SSRN-Peer Firms in Relative Performance Evaluation by Ana Albuquerque

Financial theory suggests that CEO compensation should be based on relative performance.Why? It captures what financeprofessors like to call external shocks (for the rest of you this means that things that are beyond the control of manager). For instance if you are paid by stock, for better or worse you are at least partially at the mercy of the stock market. So essentially the peer group is a

SSRN-Do Japanese CEOS Matter? by Sanghoon Ahn, Utpal Bhattacharya, Taehun Jung, Giseok Nam

eWhen comparing CEO pay across countries it is always important to realize what the CEO is bringing to the table. For instance, it has long been speculated that Japanese CEOs (Shachos) do not add as much value due to the decision making process where more consensus building is done than in the US.Now Sanghoon Ahn, Utpal Bhattachrya, Taehun Jung, and Giseok Nam look at the long term impact of new

News Analysis - For U.S. and Carmakers, a Path Strewn With Pitfalls - NYTimes.com

First off, I realize there are no easy answers here. None. People will lose jobs. People will lose their investments. But that said, it REALLY scares me when governments (any government) interferes with the running of a company (any company).News Analysis - For U.S. and Carmakers, a Path Strewn With Pitfalls - NYTimes.com: "He [Obama] made it clear that the White House would oversee, and

What a depression might look like

From the WSJ via Yahoo.What would a depression be like today? "There is no consensus definition for 'depression.' Harvard University economist Robert Barro defines it as a decline in per-person economic output or consumption of more than 10%, and puts the odds of a depression at about 20%.This 20% number is much higher than some other economists are predicting. For instance:"Paul Kasriel of

Market timing (or do you want something else to worry about?)

Today's lesson showing the difficulty in market timing comes from the good people at the Pension Benefit Guaranty Corporation. It seems that just prior to the market collapse they decided to go INTO stocks. From the Boston Globe:Pension insurer shifted to stocks - The Boston Globe: "Just months before the start of last year's stock market collapse, the federal agency that insures the retirement

Stakeholder Governance: A Bad Idea Getting Worse by George Dent

Every corporate course starts out with a discussion of the the Nexus of Contracts and why it is that shareholder based models are superior to any other model (Short explanation: as residual claimants they are on the sloped section of the payoff graph and thus have best incentives to monitor).The following article by George Dent reiterates this and reminds us (and US) that investment can go

This Is Going To Blow Your Mind: YouTube EDU! | Simoleon Sense

This Is Going To Blow Your Mind: YouTube EDU! | Simoleon SenseSimoleon Sense was right! It is a list of university videos of lectures etc. GREAT stuff! BTW along these lines, the SBU School of Business just started a new Blog and a YouTube Video channel. Check in now and then.SBUSchoolofBusiness blogYou can now follow what is going on at the St. Bonaventure University School of Business!No

Intel Announces That Its Stock Is Wildly Overvalued (INTC)

When companies sell stock, it sells a signal to the market. Henry Blodgett interprets the recent Intel stock sale announcements:Intel Announces That Its Stock Is Wildly Overvalued (INTC): "Why would a company with $13 billion of cash and $5 billion of free cash flow file to sell $1 billion-worth of stock at $15 a share?That's right!Because it thinks the stock is wildly overvalued."

South Park's take on the Economic Crisis

I did not see this on TV, but several of my students brought it to my attention. HILARIOUS!YouTube - South Park - Episode 1303 - Margaritaville (HQ) - Part 1/3: "Randy steps forward with a solution to fix the desperate financial state everyone finds themselves in. The town gets behind him and everyone starts to live a life that no longer depends on any economy at all."There are three parts of it

Regulation and going public

This week in my MBA class we covered IPOs and discussed that even before the economic crises that is dominating all aspects of the financial world, the number of IPOs was down significantly from 1990-1998 levels. We then discussed the increased cost of government regulation as a likely cause.This same point was mentioned by Bill Gurley in the following Seeking Alpha article:Dear Mr. Geithner:

WTO: protectionism on rise, endangering recovery - International Herald Tribune

WTO: protectionism on rise, endangering recovery - International Herald Tribune: "The world is slipping dangerously into protectionism, threatening to strangle global economic recovery, the World Trade Organization said.In an alarm bell to WTO's 153 members, Director-General Pascal Lamy said free trade has suffered 'significant slippage' this year as countries have erected new barriers to imports

Where’s the Plan, Wall Street? - DealBook Blog - NYTimes.com

Where’s the Plan, Wall Street? - DealBook Blog - NYTimes.com: "For the last several months, Americans have looked to Washington to lead them. But where’s the leadership on Wall StreetIt’s worth noting that most Wall Street C.E.O.’s are being advised by their legal and public relations teams to keep their heads down or risk provoking more public outrage. But there is the flip side to that coin:

First ETF To Mimic Hedge Funds Set To Launch - News In Focus

I am excited about this! If for no other reason it is good to talk about something other than gloomy regulations.First ETF To Mimic Hedge Funds Set To Launch - News In Focus: "The first exchange-traded fund designed to replicate hedge fund strategies is set to launch on Wednesday.After receiving a final green light from the Securities and Exchange Commission at midday, the IQ Hedge

Hernando de Soto Says Toxic Assets Emerged From a Shadow Economy - WSJ.com

When in doubt, blame the accountants?Why? As Hernando de Soto points out, there are trillions of dollars of off balance sheet obligations that can not be easily accounted for.Without a doubt regulators and law makers deserve much of the criticism for allowing this to happen, but at the root is a failure in information systems (and by this I mean accounting and not IT).Hernando de Soto Says Toxic

Atlas Shrugged in Real Life

Ok, I can't make this stuff up. Ayn Rand's Atlas Shrugged is so life like that it is now as if reading (or in my case ristening) to a script.Background: Atlas Shrugged is a novel written in 1957 by Ayn Rand. In it, in response to a largely governmental caused "emergency" the top leaders of the business world give up and just walk away in response to taxes, regulation, and other confiscatory

'Dump the Dollar' Campaign Shows China's Discomfort with Treasuries Holdings -- Seeking Alpha

Again stealing a page from the recently deceased Paul Harvey, Today's news of most lasting consequence may be this:From the BBC:"China has increased the pressure on world leaders just days before the G20 world summit by calling for an overhaul of the global financial system. Chinese officials want a new global reserve currency and reforms of international financial institutions to give

U.S. Stocks Jump, Capping S&P 500’s Best 10-Day Gain Since 1938 - Bloomberg.com

U.S. Stocks Jump, Capping S&P 500’s Best 10-Day Gain Since 1938 - Bloomberg.com:Writing on the heels of yesterday's near 500 point run up, Bloomberg reports that as measured by the Dow, the market has its "steepest two-week gain since 1938".In case you wondered what followed in 1939 and later, it was a very choppy market. In part no doubt due to WW II. Here is a chart from Yahoo.But lest you

DealBook Column - If Goldman Returns Aid, Will Others? - NYTimes.com

DealBook Column - If Goldman Returns Aid, Will Others? - NYTimes.com: "Goldman Sachs is planning to give back its TARP money soon. Very soon, actually...Goldman’s sudden urgency to return the money stems, in part, from the uproar over A.I.G.’s bonuses last week, and the criticism of Goldman over revelations that the firm had been the largest recipient of government money as a counterparty of bets

Nobel Winners Spence, Krugman Clash on Geithner Plan Prospects - Bloomberg.com

Nobel Winners Spence, Krugman Clash on Geithner Plan Prospects - Bloomberg.com: "Geithner’s plan “will certainly help,” Meltzer, 1997 winner of New York University’s Money Marketeers Distinguished Achievement Award, said in a telephone interview today. At the same time, “the Congress has really clobbered the rule of law, and that has terrible implications for the future,” he said....The plan is

Benoit Mandelbrot and the wildness of financial markets: Scientific American Blog

Benoit Mandelbrot and the wildness of financial markets: Scientific American Blog: "In a lecture at Columbia University this week, famed fractal pioneer Benoit Mandelbrot once again inveighed against traditional economic theories...many economic models ignore dramatic jumps, whether in a commodity's price or in an index such as the S&P 500, treating them as outliers. But real-life economic

Administration Seeks Increase in Oversight of Executive Pay - NYTimes.com

Everyone knew more regulations would be coming, and here is a sneak peek from the NY TimesAdministration Seeks Increase in Oversight of Executive Pay - NYTimes.com: "It will propose that many kinds of derivatives and other exotic financial instruments that contributed to the crisis be traded on exchanges or through clearinghouses so they are more transparent and can be more tightly regulated. And

SimoleonSense

No excuses. Go read SimoleonSense's Blog. Ridiculously good content this past week.From the interview with Buffett's biographer, to Michael Lewis on AIG, to his weekly roundup. Just can't miss it. Becoming one of my first reads of the day!

SSRN-Sorting Out Downside Beta by Thierry Post, Pim Van Vliet, Simon Lansdorp

If you ask investors about risk, maybe one in 10,000 (?) will say I am really worried about MAKING too much money. Most are worried about losing money. Yet by defining risk based on differences from a mean (variance) we are inherently saying that making too much money and losing too much money are both equally scary propositions. And because CAPM uses variance in its calculation of Beta, it

What March Madness taught me about finance

As I told my class I always feel guilty this time of year. I just filled out the annual NCAA March Madness bracket. I did not fill it our according to top picks, nor even most popular picks, nor by going by the betting line. Why? Because picking upsets is fun. So what does this have to do with finance? It might explain why investors pick "glamor" stocks or stocks that are seen as exciting.

Madoff accountant Friehling charged with lying about numbers - Mar. 18, 2009

Madoff accountant Friehling charged with lying about numbers - Mar. 18, 2009: "David Friehling, accountant for Bernard Madoff, was released on $2.5 million bond after turning himself in on Wednesday to face charges that he 'rubber stamped' the Ponzi schemer's books.Friehling was charged with securities fraud, aiding and abetting investment adviser fraud and four counts of filing false audit

SSRN-Fair Disclosure and Investor Asymmetric Awareness in Stock Markets by Zhen Liu

This one needs to be sold just a little, but then is a really cool insight. It deals with Reg FD. The "if I tell anyone, I have to tell everyone" rule.But first imagine you are a student in a class that is reviewing for a test. You are aware of a great way to ask a question for the test, but are a bit unclear about it. However, you know you are ahead of the rest of the class on the topic and

All That Twitters May Not Be Gold, Analysts Say - DealBook Blog - NYTimes.com

All That Twitters May Not Be Gold, Analysts Say - DealBook Blog - NYTimes.com: "The analysts said that monetizing Twitter “would be difficult at best and likely unsuccessful.” People who sign up for free services tend to resent a company for trying to wring revenue from the business later. Subscription fees are out of the question, they said, and advertising-based revenues don’t seem to have

Half Of Hedge Funds Will Go Bust

From FT via Clusterstock.Half Of Hedge Funds Will Go Bust: "...poor investment performance for some, and asset value erosion for many more, have shrunk collections from management and incentive fees. It would come as no surprise if at least half of the entities in this space were to disappear in the next two years, either through mergers or failures.Traditional investment managers are not immune

Unintended consequences of "Too Big to Fail" and other possible changes in regulation

Unintended consequences.People mean well (yes even politicians and regulators) when they clamor for new rules and regulations to solve this crisis or that. But what they often fail to realize is that their actions have unintended consequences. For instance, from the Wall Street Journal seemingly in response to Bernanke's recent comments that some institutions are too big (important) to fail.:

SSRN-Financial Openness and Productivity by Geert Bekaert, Campbell Harvey, Christian Lundblad

A couple of really cool findings in this one:1. Openness and market liberalization are good for economy as well as capital markets. In fact the factor productivity increase dominates.2. The overall gain of the "openness" offsets risk of economic crises.SSRN-Financial Openness and Productivity by Geert Bekaert, Campbell Harvey, Christian Lundblad: "Financial openness is often associated with

First fund's 85th birthday shows why mutual funds will survive | Seattle Times Newspaper

I did not know this. Sort of trivia, but sure it will be mentioned in some classes.Business & Technology | First fund's 85th birthday shows why mutual funds will survive | Seattle Times Newspaper: "On March 21, 1924, the paperwork to create the first open-end mutual fund — the Massachusetts Investors Trust — was filed; the fund began taking money in July of that year.....Their idea was simple:

SSRN-Stock Market Liquidity and the Rights Offer Paradox by Edith Ginglinger, Laure Koenig, Fabrice Riva

Class preparation yields another cool find! The Right's paradox has been discussed for the three decades (See Smith 1977). In a single sentence, the paradox is why so few firms use rights issues when they appear cheaper (at least at first glance). Over the past 32 years, researchers have documented some costs of rights issues that are not apparent at first glance. This research is further

60 Minutes - Video, Reports, Profiles, Interviews - CBSNews.com

60 Minutes - Video, Reports, Profiles, Interviews - CBSNews.com: "In a rare interview with a sitting Fed chairman, Ben Bernanke tells Scott Pelley what went wrong with America's financial system, how it caused the economic crisis, what the Fed is doing to help fix it and when he expects the recession to end...."Short version: financial sector must be stabilized, he expected recovery to end later

Bear Stearns: The Fed's Original 'Systemic Risk' Sin - WSJ.com

One year ago.Bear Stearns: The Fed's Original 'Systemic Risk' Sin - WSJ.com: "...the Federal Reserve saved Bear Stearns from bankruptcy. The central bank's agreement to invest $30 billion (later reduced to $29 billion) in Bear's opaque securities greased a sale of the firm to J.P. Morgan Chase. For the first time since the 1930s, the federal government was putting taxpayers at risk to rescue a

SSRN-Modigliani and Miller Meet Chandler: Organizational Complexity and Capital Structure by Alberto Manconi, Massimo Massa

In a new working paper, Manconi and Massa (a new M&M) show that firms with more complex structures (and hence more opaque) rely less on equity financing.Why? Probably (like Myers and Majluf's 1984 pecking order paper), the debt financing comes with better investor protections and if investors are not sure of what they are getting, this protection is more valuable.SSRN-Modigliani and Miller Meet

Is Rand Relevant? - WSJ.com

I am ristening to Atlas Shrugged in my car and was talking to a collegue about it on Thursday. I said I was pretty sure the book was written last week and that she spent much time on campus to research the book. Now obviously not, but it is so timeless that after fifty years it is still just as fresh as ever.This is from the Wall Street Journal.Is Rand Relevant? - WSJ.com: "'If you understand

27 Visualizations and Infographics to Understand the Financial Crisis | FlowingData

27 Visualizations and Infographics to Understand the Financial Crisis | FlowingData: "27 Visualizations and Infographics to Understand the Financial Crisis"Really good!!!

China’s Leader Says He Is ‘Worried’ Over U.S. Treasuries - NYTimes.com

US Treasuries are risk free. We assume that all the time in finance classes. (For instance see CAPM). Now China is calling that into question.China’s Leader Says He Is ‘Worried’ Over U.S. Treasuries - NYTimes.com: "Speaking at a news conference at the end of the Chinese parliament’s annual session, Mr. Wen said he was “worried” about China’s holdings of Treasury bonds and other debt, and that

FinanceProfessor.com: Insider trading case of the decade

Long term readers of the blog may remember this story from 2006:FinanceProfessor.com: 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

YouTube - Jon Stewart vs Jim Cramer Interview Fight on Daily Show

While there was much hype in the days leading up to the show, the actual interview was pretty good. Jon Stewart vs Jim Cramer. Here is the link from The DailyShow for the entire episode.Some talking points:* Stewart's main point seems to be that while Cramer and CNBC claim to be looking out for investors, in actuality they are are nothing more than entertainment at best and accomplices at worst

Warren Buffett's Regulatory Forebearance

Ending marking to market is not the solution (it is the equivalent of ignoring a problem). This came up in class today, I totally agree. It is not perfect, but at least will keep the balance sheets somewhat accurate (ok, more accurate than they would be if we end marking to market).Warren Buffett's Regulatory Forebearance: "...proposals to solve this problem have focused on either attempting to

Fast Look around

A fast look around:Uh, really? 45% of wealth destroyed? No way. Maybe of easily traded wealth, but if speaking of overall wealth this from the CEO of Blackstone just has to be an exaggeration.Reuters:""Between 40 and 45 percent of the world's wealth has been destroyed in little less than a year and a half," Schwarzman told an audience at the Japan Society. "This is absolutely unprecedented in

Madoff Life Prison Term Means Inmate Blame for Crash (Update1) - Bloomberg.com

From Bloomberg:Madoff Life Prison Term Means Inmate Blame for Crash (Update1) - Bloomberg.com: "Madoff is likely to be looking at decades behind bars, given the severity of the charges, said Alan Ellis, a Mill Valley, California-based attorney and co-author of “Federal Prison Guidebook....“He’s looking at well over 20 years, probably at least 30,” said Ellis, former president of the National

Alan Greenspan defending, well, Alan Greenspan and more

Alan Greenspan defends his reputation in the Wall Street Journal. The defense is largely that sure long term-rates were too low, but that was because long term rates (which people used to make real estate decision on) quit moving with short-term rates (which the Fed had some control over).In his words:"There are at least two broad and competing explanations of the origins of this crisis. The

$1.3 million per job? For real?

Old Europe Is Right on Stimulus - WSJ.com: "The White House estimates of 3.6 million new jobs is based on an 'Old Keynesian' model on the impact of government spending, while the new models adjust for the rational behavioral response to the stimulus by businesses and consumers. The White House figures, by economists Christina Romer and Jared Bernstein, also assume zero interest rates for a

THE FED: Big Banks Will Not Be Allowed To Fail, Bernanke Says

From CNN/Money: THE FED: Big Banks Will Not Be Allowed To Fail, Bernanke Says: "Federal Reserve Board Chairman Ben Bernanke stressed Tuesday that major financial institutions would not be allowed to fail given the fragile state of financial markets and the global economy.In a speech in Washington, Bernanke repeated that a sustainable economic recovery will 'remain out of reach' until the banking

Merck to Buy Schering-Plough for $41.1 Billion - NYTimes.com

In a few weeks my MBA class will be focusing on takeovers. With this in mind, the Merck-Schering-Plough deal is a treasure chest of examples of various aspects of a takeover.Merck to Buy Schering-Plough for $41.1 Billion - NYTimes.com: "Merck, the American pharmaceutical giant, will pay $41 billion to acquire a rival Schering-Plough, the two companies said Monday."Teaching points:Takeovers must

They Tried to Outsmart Wall Street - NYTimes.com

They Tried to Outsmart Wall Street - NYTimes.com: "They are known as “quants” because they do quantitative finance. Seduced by a vision of mathematical elegance underlying some of the messiest of human activities, they apply skills they once hoped to use to untangle string theory or the nervous system to making money."* "As Dr. Derman put it in his book “My Life as a Quant: Reflections on Physics

Simoleon Sense's weekly roundup

Trying to catch up from being gone last week got a bit easier thanks to Simoleon Sense's weekly roundup:Weekly Wisdom Roundup #18 | Simoleon Sense: "Here are some links to articles that didn’t make our front page. Several of the articles are very insightful I highly recommend reading them. As always, the articles are from different fields but should make you a more well rounded..."Great stuff!

Free Book - Nassim Taleb Fooled By Randomness | Simoleon Sense

Simoleonsense.com has the following. WOW. Fooled by Randomness is my favorite of Taleb's books. Free Book - Nassim Taleb Fooled By Randomness | Simoleon Sense: "I hope you’re enjoying the free books and posts. Here’s another from Nassim Taleb this time it’s his book ” Fooled By Randomness” be sure to buy your own copy. (I’m not sure how scribd manages to post all these books with out getting

Economy worst since Great Depression, World Bank says - Mar. 9, 2009

How bad? Real bad.Economy worst since Great Depression, World Bank says - Mar. 9, 2009: "'The global economy is likely to shrink this year for the first time since World War II,' the bank said, noting that global industrial production, by the middle of 2009, could be as much as 15% lower than in 2008.Based on those projections, world trade is on track to record its largest decline in 80 years,

Recipe for Disaster: The Formula That Killed Wall Street

I picked up the latest Wired in an airport this weekend. Great read! Recipe for Disaster: The Formula That Killed Wall Street:Some highlights:"For five years, Li's formula, known as a Gaussian copula function, looked like an unambiguously positive breakthrough, a piece of financial technology that allowed hugely complex risks to be modeled with more ease and accuracy than ever before. With his

Back from volunteering

I am back from a week (actually a bit longer) of volunteering in Galveston Texas with BonaResponds. It was a good trip. By no means was it my favorite BonaResponds trip, but it was still good. Much work got done. We had 44 people.The work was spotty (especially later in the week) but in part great. We cleaned over 2 miles of road, gutted about 6 homes, helped drywall a home, helped roof and