Mode - New York Times: "Last night, as it had been since the weekend, Amaranth was locked in negotiations...in an effort to sell its energy portfolio to try to keep the fund

FRB: Testimony, Braunstein--Non-traditional mortgage products--September 20, 2006

Sandra Braunstein is the Fed's Director of Consumer and Community Affairs. She spoke before a Senate Subcommittee today. The comments largely focued on the truth in lending law, but also discussed various "non traditional morgtage instruments and the Fed's efforts to assure that borrowers know what they are getting into. FRB: Testimony, Braunstein--Non-traditional mortgage products--September

Hedge Funds Flirt With Heresy: Going Public - New York Times

Going public allows a firm access to more funding. However, this funding comes at the cost of required SEC filings aimed at reducing transparency and secrecy.Hedge funds are famous for their desire for secrecy which makes the fact that Fortress Investment Group was considering an IPO al the more interesting. It must be that the desire to access capital trumps the desire for secrecy.From the NY

SSRN-102 Errors in Company Valuations (102 Errores en Valoraciones de Empresas) by Pablo Fernández

Want to practice your Spanish while studying Finance as well? This paper provides you the opportunity! It examines common mistakes that we tend to make in valuation. I won't try to translate it for you (I actually suprised myself as I could read most of it!) but fortunately the abstract is in English.SSRN-102 Errors in Company Valuations (102 Errores en Valoraciones de Empresas) by Pablo FernÃ

Guardian Unlimited Technology | Technology | Google to appeal, as court rules news site is illegal

Copyright protections are always a touchy topic. On one hand the creators of the information deserve to rewarded for their work. On the other hand, too strict of protections limits sharing and reduces the impact. This is playing out with Google now. Guardian Unlimited Technology | Technology | Google to appeal, as court rules news site is illegal: "The case was brought by Copiepress, an

A look at the AMEX

The american Stock Exchange came up in class last week. Thus this article from Fortune, via NY Times is pretty relevant for my classes!"...the Amex has shrunk to 427 domestic companies, 9 percent of all listed U.S. stocks. Its $565 billion in total market cap disappears in the shadows of the N.Y.S.E. ($22.6 trillion) and the Nasdaq ($3.8 trillion). An average day’s worth of trading on the Amex —

Airline Hedging

You probably have noticed that oil prices have dropped significantly over the past month. However, the Washington Post points out that many airlines are still paying the higher price because they locked in when prices were high.A look in:"Like insurance policies, hedging contracts protect against risk, allowing companies to manage damaging price swings....If the market price for oil is above a

MIght there be more oil than previously thought?

A quick look at the oil market:Saudi official: 82% of crude is untapped - The Boston Globe: "The world has tapped only 18 percent of the total global supply of crude, a leading Saudi oil executive said yesterday, challenging the notion that supplies are petering out."And from the Gulf Times:"Jum’ah’s estimates show a potential of 4.7tn barrels of oil, “or more than 140 years of supply at today’s

Bringing the news to class

Several news stories today that could easily be incorporated into various finance classes:* Nobel Prize winner Joseph Stiglitz has been in the news quite a bit over the past week. He is advocating more intevention (at least in the form of safety nets) when it comes to globalization. A look-in: "Some countries have benefited from globalisation like China and India where the economy is booming.

Advice for learning finance (and pretty much anything else)

A student emailed me the following today. I figured I would share my answer."I wondered if you might have any advice for those of us in the MBA program who have undergraduate degrees not related to business?" Of course I have advice, how effective it is may be up for debate ;) I would start by saying to think about what you already know and use it to help process what you are learning.

Math review: an application of NOT reinventing the wheel

MBA math review PDF fileWhen I first began FinanceProfessor.com (and thought it was going to mainly about class notes) I remember having a conversation where I mentioned that I did not want to reinvent the wheel but would rather serve as a directory of links where I would try to weave the best finance sites together.That conversation came rushing back to me this morning as I tried to put notes

Catching up on the news and some blogs

Catching up on mailbox and some articles I have been meaning to mention:* Add ETNs to your list of "need to know acronyms". ETN: Exchange Traded Note. From the SmartMoney: "MAKING DIFFICULT-TO-ACCESS asset classes such as oil and currencies easier to invest in has been one of the biggest developments this year for exchange-traded funds. Barclays, already the leading provider of ETFs thanks to

Executive Governance: Congressional Hearings and more

I worked at home this morning in order to watch the Senate Finance Committee's meeting on Executive Compensation. It was interesting but did not cut much new ground.Predictably, the session began with the numbers (for instance that CEOs made more than 300 times the average employee in 2004), the problems of backdating options (including the need to redo tax records), and the principle-agent

Confllicts of interest-- Take II: college football

Heisman Candidate Michael Bush's Injury Reminds Many That College Athletes Should be Paid, says Professor: "“It makes no sense that half of the players come from poverty, and their starving families get almost nothing in return,” says Watkins, who was a recent guest on ESPN’s “Quite Frankly with Stephen A. Smith”.Bush, the star running back at The University of Louisville, broke his leg in the

Conflicts of interest in the real estate market

The real estate market fascinates me. Not only is real estate often the largest holding of many people, but the lack of liquidity, lack of transparency, and vested interests of various players tells us much about people and markets.For instance, while some observers may balk at the idea that corporate managers would purposely fight transparency, we see much evidence of the same behavior by real

Blogging problems

I am not sure what setting was wrong, but appears to be fixed now. I just got a new computer and for some reason, I could not post to FinanceProfessor...oh well...it is fixed now.Classes have started here and it seems that the weather knows it and has decided to get wet and cold. I am teaching two advanced corp fin classes and two graduate introductory finance courses this semester. So it

Economics Humor

No, it is not from this site devoted to economics humor, but a true story!Yesterday I joined a group of cyclists for a 50 miler in the local state park.During summer months the park charges $7.00(?) per car from 10:00-4:30. Our ride started at 4:00 pm so for those doing the entire ride (there were shorter options), we were expected to pay the $7.00.While no one wants to pay, I figure that any

well well well

Monitoring might work afterall...lol ;)First go back a ways and read this from two weeks ago. A look in:"...earlier this week Sharesleuth made their first publication coming out harshly against Xethanol(XNL). Sharesleuth claims that the firm is dramatically overvalued and that its reported leadership position in the field of ethanol production is largely just hype."And now from Sharesleuth:"

Common Investment Mistakes

Could almost be called "Behavioral Finance in Practice" by the Wall Street Journal's Jonathan Clements from MoneyWeb:Some look-ins:""People tend to buy the investments they wish they had bought last year," says Terrance Odean, a finance professor at the University of California at Berkeley. "Partly, people simply extrapolate the past trend. But also, people feel that the markets are more

Does friendliness trump independence?

Wow.SUPER Quick version: if the threat of monitoring causes managers to withhold information, the advising aspect of a board is impaired and the firm suffers. A solution may be a portion of the board that advises and a portion that monitors, which while often unweildy is exactly what happens in many European nations.From the University of Queenland's Newsletter:"Research by UQ Business School's

Are CEOs overpaid?

Yeah, I know I said I would go a while before posting, but Rich forwarded this to me and I think many of you will be interested. It is from MSNBC/Newsweek:A few look-ins:*"Ogling executive pay is the spectator sport of business. The catcalls from the stands have gotten louder as new studies throw out eye-popping statistics about how rich CEOs are getting, while the rest of us worry about keeping

A "before-semester time-out"

Hi everyone...I haven't written about "non finance things" in a while and figured before classes would be a good time to say hello and let you know that this week will not have many posts. Things are going well on this end. Busy, but that is a good thing right? ;) However, like most things busyness is good only in moderation. Why? Hhave you ever fell way behind and started to feel you could

Should you hold multiple mutual funds?

Should you hold multiple equity funds? Yes!One of the more frequently asked questions from family and friends is whether there is any advantage to holding multiple mutual funds or whether a single fund yields the same diversification benefits.Fortunately Louton and Saroglu shine some light on this question in their working paper "Individual Investors' Asset Allocation and Number of Mutual Fund

Executive compensation around the world

Executive compensation is always a hot and interesting topic and this paper by Bryan, Nash, and Patel (all from Wake Forest) is no exception!SUPER short recap:Pay varies with institutional factors and protections from country to country.As a general rule, if agency costs are high then firms pay with more equity.Large firms use more equity compensation than do small firms.There does not appear to

FMA reminder

Probably my favorite finance conference is the FMA annual meeting. This year it is in Salt Lake City from October 11-14.Over the next couple of months I will give some greater emphasis to papers from conference.The program and registration information is available here.

Why Smart People make Big Money Mistakes

If you have any interest in behavioral finance or if you are looking for simple examples for class, I would definitely recommend "Why Smart People make Big Money Mistakes" by Gary Belsky and Thomas Gilovich.I bought it for the examples and it has proven to be a very quick, easy, yet informative and fun read!For instance it deals with problems people have figuring out odds (the exampleis instantly

How do you say? Stock returns and pronunciation

How people decide things is a fascinating topic. Recent work from marketing, psychology, and even finance is now suggesting that we may not know as much as we thought we did on how people make decisions.For instance, how do you decide what cereal to buy? or what team to root for? or what stock to buy?Atler and Oppenheimer (psychologists) contribute to this investigation with a paper that

Monkey pay? Monkey do

Financial Rounds points out a really really cool article that shows for the zillionth time that economics works.The blog entry is a review of a paper by Boyle who examines issues within academia. Now it has become my trademark to mention whenever pay issues come up that there are two key points to every pay issue: the form of pay and the level of pay. Form of pay is what creates incentives,

Finance, Literature, Science, History, and more

This is good! Using non finance examples to get finance across.From Reuters:"Economics may be called the dismal science, but that doesn't mean that anyone who writes about it or its sibling, investment, has to be dull.How about '60s rockers Crosby, Stills & Nash to illustrate the need for a rebalancing of global financial fundamentals?Or a population explosion among jellyfish off the coast of

Cramer Vs Chimp

FinancialRounds pointed this out, but if you missed it, go watch it NOW! If for no other reason you will be humming the music for the rest of the day! lol...

Consumer Confidence and Stock Returns

Every week it seems some news agency is reporting consumer confidence numbers. For instance from ABC News:" Consumer confidence is showing strain. Faced with the highest gas prices since Hurricane Katrina, soft job growth, and a cooling economy, it has slipped to its lowest level in seven weeks. The ABC News/Washington Post Consumer Comfort Index stands at -12 on its scale of +100 to -100 this

Sharesleuth and Xethanol

By now many of you probably have heard of Mark Cuban's Sharesleuth.com. It has been widely reported (see Financial Rounds, Cuban's own BlogMaverick, and Gary Weiss's blog).If you have not seen the site, go and see for yourself!What is it? From ShareSleuth itself:"Call it journalism. Call it investigative blogging. Call it what you will.More than 13,000 companies are listed on U.S. stock

Interesting podcast from Jeremy Siegel

Knowledge@Whatron has a podcast interview with Jeremy Siegel on recent news ranging from the Fed's decsion to not raise rates to the Middle East to the Alaskan Pipeline. A quick example:"Knowledge@Wharton: After 17 consecutive interest rate hikes, the Federal Reserve decided on August 8 not to raise the federal funds rate. Joining us to discuss this recent decision is Jeremy Siegel, professor of

Adam Smith and Behavioral Finance

Harvard Business Schools "Working Knowledge" has a fascinating look at Adam Smith and Behavioral Finance/Economics.Super short version: Smith's early writings (pre Wealth of Nations) laid much of the ground work for what we now call Behavioral Finance.A few look-ins:"The Theory of Moral Sentiments [TMS]... caught the attention of Harvard Business School professor Nava Ashraf and coauthors Colin

Clearing mail box

Ok, I am back...Went to Virginia (and West Virginia) for a bike ride. Wow, what a ride. Supposedly the hilliest Century east of the Rockies. Not sure if it is or is not, but it is hard and hilly! Over 13,400 feet of climbing with 9 named climbs. Great fun!I will get back to seriously posting finance stuff either later tonight or tomorrow, but a few articles that were sent to me (either by

Derivatives shown to increase volatility

Well Fischer Black is right again. Or at least that is the conclusion of a new paper by Bhamra and Uppal. They model a market with and without "non redundant derivatives" and find that derivatives do lead to increased return volatility. A few look-ins at their largely theoretical paper:* "Our main result is to show that introducing a new derivative security that improves risksharing leads to an

Does initial success breed overconfidence and fraud?

USATODAY.com has an interesting article that looks at fraud throughout the last several decades. A common trait in many of the cases? The company had been doing very well, then competition came along, and pretty soon troubles began. Bright ideas gone bust can lead to corporate fraud: "For type-A executives who have introduced landmark changes to their industries, it's a thin line between

CFO.com on one impact of back dating

Gee, I ad not thought of this impact:From CFO.com:"Lost amid the swirl of media attention, however, is what backdating, or other practices, such as re-pricing, might mean if you happen to be one of the people who holds those options. In much the same way that backdating is now prompting some companies to restate, corporate tinkering with options can damage the personal equivalent of a

Welcome to the Blogosphere

A warm welcome to the Blogosphere to The Finance Blog. It is a new blog by a Peter Went a FinanceProfessor from Bucknell. I look forward to reading! In fact I just added it to my GoogleReader!

CBOE to trade stocks

Big news out of Chicago today:From the Street.com:"The Chicago Board Options Exchange, the nation's largest options exchange, says it intends to get into the business of trading stocks and will launch a new exchange in early 2007. The CBOE on Thursday says it has also begun converting itself into a holding company, a process that could lead to an eventual IPO...."From the CBOE's press release:"

Microfinance: lesson and video

A former student who was always interested in micro finance forwarded me the following video.A brief "lesson" on Microfinance will serve as a means of introducing this video.What is microfinance? It is banking on a very small scale where small (often short-term) loans are made to individuals who would generally not be able to get loans from traditional financial institutions. Adding to the

A look around at the news

In the spirit of the old newsletter, this will have several short stories all together (out of town family (from Texas) is in town today visiting and I am not supposed to be working ;) so this is my compromise.)This would defintely be fodder for my Money and Banking classes if I were teaching that this semester!From the BBC:"Monopoly money will be phased out in a new version of the game in a

Deja vu all over again?

Sometimes the more things change, the more they stay the same. NY Times Deal Book has a really interesting article on the similarities between the takeover market now and in 1988.A quick look-in and then the link to the actual DealBook article."HCA’s $33 billion buyout announcement on Monday is turning up all kinds of references to the late 1980’s, which was the last time Wall Street saw a

More political connections = higher returns

I imagine this one will be making the rounds in the popular press relatively quickly. It is by Goldman, Rocholl, and So.The super short version of their paper is that having a board member with ties to the political party in office is good for shareholders (which probably is more disappointing than shocking).A slightly longer version:The authors begin by stating that "in countries with a well

More entrenchment = more employee pay

Start off with the assumption that holding employee pay down is hard work (if nothing else, you are frequently criticized). This simple assumption leads to the conclusion that ceteris paribus (holding other things constant), managers would prefer to not have to do this and would pay their employees more than is optimal.However, as residual claimants, shareholders disagree. They do not want to

What I learned watching the Tour

Wow, what a Tour! As anyone who wants to know, knows, Floyd Landis won!!While not wanting to take the fun away from the event (I simply love the Tour and think the three weeks of the event is my favorite time of year), nor to read too much into it, there are some lessons (both financial as well as non financial that we can learn from his performance.1. Have a long term plan. Floyd understood

Socionomics and the Enron Scandal

Right after my posting of the 1952 cartoon, B. C. emailed me the following video that is a documentary on Socionomics and even has Finance Professor John Nofsinger in it speaking about Enron and other scandals!What is socionomics?From Socionomics.org:"Socionomics is a new theory of social causality that offers fresh insights into collective human behavior. Over twenty years of empirical research

Gates to give more to Africa

Yeah, maybe I am still being biased by my reading of Jeff Sach's Ending Poverty. Or maybe it was the stories my brother (the real doctor) brought back from his service trip to Ghana. Ormy Mom's campaogn to collect and send t-shirts and money to an orphanage in Ghana. Or maybe it just seems right, but whatever the reason I agree with the Cameron Cameron Duodu of the New African (although this

a few really interesting posts from Financial Rounds

The Unknown Professor over at Financial Rounds just keeps writing some really interesting posts! So on a day that I devoted to the "Tour" (I don't want to give results away, but WOW!!!! What a day!!!),here are a few recent highlights:Can you make money betting against Jim Cramer? Uh, it looks like it! At least in the past).The backdating of option grants seems much more common than originally

1952 cartoon on Stock Market

Yeah I know I have not been posting much of late. A combination of research, summer, trips, and the tour. But this will make up for it. LOL! Pretty funny.And I apologize about all gender stereotypes in advance!!! Remember, it was made in 1952."Cartoon promoting the stock market as the engine of America's prosperity." Animation in public domain and available at Archive.org. 1952.

Want to have some fun?

Ok, so this is not the usual post. It is a summer Friday afternoon, so why not. It is from Blogthings. Take a quick quiz to see if you are likely to become a "multimillionaire". Interestingly, it is totally based on actions and how you think about things (and not type of job, amount of money you are starting with, etc.) It takes about 1 minute.I think it is overly optimistic (which based on

FinancialRounds:What does a professor do all day

If you are a college professor, you have been asked "what do you do all day" or told "it must be nice only having to teach X courses per semester". Similarly, if you are a student, you no doubt have thought "What an idiot! All he does is teach X courses, why can't he get grades back faster?"Over at Financial Rounds, the Unknown Professor addresses these questions with two answers. In his

Warren Buffett interviews

At least for today (thanks to HP) the first two of the three Warren Buffett interviews that were on Charlie Rose are free at Video.google.com Video one, two(the third show is not yet available)

Dow and SP 500 Differences

Most introductory finance classes cover the makeup of different indicies. For instance the Dow Jones Industrial Average is price weighted and composed of 30 "blue chip" stocks whereas the S&P 500 is weighted based on market capitalization and includes 500 stocks.The Street.com looks at some of the implications of this difference:"What is the impact of the different weighting schemes?....if one

Jeremy Siegel on Indexing

More reasons to index from Jeremy Siegel writing for Finance.yahoo.com:"data...indicates that the vast number of these managers can't beat the market after fees are subtracted from their portfolio returns. Over the 35-year period from 1971 to 2004, the average annual return on all actively managed equity mutual funds trailed the S&P 500 Index by 87 basis points a year, and the broader-based

Looking around, catching up

The more tired I am, the harder I find it to concetrate, so there will be no academic journal articles today. Hopefully tomorrow. But in the mean time, we can catch up on several "news" items that have crossed my monitor today:*I hated to hear last week that Ken Lay died. I was disappointed. Not (as I heard a person on the radio say) because he did not get to serve time or even be sentenced,

Back from Mississippi and Louisiana again

Some of you wondered why I have been quiet for a while, well I was in Biloxi helping out. It was my fourth time to the Gulf and I really can not stress the fact that there is still much much much work to be done down in the region. I would urge you all to try to get down there, if only for a few days. You will not only do much good work helping others in ways you never dreamt of, but also will

Overconfident CEOs lead to more debt

I am traveling again (back to Mississippi) but read the following article today (it is a tad dated in blog time, but definitely still relevant for class!Malmendier, Tate, Yan are at it again! After showing how overconfidence of CEO's impacted investment, they now (updated April 8, 2006) show that CEO overconfidence also impacts capital structure.From their abstract:"Overconfident managers believe

Money can not buy you happiness

Contrary to popular opinion, money can not buy you happiness---Yeah I know I am a FinanceProfessor, but I would rather you be happy than rich, so I think this is something that we should all remember!From Yahoo :"Measuring the quality of people's daily lives via surveys, the results of astudy published in the June 30 issue of journal Science reveals that incomeplays a rather insignificant role in

Greenbaum on Corporate Governance

Stuart Greenbaum recently gave a very interesting and important speech at the Financial Intermediation Research Society Meetings in Shanghai China. Fortunately for those of who did not go to China to attend the conference, the keynote address is available through SSRN. The abstract does not do the speech justice, so I will provide some "visual bites" via some "look-ins":*"Ben Hermalin and

Market overreaction or hedging?

First off, let me state that I am a huge fan of markets. I think they are fairly semi-strong form efficient (not perfectly so), but can get caught up a bit with fads, etc. Inactive markets are particularly prone to such mispricing since there are not enough "arbitragers" (And here I am using Thaler's view that is not necessarily a risk free arbitrage) to "fix" items that are priced incorrectly.

Out of sample tests

I am a big fan of so called "out of sample" tests. When researchers find some anomaly within a data set and then others test for the presence in the same data set, we really do not learn much if they find the same thing. But when a new data set is used for the test, we have a much better understanding of the possible anomaly.In the current JFQA there is just such an article by Richard Grossman

Around the blog world

A few quick looks at really interesting articles from various blogs:FreeMoneyFinance comments that a good way to save money is to avoid going shopping. I could not agree more!!!"If you want to save money, don't go to any store to just pass time. You'll most certainly spend more than you would if you hadn't gone. Instead, take a walk, go to the park or visit a free museum. You'll not only save

Buffett to give away Billions

Wow!Major kudos to Warren Buffett!From Fortune:"Buffett has pledged to gradually give 85% of his Berkshire stock to five foundations. A dominant five-sixths of the shares will go to the world's largest philanthropic organization, the $30 billion Bill & Melinda Gates Foundation, whose principals are close friends of Buffett's (a connection that began in 1991, when a mutual friend introduced

Corporate diversification may not be such a bad thing afterall

SUPER SHORT VERSION: If facing expropriation, managers may maximize shareholder wealth by diversifying their firm.Corporate Diversification is badThe standard line for the past 20 years has been that corporate diversification is bad for shareholders. We have seen this in the diversification discount work of Comment and Jarrell (1995) and many other papers (for instance Megginson, Morgan, and

Addicted to learning?

Ok, so this is not strictly finance, it is very interesting and would probably explain my ADhD. LOL..From Science Daily:"The "click" of comprehension triggers a biochemical cascade that rewards the brain with a shot of natural opium-like substances, said Irving Biederman of the University of Southern California. He presents his theory in an invited article in the latest issue of American

Are you one of nearly 9 million?

It is estimated that there are approximately nine million (9,000,000) millionaires worldwide.From SeattlePi""....the ranks of world millionaires had swelled to 8.7 million last year _ half a million more than the population of New York City. Millionaires also invested more aggressively, pouring cash into emerging markets and pulling it out of fixed income holdings, as their wealth reached $33.3

SSRN interview with PrawfsBlawg via Financial Rounds

Since I get so much material from them, giving SSRN a plug is the least I can do. Prawfsblog has an interesting interview with Gregg Gordon of SSRN. Probably interesting mainly to academics, but....On look-in:"SSRN was founded in 1994 by Michael Jensen and Wayne Marr to provide an efficient means to distribute scholarly research. Our motto, Tomorrow’s Research Today, drives what we do every

Equity in Iraq? Or any country for that matter

Ok, just thinking aloud here which is always dangerous, but....Iraq needs money to rebuild infrastructure, security, etc. Buta. can not afford to borrow that muchb. as an Islamic nation, the borrowing may be problematic on religious groundsSo, why not sell non-voting equity? Make the payoff some function of future GDP (or even include some lower payoff if violence is high). Then sell these

Don't count your chickens until they are hatched

You know the sayings: "Don''t count your chickens until they are hatched" and "it's not over until the fat lady sings." Well, it now appears the NYSE may give us yet another example of why it is wise to remember the end is not the end until it is over.From today's NY Times DealBook:"A trans-Atlantic deal that looked like a strategic coup for the newly public NYSE Group — its proposed

Two stories on Islamic Finance

Two interesting Islamic finance articles:First on the growth of Islamic finance. From the BBC:"The dramatic growth of Islamic banking and finance appeared to have been confirmed during the recent World Economic Forum in Sharm al-Sheikh in Egypt. One of Germany's biggest banks, Deutsche Bank, announced a joint venture with Ithmaar Bank of Bahrain and Abraaj Capital of Dubai to launch a $2bn (

Interesting look at MBAs

Is an MBA worth it? The NY Times reports on an interesting look at this question. (NOTE: it does not prove anything and is not scientific, but it is interesting!)"The popularity of the degrees has surged. In 1970, for example, business schools handed out 26,490 M.B.A.'s, according to the Department of Education. By 2004, after a period marked by an economic boom and heightened competition for

A skeptical Appraisal of Asset-Pricing Tests

Not the best of news in this one. In fact it is sort of discouraging.Lewellen, Nagel, and Shaken give us a Skeptical Appraisal of Asset-Pricing TestsShort version: we really do not have much of an idea as to what asset pricing model is correct and to make matters worse existing tests may not be showing what we think they do.Longer view:A few quick views in the authors' words:"The finance

What do bank examiners examine?

I have to confess, having never worked in a bank when I teach a banking class I have to rely on text book explanations. So it was with great interest that I read Fed Governor Olson's comments on "What are examiners looking for when they examine banks for compliance?" .Some looks-ins:"To assist you in your efforts to fine-tune your compliance-risk management programs, I'd like to give

Milken Institute Audio

Wow. I may never turn the computer off ;) Audio presentations from the Milken Institute. These are really interesting. On everything from the economic impact of terrorism to globalization to education to civil liberties to medicine. I have a feeling if Ben Franklin or Thomas Jefferson were around today, this is what they would be listening to!Oh yeah, video clips are also available.

Video of Bogle's speech on the Mutual Fund Industry

I finally got around to watching Bogle's speech to Independent Mutual Fund Directors. It is available on the Bogle eblog.My favorite quotes:"...the more mangers take, the less investors make.""If you do not believe we are we are in teh marketing business, consider rate of fund failure....there have been 30,000 funds in history, 11,000 of them are gone....Even in the last 5 years, 25%, actually

Interesting Searches

I have been meaning take a look back at some interesting articles previously blogged for a while and I guess a quiet Friday is as good of time as any.This is made MUCH easier with the blogspot search feature (top of blog) which is finally working correctly. For instance, a quick search of IPOs yields a look back on 10 articles that have been blogged over the past year. Some of the articles are

Retirement woes

Many are not saving enough for retirement. Shock!From CNNMoney.com:"NEW YORK (CNNMoney.com) – A new retirement risk index released Tuesdayestimates that 43 percent of working-age households are not likely to haveenough retirement income to replicate their current standard of living.The Center for Retirement Research (CRR) at Boston College created the index and defines "at risk" to mean those

A SUPER quick look at international covariances

Shorter than short version: International return correlations may NOT be increasing as much as we thought!This has to be short as I have meetings all afternoon. In fact it was in preparing for the meeting (essentially pension planning for a local religious community), that I stumbled upon the following. I do not have time to give it a complete "review" but it flies in the face of conventional

Why has CEO pay Increased so much?

Gabaix and Landier ask “Why CEO pay has increased so much?”.Their answer: firms have gotten much larger. Slightly longer version: Has CEO pay increased because of friendly boards? Super star status of CEOs?, or timing of option grants? Or is there an economically justified explanation. The answer is sure to surprise many who read only mainstream publications! In the authors’ own words

Academic Journal Ranking Manipulations

The Unknown Professor has a fascinating post today about how Journal Rankings may be manipulated.Two longish look-ins:"In today's Wall Street Journal (online subscription required) Sharon Begley provides a rare look into the world of academic journal rankings. She describes some of the ways that scientific journals manipulate their "impact factors"."and later describing his/her (I would imagine

Do genes influence who will be entrepreneurs?

Do genes influence who will be entrepreneurs?"A study of identical twins by researchers in Britain and the United States suggests family environment has little influence because nearly half of a person's propensity to be self-employed, or entrepreneurial, is due to genes. "This relatively high heritability suggests the importance of considering genetic factors to explain why some people are

CEO Bonus Problems--yes there is some risk, but

Wow. The NY Times has a great example of what can go wrong with Executive Compensation.Some highlights:* " As executive pay packages have rocketed in recent years, their defenders have contended that because most are tied to company performance, they are both earned and deserved. But as the Las Vegas Sands example shows, investors who plow through company filings often find that executive

Dividends and Capital Structure

Hold on to your seats folks, this one gets exciting! Definitely I^3! It starts off so easy: Are dividend policy and capital structure related? And if so how? Surprisingly for two topics that have been central to corporate finance for decades, we still really do not have very good explanations to either. A new paper by Faulkender, Milbourn, and Thackor attempts to solve both

Has IPO underpricing decreased over time?

Continuing with the “history and finance” theme that seems to have arisen of late, Chambers and Dimson examine IPOs from the London Stock Exchange from 1914 to the present. Interestingly, and counter to what standard financial theory might have predicted, they find no reduction in IPO underpricing in the more recent periods of increased regulation and decreased information asymmetries. In

Hedge Fund pay

$130,000,000. That is how much the 25th and 26th highest paid hedge fund managers made last year. The top spot? James Simon of Renaissance Technologies made about $1.5 billion (yes with a "b")!From USAToday:"In rising to the top of what amounts to a who's who list of the secretive hedge fund world, Simons, of Renaissance Technologies, unseated 2004's top earner and first-ever billion-dollar man,

Recent graduates and Money

This AM NPR had an interesting(short) piece on the finances of recent college graduates. Didn't have much new, but you might be interested. Short version: you can save more than you think!

Enron Trial Results: guilty

From CBS Marketwatch: HOUSTON (MarketWatch) - A jury of eight women and four men threw the book at former Enron founder and former Chief Executive Kenneth Lay Thursday, finding him guilty on all six counts of fraud and conspiracy. The jury also found Lay's protégé, former Enron Chief Executive Jeffrey Skilling, guilty on 19 counts of fraud, but acquitted him on 9 counts of insider

Thomas Friedman on Google Video

Long time followers of FinanceProfessor.com know I am a big fan of Thomas Friedman. From his early books to The World is Flat and most of his NY Times articles, I think I have read everything he has written. I may not agree with everything, but at least I have read it (or more aptly ristened to it) and agreed with MOST of it.Thus, I was excited when I found the following from Google Video (one

Two recent purchases turn out to be great "investments"

No, just because the blog is now "listed" on TheMoneyBlogs (check it out, it is pretty cool!), I am not going to start giving stock predictions. Rather these are investments in learning!1.Advances in Behavioral Finance Volume II edited by Richard Thaler. Just get it. Yeah I have read many of the articles in the text before, so what. Context matters and Thaler does a wonderful job of putting the

Do managers backdate options?

Do managers backdate options? It sure seems that way. From Reuters:"A U.S. government probe into stock option grants for executives widened on Tuesday with more technology companies being called on to explain the way these grants are awarded. The investigation focuses on whether companies are giving executives backdated options after a run-up in the stock. Backdated securities are priced at a

How and WHY does inclusion in an index affect stock prices

It is well known that when a stock gets added to an index, the stock price jumps. This has been known for at least as long as the mid 1980s (Harris and Gurel 1986 JF). However the "why" has been the question ever since.Some alternative hypotheses that have been examined include "Certification" by the company running the index (for instance, for the Standard and Poors 500, Standard and Poors

Is Corporate Social responsibility good for shareholders?

Corporate Social Responsibility as a Conflict between ShareholdersMain point of paper: Barnea and Rubin ask the tough and important question of whether Corporate Social Responsibilty (CSR) is value increasing or whether it is an agency cost problem whereby managers and others accrue benefits at the expense of shareholders.They find that firms with "higher insiders ownership and leverage are

NY Times: S.E.C. Eases Audit Rules but Rejects Exemptions

Small firms and even academic researchers (see for instance Linck, Netter, and Yang 2005) have noted that the costs of Sarbannes-Oaxley compliance are higher for small companies. In part as a response to the complaints, the SEC tried to make things easier.From the NY Times:"The Securities and Exchange Commission moved yesterday to make audit rules that have angered many companies easier and less

Huge bill for public retirees hits soon

Just on the outside chance that things are too good for you today, I will give you something to worry about. To put it bluntly, this is not good. Talk about an off balance sheet liability!! Wow. From USAToday "Taxpayers will soon get a surprise bill that could exceed $1 trillion for the cost of paying future medical benefits for state and local workers who retire. Retiree medical costs

Hedge fund follow-up

Two additional articles that you might enjoy on hedge funds (see yesterday's entry)1. From GreenTrader(via moneyscience.org)How to Set Up Your Own Hedge Fund: "Traders and money managers often dream about one day running their own hedge fund, managing large sums of money, and competing head to head with the world's top traders. For many, though, this dream remains unfulfilled, because they do not

Finance Reading List

I was asked for a "summer reading list" for finance classes so here you go: ten (non technical) finance/economics books I would recommend.1. The World is Flat by Thomas Friedman. It has been talked about everywhere (even the SBU graduation speaker mentioned it by name) but it is definitely worth the read! Probably my favorite of the bunch. Read what I wrote about it previously.2. The Wisdom of

Ancient Finance from HBS

The HBS Working Knowledge site has an interesting article by William Goetzmann on financial instruments back in the time of the Romans and Greeks. For instance on checks:"...bankers' checks written in Greek on papyri appeared in ancient Egypt as far back as 250 B.C. Papyri preserved well in Egypt thanks to its arid climate, but Goetzmann thinks it's safe to say such checks changed hands

Fed's Patrick M. Parkinson on Hedge Funds

Let's see what the Fed's Patrick Peterson who is the Deputy Director of the Division of Research and Statistics had to say to the Subcommittee on Securities and Investment, Committee on Banking, Housing, and Urban Affairs, U.S. SenateSome highlights:* "In my remarks today, I will discuss the increasing importance of that role, the public policy issues associated with it, and what the Federal

The Bogle Blog!

John Bogle is truly one of my heros. I really do not think his impact on the small investor can be overstated. He has been a long-time advocate for lower transaction costs and less frequent trading. And this from the founder and long-time leader of Vanguard.From his bio on Vanguard.com:"In 2004, TIME magazine named Mr. Bogle as one of the world's 100 most powerful and influential people, and

When are behavioral biases most pronounced

When do Investors Exhibit Stronger Behavioral Biases? by Alok Kumar.To get a quick understanding of this paper, ask yourself the following question: when do biases (financial or otherwise) play a large role in decision making?Your answer probably includes "in areas where there is much subjectivity" or "in gray areas". Why? Because you can not readily prove the opinion wrong.For example, why do

The NYSE and Competition

Competing with the NYSE by William Brown, Harold Mulherin, and Marc Weidenmier.No, this is not on the impact of ECNs (Electronic Communication Networks) on the NYSE. Rather, it is a fascinating look back to competition from the Consolidated Stock Exchange NYSE's cheif rival from 1885 to 1926.Some of the cool points of the paper1. The NYSE has faced major competition--at its peak the Consolidated

Are real estate commissions going to go the way of stock commissions?

Battling the 6 percent realtor commission - May 1, 2006: "The 6% real estate commission has been under assault awhile, but the hits justkeep coming - and are getting more sophisticated. Three Internet upstarts are the latest to take a shot" That the internet is shaking up the Real Estate business is obviously no surprise. What is surprising is that it has taken so long. Be sure to check

The role of learning in M&A

What better way to kick off "summer" than with a really cool paper from Aktas, de Bodt, and Roll? Short version: The paper confirms the now well known finding that Cumulative Abnormal Returns (CARs) drop with subsequent takeover announcements. The authors proceed to separate takeovers that are done by "rational CEOs" and those that are done by "hubris infected" CEOs. Both groups do show learning

Expropriation: a way NOT to build an economy

My note to all national leaders who have not had economics or finance classes. It may be tempting. It may even look like a great idea: a way of making up for past injustices (real and imagined). But expropriation is almost never a good means of building an economy. Why not? As Aguiar, Amador, and Gopinath write "...[the] threat of expropriation depresses investment, prolonging downturns." What

High School Economics--some really good examples!

This is pretty cool. It is designed for High Schools, but many of the items can be used in college AND even if not, it is useful to know what knowledge incoming freshmen posses. Oh and it is always useful to watch great teachers!Resource: The Economics Classroom: A Workshop for Grade 9-12 Teachers:"Video workshop for teachers provides a solid foundation for teaching the concepts covered in high

Financial Research Association call for papers

FRA: Call for Papers The 2006 Financial Research Association MeetingDecember 16 and 17, 2006 Las Vegas, Nevada"The program committee of the Financial Research Association seeks finance papers of general interest to the profession....The selection process is extremely competitive. Last year’s program represented 7% of submissions."

Want to succeed? Better be prepared to work hard!

While it is "pure finance", it is both interesting and important and from time to time it is important to take a step back and think about learning. That is why, in this time of many graduations (and the NFL draft ;) ), this post will appear on this larger blog and not just my class blog. Indeed it may be the most important lesson we can learn! Namely, that success is hard and that talent alone

Berkshire Hathaway's annual meeting

Two reasons for this entry:1. I love to follow Warren Buffett's Berkshire Hathaway's annual meetings.2. The WSj is having a 10 day free online trial.WSJ.com - Reporters' Notebook: Wisteria Lane, Omaha: "The annual shareholder gathering at Berkshire Hathaway's headquarters in Omaha on Saturday, often called 'Woodstock for Capitalists,' included bling, a merger deal and appearances by the '

Louis Rukeyser, Television Host, Dies at 73 - New York Times

I always liked his show. :(Louis Rukeyser, Television Host, Dies at 73 - New York Times:"Louis Rukeyser, the exquisitely tailored and pun-loving television host who helped millions of Americans believe that they could get rich in the stock market, or at least begin to understand it, died yesterday at his home in Greenwich, Conn. He was 73.AN interesting point in the article:When "Wall Street

Is risk aversion an instinct? Monkeys may hold the answer

ScienceDaily: New Study Finds Similarities Between Monkey Business And Human Business: "As part of the study, the researchers presented capuchin monkeys with two payoff-identical gambles: one in which a good outcome was framed as a bonus, and the other in which bad outcomes were emphasized as losses. Like humans, the monkeys displayed a strong preference for the first option, and like humans, the

Free Financial Spreadsheet templates!!

Free Excel Spreadsheets This collection (which is simly awesome) is from Matt Evans. Great Job!! Thanks to MoneyScience for pointing it out!!

Update on NASDAQ-LSE

This one sure has legs. It has been going on seemingly forever.Nasdaq increases stake in the LSE: "Former takeover suitor Nasdaq Stock Market Inc. revealed Wednesday that it has increased its stake in the London Stock Exchange PLC to 18.9 percent....The purchases are the second major move by Nasdaq to increase its share of the bourse -- Europe's oldest and largest -- since it abruptly dropped a

FEN interview with Jack Treynor

This one should not be missed. FEN has an interview (text) with Jack Treynor (yeah that Jack Treynor, the person who helped devlop CAPM) ."Jack Treynor is one of the river gods of finance. He helped develop the Capital Asset Pricing Model, which relates risk and expected return, in the early 1960s and spearheaded the field of performance measurement for investment funds. Over the decades Treynor

NPR : Q&A: What's Behind High Gas Prices?

Given that every single media outlet seems to be focuisig on price if gas, I found this interesting: it even has some real numbers!NPR : Q&A: What's Behind High Gas Prices?: "If a gallon of gasoline costs $2.90 (this week's average, according to the Energy Department), crude oil accounts for about $1.60. The cost of crude oil on the futures market has risen about 33 percent in the last year....

What to do when you can't vote out management. And Does stock price trump governance?

Do you need a class example of how shareholders can influence management behavior even when management controls the majority of the board.Is the Times In Play on Wall Street? - April 27, 2006 - The New York Sun - NY News:"Morgan Stanley Investment Management announced last week that it withheld votes for the company's class A director nominees at the April 18 annual meeting, prompting much

Good news from Africa: EA Bourses to Be Integrated and Vigin gives millions to Africa's poor

A few quick news items of note on AfricaReading Jeff Sach's "The End of Poverty" coupled with my brothers' (Pat's) trip to Ghana as part of a medical group that worked in hospitals and an orphange have brought the suffering that occurs in Africa to the forefront of my thinking of late (and adding to my RSS readers didn't hurt either!), so today I will share some good news from the often forgotten

Enter the Neuro-Economists: Why Do Investors Do What They Do? - New York Times

Behaviorial Finance at its best!Enter the Neuro-Economists: Why Do Investors Do What They Do? - New York Times: "...economists are studying these phenomena scientifically. The economists are using a new technology that allows them to trace the activity of neurons inside the brain and thereby study how emotions influence our choices, including economic choices like gambles and investments.For

VC firms bet on clean energy deals - Apr. 26, 2006

Want to see a good side of higher energy prices? Here you go:VC firms bet on clean energy deals - Apr. 26, 2006: "Venture capital investors are flocking to clean energy technologies, a market expected to grow to $167 billion worldwide in the next decade, but some in the sector worry about too much money chasing too few deals.Venture capitalists have been pumping increasing amounts of money into

A Penny for Your Thoughts, and 1.4 Cents for the Penny - New York Times

A Penny for Your Thoughts, and 1.4 Cents for the Penny - New York Times: "This week the cost of the metals in a penny rose above 0.8 cents, more than twice the value of last fall. Because the government spends at least another six-tenths of a cent — above and beyond the cost of the metal — to make each penny, it will lose nearly half a cent on each new one it mints.The real problem could come if

Buffalo News - Big trend on campus: podcasting

Buffalo News - Big trend on campus: podcasting:"Podcasting - audio or video recordings posted online for use on computers or devices like iPods - has become a trendy academic tool on the nation's campuses, including UB, St. Bonaventure University and Buffalo State College......Why attend class if you can view or listen to the podcast? "That hasn't been an issue, at least not yet," said James

Housing Futures

More good news from the world of financial innovation!Thanks to MoneyScience for pointing out the following from Robert Shiller:The Korea Herald : The Nation's No.1 English Newspaper: "Within a month, the Chicago Mercantile Exchange (CME), in collaboration with [other companies]... will launch futures and options contracts on home prices in ten cities in the United States. The contracts will be

MSN Money - 'Superperks' sweeten executives' pay

Dave sent me the following. It will definitely liven up class discussions! $890,000 for race car driving lessons? I hope he got to keep the car!MSN Money - 'Superperks' sweeten executives' pay: "The corporate gravy train is still rolling, and its contents are as odd as ever. A sampling: $890,000 worth of race-car driving lessons for one president's sons, maid service, lawn sprinklers, Bermuda

Financial Engineering News Cartoon: FENtoon

What the world really needs is more finance cartoons! So here is one from Financial Engineering News Cartoon: FENtoonIt is especially well timed as we JUST did derivatives in class.

Snow urges end to lend-and-forgive cycle - Yahoo! News

Following up on yesterday's story of the forgiveness of Nigeria's is today's speech by US Treasury Secretary John Snow who stressed that debt forgivenss alone is not enough:Snow urges end to lend-and-forgive cycle - Yahoo! News: "'The clearance of unsustainable debt is a critical component of the broader solution,' Snow said in prepared remarks to the Development Committee of the World Bank and

allAfrica.com: Nigeria: Govt Free of Most Foreign Debt, Pledges Social Investments

allAfrica.com: Nigeria: Govt Free of Most Foreign Debt, Pledges Social Investments: "Dr. Ngozi Okonjo-Iweala, the finance minister of Nigeria, says that a significant portion of the nation's revenues can be re-targeted to improve the lives of Nigerians, now that most international debt has been retired. She says health care and education are areas where the government aims to make significant

And here is leadership

Note, I am not against CEOs making much money. That said, from a leadership position, making MUCH more than others can be demotivating, so in that light I have a new found respect for Susan Lyne the Chief executive of Martha Stewart Living Omnimedia (even if she did it for PR opportunity!). From BusinessWeek:No Hair Shirts, But Still...: "Lyne got a cash bonus of $625,500 last year. Instead of

First Bank to Settle I.P.O. Suit - New York Times

This one fits in perfectly with a recent class discussion on how Investment Bankers might "bribe" firms' CEOs for future business. From the NY Times:First Bank to Settle I.P.O. Suit - New York Times:"J. P. Morgan Chase said yesterday that it would pay $425 million to settle its part of a class-action lawsuit that contends dozens of banks cheated investors out of hundreds of millions of dollars

For Interns, It's Nice to Feel Wanted Again - New York Times

Good news for students looking for finance jobs and internships!For Interns, It's Nice to Feel Wanted Again - New York Times: "Recruiters, along with college career counselors, say that the growth in financial jobs coupled with recruitment drives by hedge funds and other firms have given students a strong hand this year.'Those firms that had to reduce their numbers in 2000 and 2001 are now back

Foreign Stocks Are In, and So Is Indexing - Knowledge@Wharton

As per normal, the Wharton people did another great job with this issue! My favorite:Foreign Stocks Are In, and So Is Indexing - Knowledge@Wharton: "In February...investors poured nearly $19 billion into foreign-stock mutual funds, compared to $8.4 billion for U.S. stock funds.......American investors have also grown enamored of indexers, which now hold about 15% of assets invested in

FMA Online--Cliff Smith

Probably the most underrated finance website is the FMA Online e-Journal. It has videos, papers, and much more. It really is a great resource. While I have mentioned it before, but the new update is amazing. Winter, 2005 FMA Online:It has video presentation of Cliff Smith's (University of Rochester) lecture on Corporate Governance and Organizational Architecture. As I have told him, I do

Growth Options, Beta, and Cost of Capital

Growth Options, Beta, and the Cost of Capital Object) by Antonio Bernardo, Bhagwan Chowdry, and Amit Goyal.This is a good one! It looks at the betas of firms' assets in place relative to the betas of their growth options and finds that the growth options have significantly higher betas. The authors then show that this difference in betas can lead to significant differences in cost of capital

Responsible Fools? The Tradeoff between Mortgage Prepayments and Tax-Deferred Retirement Savings by Jennifer Huang, Gene Amromin, Clemens Sialm

Have a few extra dollars? Debating whether to pay down your mortgage or invest a bit more in your retirement account? A working paper by Huang, Amromin, and Sialm suggests the latter may be a wiser choice.SSRN-Responsible Fools? The Tradeoff between Mortgage Prepayments and Tax-Deferred Retirement Savings by Jennifer Huang, Gene Amromin, Clemens Sialm:"a significant number of households can

FRB: Speech, Ferguson--Thoughts on Financial Stability and Central Banking--April 17, 2006

Fed Vice Chairman Roger Fergusons' remarks this morning are perfect for a Money and Banking or Financial Institutions class!FRB: Speech, Ferguson--Thoughts on Financial Stability and Central Banking--April 17, 2006:Some Highlights:* "Few subjects are more important for central bankers than the efficiency and stability of our financial system....Ironically, our interest in financial stability seem

Tulip Bulb Mania

It's spring in Western New York so what better to talk about than the Tulip Bubble of the late 16th Century?From the Stock-Market-Crash blog's section on Famous Bubbles:Tulip Bulb Mania: "In less than one month, the price of tulip bulbs went up twenty-fold! To put that into perspective, if you had invested $1,000 and came back on month later, your investment would have ballooned to $20,000! Now

History of Wall Street and the Stock Markets

AtoZ Investments gets the Link of the Week for its 4-page history of Wall Street. Very interesting!History of Wall Street and the Stock Markets: "It was just a matter of time before our new country, The United States of America, would organize formal stock and bond trading. 1792 was the year. In 1792, New York City's population was about 34,000, not including Brooklyn and Queens which were still

Pension Rule Could Lower Net Worths - New York Times

Pension Rule Could Lower Net Worths - New York Times: "The study, by the Milliman actuarial firm, of the 100 largest companies with pension plans, showed that most had understated their obligations even though they complied with the current rules.That included not only weak companies like airlines and automakers but also strong ones....Over all...adopting the proposed accounting change would wipe

Good news today, bad news later.

My guess is that this surprises NO ONE, ;), but it is interesting to see it in writing.Short version: managers don't like to tell bad news.SSRN-Do Managers Withhold Bad News? by S.P. Kothari, Susan Shu, Peter Wysocki:Abstract: "In this study, we examine whether managers delay disclosure of bad news relative to good news. If managers accumulate and withhold bad news up to a certain threshold,

Does Jensen’s Free Cash Flow Hypothesis Explain European LBOs Today? by AndreBetzer

SSRN-Does Jensen’s Free Cash Flow Hypothesis Explain European LBOs Today? by Andre Betzer:Andre Betzer looks at European Leveraged Buyouts (financed with at least 50% debt) to determine if Jensen's Free Cash Flow (FCF) Hypothesis can explain (or predict) the the LBO.Jensen's FCF hypothesis is that firms with high levels of Cash flow will waste it on negative NPV projects. From this, it has been

Insider trading case of the decade

You have to read this! It has everything any insider trading case could want---from a retired seamstress, to classified ads placed to hire accomplices, to the theft of advance copies of BusinessWeek, to strippers, to Russian baths. (I am not making this up!)From the Globe and Mail:"The case is “one of the most extensive insider trader cases in this district in decades,” Michael Garcia, the U.S.

Scotsman.com Business - Nasdaq increases LSE stake to 15%

Wow, talk about a toe hold! Scotsman.com Business - Nasdaq increases LSE stake to 15%:"THE London Stock Exchange was thrown dramatically back into takeover play late yesterday when its largest institutional shareholder, Threadneedle Investments, sold its entire 12 per cent stake to the Nasdaq stock market.With other purchases, the US stock market confirmed last night that it had spent £448

Active Intermediation of Non-Underwritten Rights Offerings by Mark Peterson

Rights Issues are a way of issuing new equity. They involve the firm giving rights to existing shareholders. These rights entitle the holder to purchase new shares at the subscription price (which is lower than the current market price).Much research has look at rights issues. This has largely looked at who uses them, how they work, and why we don't see more of them (this latter point is often

Advances in Behavioral Finance, Volume II (The Roundtable Series in Behavioral Economics)

I just ordered it. Looks good. I will let you know.Advances in Behavioral Finance, Volume II (The Roundtable Series in Behavioral Economics):

CEO pay in the news

CEO pay is back in the news (does it ever really leave?) with several stories in the last few days. Most articles have been centering on calls for more disclosure.First the issue: CEO pay increases much faster than the average worker's pay AND this is not due to market forces but a "stacked deck". While the first is true, there well may be reasons for it (technology, flatter levels of management,

USATODAY.com - U.S. teenagers lack financial literacy

USATODAY.com - U.S. teenagers lack financial literacy: "U.S. teenagers are making little headway when it comes to financial literacy, a survey out Wednesday shows.High school seniors on average answered 52.4% of a 30-question financial survey correctly. That was up from 52.3% when the survey was last conducted two years ago but down from 57% in 1997, the first year for the survey, according to

Are Commodities Futures Too Risky for Your Portfolio? Hogwash! - Knowledge@Wharton

This article is by Gorton and Rouwenhorst. The quote is from the Knowledge@Wharton April 2006 Newsletter.Are Commodities Futures Too Risky for Your Portfolio? "are commodities really that risky? A shortage of data has left that question unanswered. Until now. Using the most comprehensive data on commodities futures returns ever assembled....Gorton and ...Rouwenhorst have reached a surprising

The importance of good governance: the Eastern European Evidence

Financial Globalization, Corporate Governance, and Easten EuropeSome look-ins:"Friedman (2005) makes the case that globalization leads to a flat world....Assuredly, the world is not flat yet. Nevertheless, the metaphor is helpful....For many countries, the most significant explicit barriers to trade in financial assets have been knocked down. "And yet:"Despite a dramatic increase in cross-border

Free Money Finance: Saving for Retirement the Second Hardest Thing to Do in Life

Free Money Finance: Saving for Retirement the Second Hardest Thing to Do in LifeFree Money Finance found an interesting article on the difficulty in saving for retirement that coincidentally has some interesting links on the cost savings of not smoking. Ironically, in my Intro classes we do something very similar to show the importance of saving "early and often" (of course such a calculation

Real Estate

Yesterday in my undergrad class (FIN 422) we covered real estate as an investment. Hence a few stories and links you may find interesting:From the Washington Post: Economy too reliant on housing? - washingtonpost.com Highlights - MSNBC.com: "The U.S. economy is more dependent on housing than it has been in a half-century, as the sector fuels consumer spending and has accounted for nearly

Behavioural Finance

Website of the week: Behaviouralfinance.netIt has nothing but tons and tons of great Behavioural (yes with the 'u') cites. If you are interested in the field or doing a paper that realtes, this is a GREAT starting point.Behavioural Finance: "'This area of enquiry is sometimes referred to as 'behavioral finance,' but we call it 'behavioral economics.' Behavioral economics combines the twin

Great retirement expectations, not great preparations - Apr. 4, 2006

Overconfidence and behavorial finance have a rich and growing history. It might be time to add the idea that we have enough for retirment to that growing list.From CNN:EBRI: Great retirement expectations, not great preparations - Apr. 4, 2006: "...among those in the very confident group, 22 percent said they aren't currently saving for retirement and 39 percent said they have less than $50,000

Does Ethics training work? Maybe

From CFO.com I Am Joe's Conscience - CFO Magazine - March Issue 2006 - CFO.com:Do training and new regulations lead to more ethical behavior? Maybe, Maybe not.On the "no side": "But is there any reason to believe all these codes and classes and scenarios do any good? The evidence is mixed. A recent survey of more than 4,000 employees found that reports of misdeeds have not diminished. In fact,

Less Can Be More When It Comes to Overseas Stocks - New York Times

The "Home Country Bias" is the finding that investors invest more in their home country than would be justified on a risk-return basis. Today's NY Times suggests that this bias may be growing less powerful. Less Can Be More When It Comes to Overseas Stocks - New York Times:"So far this year, about 70 cents of every new dollar invested in equity funds has been directed to internationally oriented

Free Trade pact?

This would be great! It should definitely help to end "End [Extreme] Poverty" in the long run! And the signal it sends is likewise good!From the BBC:"Brazil, India and South Africa are working to set up a free trade area they hope will eventually take in the continents they represent. The three made the pact at talks ahead of an informal World Trade Organization (WTO) meeting in Rio de Janeiro

Google prices offering of 5.3 mln shares at $389.75 - Yahoo! News

Google prices offering of 5.3 mln shares at $389.75 - Yahoo! News: "Google...said it would sell as many as 5.3 million shares to offset the impact of its inclusion in the widely held Standard & Poor's 500 Index.It will be the second follow-on offering Google has made since it went public in August 2004 at $85 per share. Google's share price has more than quadrupled since then, resulting in the

Shocks Seen in New Math for Pensions - New York Times

Shocks Seen in New Math for Pensions - New York Times: "The board that writes accounting rules for American business is proposing a new method of reporting pension obligations that is likely to show that many companies have a lot more debt than was obvious before.In some cases, particularly at old industrial companies like automakers, the newly disclosed obligations are likely to be so large that

U.S. exchanges still eye foreign expansion: analysts - MarketWatch

That US exchanges are looking to expand globally has been a story since I was in college, but given NASDAQ's 72% premium (and even then the deal fell apart), maybe they are getting serious now?From MarketWatch: U.S. exchanges still eye foreign expansion: analysts - MarketWatch: "U.S. exchanges are still interested in global expansion, including a potential acquisition of the London Stock

Does Investment Skill Decline Due to Cognitive Aging or Improve with Experience? by George Korniotis, Alok Kumar

Gee, another "why hadn't I thought of that?" one. (uh no comment!)SSRN-Does Investment Skill Decline Due to Cognitive Aging or Improve with Experience? by George Korniotis, Alok Kumar: "The economic costs of aging are considerable - older investors earn roughly 2% lower annual returns on a risk-adjusted basis. Collectively, our results are consistent with the hypothesis that older investors'

Share Repurchase, Executive Options and Wealth Changes to Stockholders and Bondholders by Sang-Gyung Jun, Mookwon Jung, Ralph Walkling

Ready for another cool paper on share repurchases? Here you go!SSRN-Share Repurchase, Executive Options and Wealth Changes to Stockholders and Bondholders by Sang-Gyung Jun, Mookwon Jung, Ralph WalklingShort version: This paper attempts to disentangle the signaling story ("we are buying back stock because we are undervalued") and the wealth transfer ("we are buying back stock because we can

The Influence of Audit Committee Financial Expertise on Earnings Quality: US Evidence by Bo Qin

SSRN-The Influence of Audit Committee Financial Expertise on Earnings Quality: US Evidence by Bo QinMore evidence that board make-up matters. In this peice, Qin finds that, having an "..accounting-literate professional as SEC initially proposed serving on the audit committee are more likely to have high quality of reported earnings than others without such an expert.Interestingly the final

Financial Rounds: Insider Trading By Lawmakers (via WSJ)

The Unknown Professor reports on the WSJ piece that has legislators actually including themselves in a new law that would strengthen insider trading laws! Financial Rounds: Insider Trading By Lawmakers (via WSJ): "Lawmakers are once again considering strengthening insider trading laws. However, in a twist, this time the laws wouldn't apply to corporate executives or securities brokers, but to the

FRB: Speech, Bies--Sound Capital and Risk Management--March 29, 2006

If you are in a Money and Banking class, this one should not be missed! Today's speech by Fed Governor Susan Schmidt Bies.FRB: Speech, Bies--Sound Capital and Risk Management--March 29, 2006A few look-ins:"...with the advent of very large banking organizations that engage in a wide variety of business activities--some of them quite complex--the Federal Reserve has become even more interested in

Bank Deal Starts Debate on Polish Role in United Europe - New York Times

Yet another international takeover blocked on political grounds. The NY Times suggests that this hints at an underlying uneasiness in the EU. Bank Deal Starts Debate on Polish Role in United Europe - New York Times: "The Polish government, alarmed at the idea of foreigners owning what would be Poland's largest bank, has blocked the deal, precipitating a bitter clash with the European Union and

Tim Hortons rises more than 20% in debut - MarketWatch

An update on the Tim Horton's IPOTim Hortons rises more than 20% in debut - MarketWatch:The IPO price was $23.16 but the first trade in teh secondary markets (NYSE) was much higher, again showing that you have to be in early to make money on IPOs. "After opening at $31.95, the stock fell in the open market, making it hard for retail investor to net a gain as it traded under $30 a share for most

Mimicking Repurchases by Massimo Massa, Zahid Rehman, Theo Vermaelen

SSRN-Mimicking Repurchases by Massimo Massa, Zahid Rehman, Theo VermaelenInteresting!Most examinations of stock buybacks find that the management is conveying information to the market about the relative valuation of the firm. Thus, buybacks are seen as good signals and the price tends to increase atthe time of the announcement and (at least according to some authors) continue to outperform in

Google enters the index / All eyes are on the Internet firm as it joins the S&P 500

Google enters the index / All eyes are on the Internet firm as it joins the S&P 500: "Google shares jumped 7 percent Friday in response to an announcement late Thursday that the Internet company will be added to the Standard & Poor's 500 index, effective next Friday."This "Index effect" has been well studied. Some argue it is liquidity, while others suggest it is an information story (more

The Ad-Free Personal Finance Blogs Aggregator

This is really cool. A listing of virtually every finance blog plus if you click through, you get the stories from that blog. For instance, FinanceProfessor is blog #29 (it's alphabetical). Click through and see what you get:The Ad-Free Personal Finance Blogs Aggregator

What I am reading

Back in the day when I put out a regular newsletter, one of the favorite sections was always the "what I am reading" section. Since I have a few minutes, I will revive it.I am about 3/4's done with The End of Poverty by Jeffrey Sachs. The book is simultaneously looks at 1. what makes developing economies (now and in the past) tick, 2. Sach's personal experiences with economies and

J.P. Morgan Plans Massive Buyback

What great timing! Just yesterday we spoke of stock buybacks in our MBA 610 class. J.P. Morgan Plans Massive Buyback: "J.P. Morgan Chase said its board authorized the repurchase of up to $8 billion of the company's common stock."A few quotes (which happily enough fit exactly with what we discussed in class :) )"We believe the new stock repurchase program provides additional flexibility""J.P.

A look at derivative trading before Black and Scholes.

In a forthcoming Journal of Finance piece, Moore and Juh examine how options were priced 60 years BEFORE the Black-Scholes formula. They find that when markets were competitive, the pricing errors were about the same that we find today!Summary: Previous research on the efficiency of option pricing is mixed. This may be because of poor data (example monthly data) or actual mispricing.In this paper

Google introduces its finance page

You had to know it was coming, and today Google released its new finance page. At first glance, I like the graphing tool (will be great for class presentations), but still like Yahoo's finance page better since you can download historical prices. But check it out for yourself:Google FinanceHere is an article on Google's finance page from the San Francisco Chronicle.

Tim Horton's Carveout

This is a text book quality example of an IPO. Not only is a well known company, it has altered its price range, offered its investment bankers a Green Shoe Option, but the parent Wendy's is only carving out a portion of the firm and then plans on spinning off the rest later.Globeandmail.com : Tim Hortons boosts IPO price: "Tim Hortons Inc. is boosting the price of its stock and granting its

FRB: Speech, Bernanke--Reflections on the Yield Curve and Monetary Policy--March 20, 2006

Interesting speech. Will make for great discussions in Institutions or Money and Banking classes!FRB: Speech, Bernanke--Reflections on the Yield Curve and Monetary Policy--March 20, 2006: "Current and near-term forward rates are particularly sensitive to monetary policy actions, which directly affect spot short-term interest rates and strongly influence market expectations of where spot rates

I'm back!

Hi everyone, I'm back. The service trip (with about 288 people to MS and Louisiana) went very well. Much good work got done, but wow is there a long long ways to go. The destruction, even after 6 months, is beyond belief.For more on our trip check out:1. Our main hurricane relief page2. Our blog--which used to be my randomtopics2 blog. At some point it will revert to it, but not yet.3. Our yahoo

globeandmail.com : Mergers hit $166-billion

Takeovers have been coming fast and furious of late in Europe and North America. The NY Times' Deal Book reported on trend from a global perspective today. I'll try to further summarize this activity.First Canada' Globeandmail.com reports on the large spike in Canadian activity: Mergers hit $166-billion: "Merger-and-acquisition activity in Canada jumped 47 per cent to a near-record $166-

Bloomberg.com: Top Worldwide

Finally!Bloomberg.com: Top Worldwide: "The New York Stock Exchange's plan to take over Archipelago Holdings Inc. and end 213 years as a member-owned stock market today received final approval from the Securities and Exchange Commission.Buying Archipelago, a Chicago-based electronic market, will enable the world's largest stock exchange to compete better with the Nasdaq Stock Market and to expand

FRB: Speech, Ferguson--The Importance of Education--February 24, 2006

The Fed's Vice Chairman Roger Ferguson on The Importance of Education--February 24, 2006: "Perhaps more indicative of the economic value of education, workers with college degrees earn an education premium, and that premium has risen over the past twenty-five years. Most economists have found that an additional year of schooling typically raises an individual's earning power between 8 and 15

How The IPO Market Got Its Buzz Back

A note to my students: we start IPOs next week! Business Week's look at the current IPO market.How The IPO Market Got Its Buzz Back: "With 32 offerings priced since Jan. 1, up 14% from the same time last year, 2006 is shaping up to be the busiest year for new issues since before the tech crash.And IPOs are performing well in the aftermarket. They returned an average of 18% in 2005 and 10% so far

Postcard from China: Banking Accounts, Part 1 | PFBlog: The Unique Personal Finance Weblog

A few "look-ins" from PFBLOG's discussion of Banking in China.Postcard from China: Banking Accounts, Part 1:* "It is important to understand that the current regulations in China does not allow a bank to offer insurance or brokerage products, so a bank is a bank and a bank only."* "Although checking account is among the core offerings, there is no personal check per se. Access to checking

BBC NEWS | Science/Nature | Retirement age 'should reach 85'

Yeah I know it is a science/nature article. But for a second think about the ramifications on social security and pensions etc. BBC NEWS | Science/Nature | Retirement age 'should reach 85': "The age of retirement should be raised to 85 by 2050 because of trends in life expectancy, a US biologist has said.Shripad Tuljapurkar of Stanford University says anti-ageing advances could raise life

Stock Market News and Investment Information | Reuters.com

On Friday the deal appeared still shaky, but it is of local interest at Bonaventure since Cerberus is William Richter's firm (of the Richter Center fame)Stock Market News and Investment Information | Reuters.com: "NEW YORK, Feb 16 (Reuters) - A group led by hedge fund Cerberus Capital Management and a unit of Citigroup has taken the lead in negotiating a potential purchase of General Motors Corp.

The iShares Have It (State Street, Barclays, Bank of New York, Nasdaq 100 Trust, SPDR Trust)| SmartMoney.com

Another topic from this week's class is in the news:The iShares Have It (State Street, Barclays, Bank of New York, Nasdaq 100 Trust, SPDR Trust)| SmartMoney.com:"...226 ETFs currently trading in the U.S. State Street is the No. 2 provider of ETFs behind Barclays (BCS), based on total assets. In third place is Bank of New York (BK), creator of the popular Nasdaq 100 Trust (QQQQ).ETFs are baskets

The Australian: Money drives us crazy: it's official [February 09, 2006]

Gee in a week where we spoke of behavioral finance in almost every class I taught, comes this:The Australian: Money drives us crazy: it's official [February 09, 2006]: "The pleasure of orgasm, the high from cocaine, the rush of buying Google at $US450 a share - the same neural network governs all three, Knutson, 38, concluded. What's more, our primal pleasure circuits can, and often do, override

What a perfect way to introduce the Fed (and its actions) to a Money and Banking class!From Voice of America:"The Federal Reserve affects interest rates mainly through its open market operations. The Fed can either buy or sell United States government securities. These bonds, bills and notes are all debt guarantees that pay interest until they are repaid. Thirty-year Treasury bonds are the

FRB: Testimony, Bernanke-Monetary Policy Report to the Congress, U.S. House of Representatives-February 15, 2006

FRB: Testimony, Bernanke-Monetary Policy Report to the Congress, U.S. House of Representatives-February 15, 2006: "The U.S. economy performed impressively in 2005. Real gross domestic product (GDP) increased a bit more than 3 percent, building on the sustained expansion that gained traction in the middle of 2003. Payroll employment rose 2 million in 2005, and the unemployment rate fell below 5

breakingviews | Sample Story

For those of you that have never had a corporate class from me, you don't know how often we discuss the Nexius of contracts. Well here is a great example!breakingviews | Sample Story:" BAA is caught between a rock and a hard place. Its bondholders are demanding better terms - a so called change-of-control clause - on bonds that have yet to settle. Bond investors fear Spain's Ferrovial's highly

FT.com / Home UK - Banks hope to cash in on rush into hybrid securities

The Financial Times has a very cool article on financial engineering and the development of securities that combine debt and equity-like features.FT.com / Home UK - Banks hope to cash in on rush into hybrid securities: "Securities that straddle the debt and equity worlds are not new. They combine features of debt such as regular interest-like payments and equity-like characteristics such as long

SEC to Supervise Hedge Fund Industry - New York Times

Can you tell I read the NY Times today? SEC to Supervise Hedge Fund Industry - New York Times: "Today some 7,000 hedge funds in the United States command an estimated $750 billion to $1 trillion in assets and leave a wide footprint in the financial markets, as they are believed to account for as much as 20 percent of all U.S. stock trading. They're about to be brought under new supervision by

10 Enron Players: Where They Landed After the Fall - New York Times

With the Key Lay trial beginning this week, the NY Times has a very cool article on where the other major players are today:10 Enron Players: Where They Landed After the Fall - New York Times: "Some have moved on to other jobs and new chapters in their lives, while others continue to spend their days mired in their legal fights.Here are 10 of the major figures and where they are now."

Multiple roles: IPO firm and Investment Banker

What a great article for a corporate or an institutions class! Not only is Weisel playing the lead in their own IPO, but also you get a chance to see a secondary offering as CALPERS is selling a portion of their stake. Latest News and Financial Information | Reuters.com: "While San Francisco-based Weisel is taking a risk in pricing its own IPO, it's not breaking new ground. Goldman Sachs, among

New blogging network for personal finance

From their press release:"Five of the top Internet personal finance bloggers today announced they have banded together to create a first-of-its-kind personal finance blog network designed to put personal finance wisdom, best practices and commentary just a mouse click away. The new network, with headquarters online at www.moneyblognetwork.com beginning today, will be composed of the following

Pay Me Later: Inside Debt and its Role in Managerial Compensation by Rangarajan Sundaram, David Yermack

Gee, why hadn't I thought of that?! This is a cool one!SSRN-Pay Me Later: Inside Debt and its Role in Managerial Compensation by Rangarajan Sundaram, David Yermack: "CEOs with high debt-based incentives manage their firms conservatively to reduce default risk; and that pension plan compensation strongly influences patterns of CEO turnover and CEO cash compensation."The authors make an inmportant