|
Best of FinanceProfessor.com's Blog-January 2005
|
Jim Mahar
|
Feb 02, 2005 13:11 PST
|
FinanceProfessor News February 2, 2005
Hi everyone.
Upon the request of many of you I have sort of brought back the
newsletter. It is not going to replace the Blog but will be in a format
that is more useful for some of you.
In fact, the newsletter will grow into a “best of” from the blog. So in
that sense, this is the best of the past few months. I will try to do
this on a monthly basis going forward.
It is shorter than the old newsletters, but I hope you find it useful.
Again, if you do want to see this and much more, I encourage you to
check out my blog:
http://financeprofessorblog.blogspot.com/
As for other things, classes seem to be going well. Although I have to
admit that some students are not exactly thrilled with the number of
readings. Sorry, but in the long run I do think it is worth it! :)
Well I will get out of the way and let you read the newsletter now.
Enjoy.
Thanks for all of the suggestions.
Jim
********************************************************************
Et tu Brute?
********************************************************************
Yale FinanceProfessor Lopez-de-Silanes resigned over financial
misconduct. I do not know what to say on this story. While I do not
know him personally, I have been a fan of much of his work for a while
now (indeed, I cited some of his work in my dissertaion). I hope it was
all just an honest mistake and that he lands on his feet! For the
record, he turned down an opportunity to discuss it online. Most likely
for legal reasons.
http://financeprofessorblog.blogspot.com/2005/01/lopez-de-silanes-resigns-over.html
********************************************************************
Corporate Finance
********************************************************************
A trend in financial research has been to show that all investors and
all firms may not be equal. For instance, Giannetti and Simonov find
that some investors are more concerned with corporate governance than
others. Corporate governance does not affect all shareholders equally.
Individual investors and this with no connection to the firm, are more
apt to invest if the firm has a strong governance system. On the other
hand, insiders apper to either not care or be more apt to invest if
there is not a strong governance system in place.
http://financeprofessorblog.blogspot.com/2004/11/more-evidence-that-governance-matters.html
McKinsey Quartely has a great interview with John Conners the CFO of
Microsoft.Conners lays out why the firm changed its financial reporting,
why it both paid a large one time dividend and initiated a buyback plan,
and why the firm now uses restricted shares instead of stock options.
HIGHLY RECOMMENDED!
http://financeprofessorblog.blogspot.com/2005/01/mckinsey-quarterly-interview-with.html
Maybe hediging is not all that it is cracked up to be. That is the
conclusion of “Does Hedging with Derivatives reduce the Market Risk
Exposure” Bali, Hume, and Martell. They find that hedging, at least as
it is currently being done, may not add to firm value.
http://financeprofessorblog.blogspot.com/2004/11/value-of-hedging-revisited.html
How investment bankers allocate hot IPOs is the focus of this paper by
Nimalendran, Ritter, and Zhang. The paper presents evidence of
abnormally high trading volume in other (non IPO) stocks PRIOR to the
IPO. The authors posit that this trading is a means of buying favor with
the investment banker so as to be allocated more shares in the coming
IPO.
http://financeprofessorblog.blogspot.com/2005/01/ssrn-are-trading-commissions-factor-in.html
Garmaise and Moskowitz report that bank mergers are bad for the
community. Why? The Bank mergers (and the resulting reduced
competition) lead to reduced lending in the community where the banks
merged, a weaker local economy, and increased crime.
http://financeprofessorblog.blogspot.com/2005/01/more-banks-less-crime-real-and-social.html
LA Times had an interesting article on investment activism by state
pension funds Thanks to the Marginal Revolution for bringing this story
to my attention. Over the past 20 years or so state pension funds have
come to play an ever more active role in the stock market. For instance,
most of us have heard of Calpers which is the California Public employee
Retirement System. Not only do these state funds control Billions of
dollars, they are also very active monitors. (For instance: removing
NYSE president Richard Grasso.) Monitoring firms by shareholders is a
very good thing. We need it to keep shareholder-manager conflicts low.
However, when this monitoring becomes more political than economic,
there are problems. We have replaced one agency cost problem
(shareholder and firm managers) with another (shareholders and fund
managers).
http://financeprofessorblog.blogspot.com/2005/01/la-times-on-investment-activism-by.html
********************************************************************
Investments
********************************************************************
Alexander, Cici, and Gibson provide evidence that mutual fund managers
may be better at picking stocks than previous literature has suggested.
The authors show that when mutual fund trades are broken down by the
motivation for the trade (for example liquidity driven, tax-loss driven,
or for valuation reasons), fund managers do earn abnormally positive
returns when trading for valuation reasons
http://financeprofessorblog.blogspot.com/2005/01/maybe-fund-managers-can-beat-market.html
In a paper that was presented in the American Finance Association's
Annual Conference (AFA) in January, Reuter and Zitzewitz (R&Z) examine
mutual fund recommendations from "major personal finance magazines
(Money, Kiplinger's Personal Finance, and SmartMoney)." They find that
recommendations appear to be influenced by ad spending in the magazine.
http://financeprofessorblog.blogspot.com/2004/12/reuter-and-zutzewitz-on-bias-in.html
Porterba concludes that not all assets will fall when the baby boomers
retire and that past population booms have been met with only modest
price changes.
http://financeprofessorblog.blogspot.com/2004/11/impact-of-baby-boomers-from-porterba.html
Han and Wang have an interesting paper that examines the “impact of
institutional investment constraints.” These constraints include such
things as limits as to how much of an asset a fund can hold). They
find that these constraints play an important role in the pricing of
securities. This gives us a much better insight into both institutional
behavior as well as momentum investing.
http://financeprofessorblog.blogspot.com/2005/01/han-and-wang-constraints-efficiency.html
Grinblatt and Keloharju provide us an interesting look at tax year
trading in the Finish Stock Market in their upcoming JFE article They
find evidence of investors selling losers and then buying them back in
after the tax year end.
http://financeprofessorblog.blogspot.com/2004/12/tax-year-trading-and-wash-sales.html
********************************************************************
Financial Institutions and Money and Banking
********************************************************************
David Hutchinson in Bquest provides an interesting look at bank deposits
and the economics of the retail banking industry. (Yeah I know, some of
you doubt whether bank deposits can be interesting. Well surprisingly
enough, they can be!)
http://financeprofessorblog.blogspot.com/2005/01/value-and-duration-in-retail-financial.html
Mark Cuban is starting a Hedge fund that will gamble. Literally! Forget
stocks, forget bonds, the money will be used to make bets. (In case you
do not know, Mark Cuban is the Billionaire owner of the Dallas Mavericks
and former owner of Broadcast.com.)
The article is great. It has so many interesting and thought provoking
lines--I really have to stress that you should read it.
http://financeprofessorblog.blogspot.com/2004/12/mark-cubans-new-hedge-fund-blog.html
From HoustonChronicle.com: "the National Association of Securities
Dealers'.... board of governors approved a change in arbitration
procedures that will let investors involved in a dispute request an
explanation of why their claim was tossed....Under the current rules,
arbitrators aren't required to explain their decisions."
http://www.chron.com/cs/CDA/ssistory.mpl/business/3020642
The NYSE was ordered (and it complied) to release the details of Rochard
Grasso's pay package. Grasso of course was forced out as a result of the
pay package that was deemed excessive and as further evidence of poor
governance at the NYSE.
http://financeprofessorblog.blogspot.com/2005/02/several-short-news-items-of-note.html
********************************************************************
International Finance
********************************************************************
Last month the Annual World Economic Forum’s annual Conference was heald
in Davos Switzerland. Bono and Angelina Joile were among those present.
Which begs the question, Why doesn’t Angelina Joile attend FMA
meetings? I am sure attendance at her sessions would be high.
http://www.nytimes.com/2005/01/30/business/yourmoney/30davos.html
http://www.weforum.org/
Consistently one of the most popular pages on FinanceProfessor.com is
the Islamic Finance page. One reason for this I beleive is that so few
people understand what Islamic Finance is and how it is different from
traditional western finance.
http://financeprofessorblog.blogspot.com/2004/12/islamic-investing.html
********************************************************************
Derivatives
********************************************************************
Real Estate Derivatives. I am excited about this one!!! The only thing
I can say is what took so long? A simple explanation of why derivatives
exist is that they allow people (or firms) to transfer risk. That is,
derivatives allow those who want to to assume more risk to speculate
and those who want to reduce their risk to hedge. Given that for most
people the most valuable single asset that they own is in real estate.
It is troubling that real estate is also one of the most difficult
assets to hedge. That may be changing!
http://financeprofessorblog.blogspot.com/2004/12/real-estate-derivatives.html
Research question: does anyone know of a site where I can cheaply get
historical implied volatilities? If you do, please let me know.
Thanks!
********************************************************************
Economics
********************************************************************
The Fed continues to raise rates in an attempt to hold off inflation.
This is the 6th rate hike. The target for Fed Funds is now 2.5%.
http://www.nytimes.com/2005/02/02/business/02cnd-fed.html
What is wrong with government subsidies? A great deal! Deciding what
projects to invest in is hard work. And often times we do make mistakes,
but time and time again the evidence shows that free markets make the
best decisions. (In class terminology, markets make the best allocation
decisions and funnel the money to its highest valued use.)
However, all too often politicians can not help but to play the game as
well--but not with their money, but with taxpayers money.
http://financeprofessorblog.blogspot.com/2004/12/high-price-of-subsidies-from-buffalo.html
********************************************************************
Accounting
********************************************************************
Transparency is a good thing and increasing. For instance you no longer
need to just guess at what benefits the CEO gets? Companies have
increased the reporting of these benefits. Where? In their 8Ks,
http://financeprofessorblog.blogspot.com/2005/01/8k-is-more-than-5-miles-look-at-8ks.html
From an interview with McKinsey Quarterly interview with Microsoft’s
CFO.
“Of course, there are negatives in Sarbanes-Oxley. For example, there
isn't much guidance on what is material for public-company financial
statements not in the legislation itself or in the regulations or rules
yet nor is there any case law defining this. There are far too many
areas where companies could take a reasonable risk with good business
judgment but still be subject to litigation….Yet there are real benefits
to Sarbanes-Oxley
http://financeprofessorblog.blogspot.com/2005/01/mckinsey-quarterly-interview-with.html
********************************************************************
In case you missed it
*********************************************************************
The Wall Street Journal will begin publishing a weekend edition in
September. I honestly am not thrilled with the idea, but they seem to
think it will be profitable. A bit of trivia: the WSJ used to publish
on Saturday prior to 1953. (I did not know that)
http://www.businessjournalism.org/content/5316.cfm
Jean Heck (of the Financial Literature Index Fame) has launched
FinanceJournals.com. It will allow you to “rapidly, and easily search
the table of contents ofevery finance journal ever published over the
past 50 years”
http://financeprofessorblog.blogspot.com/2005/01/introducing-financejournalscom.html
*********************************************************************
Personal Finance
*********************************************************************
What causes people to declare bankruptcy? Very often it is an illness.
That is the finding of Elizabeth Warren of Harvard Law School. From the
Houston Chronicle: "Illness and medical bills now cause roughly half of
all bankruptcies in the United States, more than a 23-fold increase
since 1981, according to a new study." The skeptic in me questions a 23
fold jump in anything, but the fact that nearly half of all bankruptcies
are caused by "illness and medical bills" is interesting and important.
In a more recent study Warren also reports that "more than 90 percent of
the families in bankruptcy qualify as middle class."
http://www.nytimes.com/2005/02/02/business/02insure.html
http://www.chron.com/cs/CDA/ssistory.mpl/business/3020637
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=480342
*********************************************************************
Of interest to students
*********************************************************************
Personal Financial Planner was selected as the best job for 2005!
http://financeprofessorblog.blogspot.com/2005/01/yahoo-25-top-jobs-for-2005.html
*********************************************************************
FinanceProfessor Links of the week
*********************************************************************
An easy one. FMA online. GREAT NEW ISSUE UP!
http://financeprofessorblog.blogspot.com/2005/01/new-fma-online-is-now-available.html
*********************************************************************
What I am reading
*********************************************************************
There have been so many since the last newsletter. Lets see, most
recently I just finished
Big Russ and Me. It was good. Not sure if it best book of past month,
but it was interesting.
http://www.amazon.com/exec/obidos/ASIN/1401352081/finpapers/104-9378365-5272442
I really like (and am currently reading) Marv Levy’s Book “Where else
would you rather be?” He is a great story teller and funny.
I am ristening to the Perfect Mile. It is about the chase for the first
4:00 mile. Very good. Granted I am biased since I run, but it is very
good.
http://www.amazon.com/exec/obidos/ASIN/0618391126/finpapers/104-9378365-5272442
if you are interested in what I am reading etc, may I suggest my other
blog: randomtopics2. It is a fun one. What I am reading, history, or
just other interesting things I stumble upon.
http://randomtopics2.blogspot.com/
*********************************************************************
Quotes
*********************************************************************
An ounce of hypocrisy is worth a pound of ambition."—Michael Korda on
Quoteland.com
In the end, we will remember not the words of our enemies, but the
silence of our friends---Martin Luther King Jr.
A slip of the foot you may soon recover, but a slip of the tongue you
may never get over---Ben Franklin from the Quotationspage.com
Slow and steady and pretty soon even the longest driveway is done—me
after shoveling
*********************************************************************
Well that is all I have time for today. I hope you enjoyed it. I have
to admit putting it together did involve some tough questions on what to
include.
Until next time…
Jim
Who has been pretty good about swimming 5 times a week. I am still no
good, but it is fun.
Who is upset that the Ground Hog saw his shadow. 6 more weeks?
Actually we will be lucky if it is only 6 weeks…lol. Although I should
not complain. It has not been that bad of winter in WNY.
copyright 2005 FinanceProfessor.com
|
|
 |
|
