Bernanke's Bubble Laboratory (from the WSJ)

There's a great article on the front page today's Wall Street Journal titled "Bernanke's Bubble Laboratory" about three economists at Princeton (Harrison Hong, Wei Xiong, and Markus Brunnermeier) who were hired by Bernanke prior to his becoming Fed Chief. They do research on market bubbles.

This one's a keeper, and will probably end up being discussed in a lot of investment and markets classes. It does a pretty good job of laying out some of their research. Here are a smattering of things these three have found that are discussed in the article:

• Major innovations (or big changes) like the rise of the Internet in the mid/late 1990s and the recent credit innovations cause large disagreements between investors about fundamental valuations. Difficulties and costs associated with shorting overvalued stocks allows the most bullish investors to drive prices.
  
• In markets with fewer shares available (like China's A/B shares markets), optimists can really push the prices up
• Skeptics that might drive prices back down won't move in a booming market until they're pretty sure other skeptics will also be on board. So, when the "pessimists" finally start moving, prices can drop much more quickly than they rose.

All in all, a worthy piece, and one that's digestible by people without a graduate degree in finance. Read it here (pay subscription may be required).

Gotta go - classes are done, grades have been handed in, and I have CFA to study for and my own research to work on. It may not be focused on bubbles, but I still like it...

Stick A Fork In Me - I'm Done!

Just handed in grades for the semester. As usual, there was a pretty broad range of performance, and many of the usual cast of characters (the names change every semester, but the acts never do):

• The obviously extremely bright student who doesn't take proper care on his assignments and does them at the last minute. This results in a low score on 20% of the total grade, which along with his poor attendance (class participation is another 20% of the grade) makes it difficult to do well in the class. Then on the exam he gets one of the highest grades in the class (Final Grade: "B", when he was clearly capable of an "A").
• The not-so bright kid who is more passionate about finance than any student I've seen in the last five years. He ends up getting one of the highest grades in the class on the exam (Final Grade: "A", when I thought at the start that he'd probably be lucky to get a "B-").
  
• The charming one who tries to be my buddy, but doesn't do the hard work necessary to grasp the material on more than a surface level (Final Grade: "C"). Then he can't understand why he got such a poor grade (I guess math is also not his strong point).
  
• The student who failed the class last semester and retakes it this semester. She "Gets Religion" and works her tail off this time around (Final Grade: "B-"
• The student who failed the class last semester and retakes it this semester. He learns nothing from the experience and approaches it the same way he did last time, with the same results (Final Grade: "D+").

So, it was the usual mixed bag, with some surprising performances on both ends of the distribution. Either way, I can now put paid to this school year, and start on a couple of research projects that need my attention.

Now, all I have to do is get out of town before the emails and calls start coming in. I need to figure out how to put an autoresponse on my email that says "Dr. XXX is currently out of the office. He is recuperating from the stress of grading your papers on a dry (no alcohol permitted) campus. He will be back in a couple of weeks after recuperating and getting all the sand out of his swim trunks."

A New Website On The Investment Banking Field

A while back I came across a pretty good website for those of you who are looking to break into the Investment Banking field - Mergers and Inquisitions. Here's their "about" section:

Mergers & Inquisitions was launched after the author realized the web lacked good, free resources on investment banking, finance jobs and career advice in general for college students and recent graduates.

Most existing guides such as the Vault Guide To Finance Interviews or the Wet Feet guide are dry and don’t have much in the way of frank, practical advice with concrete examples. They’re also so boring that you may want to poke out your eyes after reading them (just kidding :). There are some high-quality finance-related sites and blogs out there, like Leveraged Sellout, Wall Street Oasis, and several others, but these have a different focus from what we’re doing here.

Since the author would like to keep his job (at least for now), he will have to remain anonymous. Feel free to email him. For resume review services, please refer to the resume review page.

The author seems to have just the right mix of helpful information and humor that should make it a hit. In addition, he's been doing it since November, 2007, so it looks like he might be around for a while.

I've added it to the sidebar, and also to my list of regular reads. Enjoy.

No, I'm Not Changing Your Grade

I just handed in grades for one of my classes. Not 20 minutes later, I got an email from a student asking why I couldn't give her a "B" because she "tried really hard and worked harder than most of the class". She's let me know repeatedly that she "really needs a "B". I considered sending her this cartoon:


But that would be wrong. Funny, maybe. Satisfying, definitely. But definitely wrong.

HT: Marginal Revolution.

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75 Skills Every Guy Should Master

Esquire just put up a great collections of things every guy should know. There's a lot of good stuff -- some of it pretty old-school, but still spot on. Here are a few of my favorites:

• give advice that matters in one sentence (#1)
• show respect without being a suck-up (#12)
• throw a punch (#13)
• approach a woman out of his league (#19)
• be loyal (#23)
• jump-start a car (without drama) (#35)
• step into a job no-one wants to do (#52)
• shake hands (#70)
• iron a shirt (#71)
• sometimes, kick some ass (#53)
  

There's many more (feel free to add your own). Read the whole thing here.

HT: Neal Boortz

Good Resource on Derivatives

I recently came across this site called Global Derivatives. They've got some resources that students (and faculty) might find useful: a number of excellent spreadsheet models here and a good set of definitions here.

There's other stuff on the site you might also find useful or interesting. Check it out.

How To Think

Can your teach people how to think more creatively (or effectively)?

Ed Boyden, assistant professor at MIT thinks he can:

When I applied for my faculty job at the MIT Media Lab, I had to write a teaching statement. One of the things I proposed was to teach a class called "How to Think," which would focus on how to be creative, thoughtful, and powerful in a world where problems are extremely complex, targets are continuously moving, and our brains often seem like nodes of enormous networks that constantly reconfigure. In the process of thinking about this, I composed 10 rules, which I sometimes share with students. I've listed them here, followed by some practical advice on implementation.

He's got some excellent suggestions. You can read them here.

HT: Newmark's Door.

Studies Show That 87% of All Statistics Are Made up On the Spot

Once again, Scott Adams nails it.

Exam Blogging

I'm in the midst of giving my Advanced Corporate Finance class their final. Since it's open-book/ open-notes, monitoring costs are almost zero (I just have to check for occasional peeking at others' papers).

So, in the next three hours, I get to grade my other final exam, do some reviewing for CFA, and empty out my cache of unblogged items.

All hail the open-book exam. Of course, the cost is that I can't do multiple choice or simple definitional -type questions, so it takes longer to make up an exam. But since they're seniors, they shouldn't be seeing those types of exams in any case (that doesn't meant that some of my colleagues don't give multiple choice exams, but that's another story).