Friday, September 28, 2007
A couple of years ago, my research was just beginning to fire on all cylinders when the Unknown Son was diagnosed with cancer. Then (not surprisingly) I got almost nothing out for the next three years (I was just looking, and there's gap in my vita that's exactly three years long). But over the last year and a half, I've gotten three publications and four other papers under review. It's not an earth-shattering output, and I'd certainly like to be publishing in better-quality journals. But since I was mostly cleaning out my backlog (and some of the ideas had gone stale while The Boy was sick), I'll take it.
At the school I'm at, quality is valued but numbers count too (after all, one definition of a Dean is "a person who can count but can't read").
Now I have some cover to work on longer-term projects that have a decent chance at higher-quality journals. I was just looking at my research file and I currently have four projects under way, and hope to finish 2-3 of then by December. If I do, and I get one or two more publications by the next fall, I should have a pretty good shot at tenure.
And since the Unknown Wife has told me in no uncertain terms that we're NOT moving again, I have a lot of incentive.
Like they say down South, "If Momma Ain't Happy, Ain't NOBODY Happy!"
In addition, he's a very small, smart kid (about 5th percentile in height and weight and 95th percentile in reading and math). So that means he'll probably eventually have to deal with bullies. I know this from experience, since I had a boy in my 3rd grade class that would literally kick by but halfway home on a regular basis. That's not a figure of speech - he live halfway between the school and my house, and would often "escort" me as far as his house. Every few steps, he'd plant a boot in my butt.
But anyway, U.S. had a great time. The first class was a private one with an instructor, and he was great. He made U.S. do some exercises, a few punches and kicks, a lot of jumping and physical activity, and gave him a basic orientation top the school and how classes worked. It was cute seeing him learn how to stand at attention and bow correctly (all with a lot of enthusiastic shouts of "Yes Sir!" and "No Sir").
The school (dojo) is one of the largest in the Northeast, and has over 300 kids enrolled, all who come twice a week. So, it should be good not only for the physical training and self-defense aspects but also for the friends he'll make. There are probably 30-40 kids in U.S.'s elementary school who go there, so he'll have a lot of reinforcement (not to mention well-trained friends if he ever needs a helping hand).
And he looked so proud with his white belt (the "beginner's" belt). He's excited at the prospect of possibly being able to test for the next level (the "yellow") belt in only a few months.
I try to have my students give me feed back every week or so on what they're enjoying (or not) in the class, and what they think I can improve on (or am already doing well). In addition, I ask them what topics in the course are giving them the most difficulty or causing the most confusion.
A lot of people think it's way overboard, but it only takes a couple of minutes, and often gives very valuable feedback. I don't report on ALL the feedback, but only address the few issues that are mentioned by multiple people. After all, if one student mentions it, it could be just a personal preference, but if 5 mention it, it's likely a problem. This time around, a couple of them though I spent too much time giving them grief for being late or absent. And they had a point - why lecture the people who are there about the importance of being there?
So, I told them that I agreed with them wholeheartedly . And since so many were absent, everyone who had signed the attendance sheet that day (I'd already collected it) got 5 points added to their most recent quiz score. In addition, they should mention this with a big smile to the eleven students who'd missed the class.
What can I say? I'm an applause whore at times. It had been a long week, and it's not like the missing students can complain about it to the Dean "Um - Dr. Unknown didn't give bonus points to all the students - only the ones who showed up for class."
It'd probably make his day.
Thursday, September 27, 2007
So, I can relax a bit now - all that time didn't go to waste. So I think I'll go celebrate with a long bike ride.
Like most people with graduate level training in economics, I've had a fairly good exposure to game theory. For those who are unfamiliar with the term, game theory analyzes situations where an individual's actions affect not only their own welfare (i.e. their "payoffs"), but also the payoffs to others with whom they are interacting. The graph above illustrates probably the most well know game-theoretic scenario, known as the Prisoner's Dilemma.
The picture comes from Robert Schenk's site, CyberEconomics. He has a nice section on game theory that's both factually correct and easily understandable here.
Wednesday, September 26, 2007
This quiz should give me a better idea whether their [performance on the first quiz was representative or not. If it was, the size of the herd may end up shrinking as we lose a few slow antelopes.
There are a couple of students in my class that probably should consider bailing out. That may sound harsh, but if a student is sufficiently far behind it's sometimes best if they drop - the effort they have to expend to catch up can end up really hurting their performance in other classes, and they also end up drastically slowing down the class they're behind in.
That having been said, I don't think they're at the point of no return yet. But they are rapidly approaching it.
So maybe I'll actually get some research done. The only problem is that I thatched and reseeded my lawn (or what passes for it) this weekend. That (and the generall pollen conditions) here near Unknown University have really made my allergies kick in. So, to the extent I can work with a case of "baloon head", I may get some work done on the revise and resubmit that's been sitting on my desk all week.
Sunday, September 23, 2007
But Moody’s Investors Service said buyers should beware of gains booked when brokers mark down their own debt liabilities. “Moody’s does not consider such gains to be high-quality, core earnings,” it said in a report issued Friday.
This is why we make all our Finance students take four accounting classes before they graduate. That way, they'll see these things often enough that they won't break out laughing.
Saturday, September 22, 2007
Sunday, September 16, 2007
- A couple of questions on time value (PV of a lump sum, PV of an annuity, find the interest rate on the FV of an annuity)
- A constant dividend growth stock valuation problem
- A non-constant dividend growth valuation problem
- An NPV problem
- An IRR problem
- A CAPM question
- A basic question on financial statements
After all, if they don't understand the basics, they surely won't get the more advanced material. And I simply don't have the time to review everything they're supposed to know from the class they supposedly already passed. After all, they ARE mostly finance majors.
At least I didn't teach the principles class, so I get to grouse about those who did...
It should be interesting. I think the herd may be losing a few slow antelopes shortly.
Saturday, September 15, 2007
Then I went on a 22 mile bike ride. It was a bit windy, but other than that,conditions were just about perfect for a long ride - mostly flat terrain with just enough gently rolling hills to make it interesting, and a temperature of 64 degrees. It was so nice that I actually ended up holding a faster pace for the 22 mile ride than I usually do for my 16 mile course. I even passed one of my students on the road. I wonder how he felt getting smoked by a teacher more than twice his age?
Hey - I may be carrying about 15 extra pounds, but my legs and cardio are both in pretty good shape. O.K - enough bragging...
Now, it's time to read a bit to the Unknown Son before bed (Unknown Daughter is at a friend's house). The kids just watched Lemony Snicketts, so now he's reading the books (he just got the first two from the library). I particularly like them because they use some pretty complicated words, but follow them with an explanation in an aside). So, they're great not just for the story itself but also for feeding the lad's inner nerd.
Friday, September 14, 2007
Reich then goes on to explain the increase in CEO pay over time as a rational consequence of increasing competition. In other words, 50 years ago, most large firms were in oligopolistic industries, with stable unions and predictable revenue streams. So, CEOs were almost like quasi-bureaucrats.
In contrast, now the level of competition is so fierce (and entry barriers so low) that even small differences in managerial quality can result in huge changes in profitability and market value. So, having a slightly better CEO can result in big gains to shareholder wealth. Not surprisingly, shareholders (or actually, boards of directors acting on the behalf of shareholders) realize this, and end up bidding up the price of good CEOs:
So how does the modern corporation attract and keep consumers and investors (who also have better and better comparative information)? How does it distinguish itself? More and more, that depends on its CEO -- who has to be sufficiently clever, ruthless and driven to find and pull the levers that will deliver competitive advantage.RTWT here
There are no standard textbook moves, no well-established strategies to draw upon. If there were, rivals would already be using them. The pool of proven talent is small because so few executives have been tested and succeeded. And the boards of major companies do not want to risk error. The cost of recruiting the wrong person can be very large -- and readily apparent in the deteriorating value of a company's shares. Boards are willing to pay more and more for CEOs and other top executives because their rivals are paying more and more for them. Former Home Depot CEO Robert Nardelli to the contrary notwithstanding, the pay is usually worth it to investors.
All in all, it's a great piece. But alas, after such great writing, Reich can't help himself, and finally reverts to type:
This economic explanation for sky-high CEO pay does not justify it socially or morally. It only means that investors think CEOs are worth it. As citizens, though, most of us disapprove. About 80% of Americans polled by the Los Angeles Times and Bloomberg in early 2006 said CEOs are overpaid. The reaction was roughly the same regardless of the respondent's income or political affiliation. But if America wants to rein in executive pay, the answer isn't more shareholder rights. Just as with the compensation of Hollywood celebrities or private-equity and hedge fund managers, the answer -- for anyone truly concerned -- is a higher marginal tax rate on the super pay of those in super demand. (emphasis mine)Ah well. Other than that line, it's still a great piece, and well worth reading.
Tuesday, September 11, 2007
This paper studies the "overpriced puts puzzle" - the finding that historical prices of the S&P 500 put options have been too high and incompatible with the canonical asset-pricing models, such as CAPM and Rubinstein (1976) model. Simple trading strategies that involve selling at-the-money and out-of-the-money puts would have earned extraordinary profits. To investigate whether put returns could be rationalized by another, possibly nonstandard equilibrium model, we implement a new methodology. The methodology is "model-free" in the sense that it requires no parametric assumptions on investors' preferences. Furthermore, the methodology can be applied even when the sample is affected by certain selection biases (such as the Peso problem) and when investors' beliefs are incorrect.
We find that no model within a fairly broad class of models can possibly explain the put anomaly.
So, how likely is the "hosing"? Does this merely reflect the risk of large losses? By his estimates, there would have to be a meltdown like the one in October 1987 1.3 times a year for the option writer to lose money.
So, why are put options so apparently overvalued? There are at least two possible explanations (other than something really funky/wrong with the data): one is that investors systematically overestimate the chance or severity of large market declines. The other is that option buyers have a utility function that is extremely risk averse. In either case, there's apparently an excess demand for insurance that option writers can benefit from (if they're willing to bear the risk).
HT: CXO Advisory group
- Financial Accounting: The typical undergraduate finance major takes one or two introductory level accounting classes. Then, when they get their first entry-level job, they often find themselves doing tasks that use a lot of financial statement information. Accounting can be hard and (to many finance majors) a bit dry, but taking more accounting classes definitely sets you apart from other new graduates. Back a few years, I used to place a number of students with the credit analysis unit of Bank of America. They didn't even look at most students unless they had three or (preferably) four accounting classes. There's not that much advantage to taking Tax or Auditing for a finance major, but there is to taking Financial - I'd recommend at least Intermediate Accounting I (and if you can manage it, Intermediate II).
- Macro Economics - Although the undergraduate business curriculum typically requires an introductory class in macro, most students come out of it with only the barest hint of what's going on. A second class in this area will help you to get a much better understanding of the larger economic forces that effect equity (and to an even greater extent, fixed income) markets.
- Money and Banking (from the Econ department)- Similar to the above, it's also good to see the money and banking material twice. Although you often get a money and banking class in the finance department, it's good to see the same topic taught from a different perspective.
- Statistics and Econometrics - The undergrad finance curriculum usually has an introductory statistics class. Almost everyone can benefit from more exposure to this material. But most importantly, make sure the class is "hands on". There's no substitute for analyzing real data.
- More math - You might not use linear algebra or higher-level calculus, but taking extra math (and getting getting good grades in those classes) serves as a pretty good signal that you're either smart or hard working (or both). Today's finance world is math and stat -driven. So, the more you take of these topics, the better.
- A programming class - like math, programming is also hard. Having a little more background in a commonly used language always helps.
Saturday, September 08, 2007
Make friends with your teachers. To get on their good side, read the material before class, ask questions, and use their office hours to get clarifications on material that's unclear.Read the whole thing here.
Learn to manage your time. Make sure you do your work on time (and neatly) and follow the instructions carefully on assignments.
Be well rounded - take classes in the area you want to specialize inm, but also in others. You never know what you might end up using, so it's important to have both depth and breadth of knowledge.
Affability and netness count. Join a frat or sorority, or some other group. And if you dress like a slob, make sure your thoghts and speech are more ordered - it'll offset the impression your appearnace makes.
Finally, don't indulge to excess, get some exercise, and develop good work habits.
As a professor, I can vouch for the first piece of advice. Most students don't make the effort to get to know me outside of class. So, I tend to go the extra mile for those who do (particularly when they need reference letters).