Wednesday, November 25, 2015

Finance and Economics podcasts

I have been using podcasts in class and I highly recommend that you do as well!  (or if you are no longer in class, enjoy and learn on your own!)

Here are some of my favorites that are all pre-approved for extra credit assignments:

Approved Podcasts (all also available on iTunes)

  1. Planet Money.  So well done.  I have to remind myself they have a staff of people and a budget.  I do not have either. :)
  2. Masters in Business: Finance related.  Tend to be a little more “hard core” finance. My personal favorite
  3. Market Place--a bit “newsier” but well done
  4.  So many GREAT interviews!
  5. Freakonomics--read the book (I like it better, but still many great episodes).
  6. CGD -- great interviews.  Mainly economics
     6. LSE public lectures
     7.  More or Less.  deals more with stats but very well done

Interested in my own podcasts?  

FinanceProfessor (Really just class audio, NOT YET a true podcast: 

BonaResponds:   (My favorite!)

Monday, October 26, 2015

Hedge Funds’ Results: Far From August - Barron's

Hedge Funds’ Results: Far From August - Barron's:

"Through mid-October, the HFR hedge fund index was about flat for the year, compared with a 1.7% price drop for the S&P 500. Once again, the same argument emerges for hedge funds, which usually charge a 2% management fee, plus 20% of any profits, as it did in August: We might not be doing great, but we’re doing better than long-only stockpickers. There are fair arguments to be made on both sides when it comes to how hedge funds fared during these recent tests, whether it’s for August, 2015’s first 9½ months, or longer stretches. It’s important, however, for hedge funds not to move the goal posts in mid-game. If they’re billed as a good vehicle for relative returns—beating the S&P 500 in down markets and lagging behind it in upswings, or some variation of that—that’s fair enough, if expensive compared with mutual funds. Hedge funds look less credible when they purport to offer absolute performance—that is, positive returns in any market—and then fall back on the relative outperformance argument when the going gets tougher. You can’t have it both ways, especially when you’re charging 2 and 20.  "

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Warren Buffett: Why hedge funds fail - MarketWatch

Warren Buffett: Why hedge funds fail - MarketWatch:

 "The fixed annual fees hedge funds charge are the real money-makers, not the contractual "bonuses" for performance. By extension, Buffett is making a statement about active managers of all kinds. They're not in the business of beating the market. They're in the business of attracting assets and that's all.

For example, a hedge fund managing $1 billion charges a fee of 2% of those assets per year plus 20% of trading profits."

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Tuesday, October 06, 2015

A Tax to Curb Excessive Trading Could Be a Boon to Returns - The New York Times

A Tax to Curb Excessive Trading Could Be a Boon to Returns - The New York Times:

Interesting piece--not sure a tax would solve the problems, but ???

"Why do people hurt themselves by trading in this manner? Is it like gambling, with its danger of addiction akin to cigarettes? Maybe a little. A different study Mr. Odean worked on showed that when Taiwan introduced a national lottery, trading on the stock exchange fell 25 percent. So at least people there were able to substitute something else for their wagering activity. Mr. Odean chalks up much of the trading to overconfidence. Most of us think we’re better than the average investor, and men trade more than women. The Internet gives us the illusion of feeling well informed, so we conveniently forget that somebody else read everything we found before we did. Then, we compound the sins by failing to diversify"

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Monday, October 05, 2015

Europe's airlines spruce up their jet fuel hedges | Reuters

Europe's airlines spruce up their jet fuel hedges | Reuters:

"With fuel accounting for 46 percent of Ryanair's (RYA.I) 2014 operating costs, 33 percent of British Airways' (ICAG.L) and 21.5 percent of Lufthansa's (LHAG.DE), price fluctuations can seriously impact company profits. To reduce price-fluctuation risk on projected operating costs, many airlines hedge a proportion of their future fuel needs six to 24 months in advance by buying jet fuel or crude oil contracts from banks or on an oil futures market. But hedging strategies differ and not all airlines – and therefore consumers - will profit from today's low prices. [O/R] "

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Unfriendly Tax-Friendly Funds - WSJ

Unfriendly Tax-Friendly Funds - WSJ:

"The major finding: In every year [that was studied], tax-managed funds on average failed to save their investors more money on taxes than their incremental expenses, or the difference between their operating costs and the lower fees of the other types of passively managed funds.

In other words, any tax savings were eaten up by fees.


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Friday, August 28, 2015

Scientists Replicated 100 Psychology Studies, and Fewer Than Half Got the Same Results | Science | Smithsonian

This is troubling in many ways.  I would expect the numbers to be better in finance (especially the mathematical studies and modeling studies), but I have no doubt that the timing of studies matters and that the replication is often impossible (possibly in part since the original study influences the subjects/markets).

Scientists Replicated 100 Psychology Studies, and Fewer Than Half Got the Same Results | Science | Smithsonian:

"Across the sciences, research is considered reproducible when an independent team can conduct a published experiment, following the original methods as closely as possible, and get the same results. It's one key part of the process for building evidence to support theories. Even today, 100 years after Albert Einstein presented his general theory of relativity, scientists regularly repeat tests of its predictions and look for cases where his famous description of gravity does not apply. "

Here is another story on this:

A simple finance example: CAPM worked well in the era it was developed but could not be replicated in out of sample (more recent) tests).  (and before I get complaints, I realize that CAPM is not a perfect example but it was first one that came to my head).

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Tuesday, August 04, 2015

Bankrupt Family Firms by Massimo Massa, Alminas Zaldokas :: SSRN

For good or bad, family forms are often different.  In this article Massa and Zaldokas investigate these differences during a bankruptcy.

Bankrupt Family Firms by Massimo Massa, Alminas Zaldokas :: SSRN:

"Abstract:      We study the role of family ownership during the bankruptcy process. We argue that at times of distress family blockholders are better positioned to manage the firm and this is appreciated by minority shareholders and lenders alike. We test this hypothesis focusing on the sample of public US corporations between 2001 and 2008. First, we show that family firms are less engaged in forum shopping, emerge from bankruptcy faster and have higher recovery rates.

Two fast "look-ins":

"...anecdotal evidence suggests that different types of large shareholders view bankruptcy proceedings differently and this in turn may affect bankruptcy costs. While institutional investors and professional asset managers are motivated by a purely financial resolution, families may also have reputational concerns and care about the survival of the firm or the welfare of its employees. They also have larger wealth at stake"


"Family block ownership is related to a 32% faster exit from bankruptcy, where the average time to exit is 446 days, and a 12% higher recovery rates for lenders, where the average recovery rate is 48%. This supports our hypothesis that family blockholders are more efficient in bankruptcy resolution." 

Definitely a worthy read!

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Monday, August 03, 2015

More than Money: Venture Capitalists on Boards by Natee Amornsiripanitch, Paul A. Gompers, Yuhai Xuan :: SSRN

More than Money: Venture Capitalists on Boards by Natee Amornsiripanitch, Paul A. Gompers, Yuhai Xuan :: SSRN:

In the department of "this fits what I teach perfectly"/ (Confirmation bias?), a new paper shows again that venture capitalists bring more tot the table than just capital.  Their expertise and relationships also matter.

"... a prior relationship with the founder, lead investor status, the size of a venture capital firm’s network of managers and outside board members, and geographic proximity between the venture capital firm and its portfolio companies are positively correlated with taking a board seat in an investment round. We also find that venture capitalists are far more likely to recruit managers or outside board members in portfolio companies on whose boards they serve. Furthermore, we find that these recruiting activities are only done by successful and well-connected venture capital firms on the board and not by their less successful and less connected counterparts. We control for potential endogeity by using the enactment of SOX as an instrument which exogenously increased the demand for sophisticated venture capital directors. This study provides evidence to support the notion that venture capital investors are active investors who take actions to enhance portfolio firm value."

Good stuff!

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Rankings of Published Price-Earnings Ratios and Investor Attention by Jordan Moore :: SSRN

Rankings of Published Price-Earnings Ratios and Investor Attention by Jordan Moore :: SSRN:

Jordan Moore shows that PE Rankings (independent of the PE ratio itself) are associated with returns.  This is a cool finding. It is at least consistent a view that investors' screening practices impact their investment results.

A "look-in":

"Results of empirical tests provide preliminary support for this P/E attention hypothesis.
In monthly time-series regressions, long-short decile portfolios earn average value-weighted
monthly excess returns of 101 basis points with an annual Sharpe ratio of 0.79 from 1974-
2013. In daily time-series regressions, long-short portfolios earn average value-weighted
daily excess returns of 16.99 basis points with an annual Sharpe ratio of 2.91 over the same
Monthly and daily trading strategies earn significant “alphas” after controlling for market,
size, value, profitability, and investment factors in the Fama and French (2014) five-factor

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Politically Connections, Institutional Monitoring and Earnings Quality: Some Evidence from Malaysia by Tee Chwee Ming :: SSRN

Politically Connections, Institutional Monitoring and Earnings Quality: Some Evidence from Malaysia by Tee Chwee Ming :: SSRN:

Ming and Gal have an interesting study on the behavior and monitoring of politically connected firms in Malaysia.  There three main findings are that politically connected firms

  • have lower earnings quality
  • "are not subject to market discipline despite reporting poor accounting quality"
  • where both board members and institutional investors are from matters. Specifically:
"when we consider ethnicity, we obtain
evidence to suggest that poor earnings quality in PCON firms are more prevalent in boards
dominated by Malay/Bumiputera directors as opposed to boards dominated by nonMalay/Bumiputera
directors. We also document evidence that PCON firms are not penalized
by the capital markets despite poor earnings quality. Interestingly, agency problems in PCON
firms can be mitigated through monitoring by institutional investors, particularly local
institutional investors."

Now if they can get around the chicken or the egg problem (are earnings quality low before connections--and hence connections are used to shield their lack of quality, or as a result of the connections.

Will get mentioned in class! 

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Tuesday, July 28, 2015

Corporate governance: the great debate – Director Magazine

Corporate governance: the great debate – Director Magazine:

"“Corporate governance is fast-changing and organic, and this is about stimulating a debate,” explains Oliver Parry, the IoD’s senior corporate governance adviser. “This report began with us working towards a good governance index of listed companies and evolved into a focus point for debate on the issue.” Companies of all sizes, says Parry, including small businesses, should aspire to good corporate governance"

good article!

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Thursday, July 02, 2015

When CEOs Are Accidentally Overpaid - Bloomberg View

When CEOs Are Accidentally Overpaid - Bloomberg View:

great article focusing on this article by Kelly Shue

 "The difference in pay between different sections was larger than the difference within different sections.  Remember that these sections were randomly created. So Shue's finding means that human networks were a very important determinant of pay levels. She also found that when one executive's industry experienced a boom, the compensation of that executive's former HBS section-mates in totally unrelated industries would go up as well. "

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Tuesday, June 23, 2015

Top-CEO Pay Isn’t Driven By Talent, New Study Says - Real Time Economics - WSJ

Top-CEO Pay Isn’t Driven By Talent, New Study Says - Real Time Economics - WSJ: "“Compensation of CEOs has far outpaced that of very highly paid workers, the top 0.1% of earners,” write Mr. Mishel and Ms. Davis. “There are substantial rents embedded in executive pay, meaning that CEO pay gains are not simply the result of a competitive market for talent,” they say, citing earlier research findings.

Because of this, they conclude, if CEOs “were paid less there would be no loss of productivity or output.”"

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