Monday, December 31, 2007

It's Time For Prediction Markets Again

As the elections come closer, people one again start talking more about political prediction markets. In fact, they're well known enough that the the Wall Street Journal will now be featuring regular commentary on what the prediciton markets say about the various political candidates.

The pieces will be written by Wharton's Justin Wolfers. He's one of the sharpest young economists on the scene, and extremely well versed on the topic.

Click here to read his first piece.

1,000 Posts

I didn't realize it, but Financial Rounds just crossed the 1,000 post mark. That's a lot of time spent blogging.

The Sub Prime Crisis (From The Long Johns)

Here's a pretty good comedy piece on the Sub Prime Crisis

The Best line of the piece: "High Grade Structured Credit Enhanced Leveraged Fund!"

Where do I sign?

Saturday, December 29, 2007

Larry The Liquidator

I've started putting together my syllabus for the spring semester. I'll be teaching the advanced corporate finance class. I haven't taught this particular class for a couple of years, so I thought I'd change things around a bit this time. It's about 50/50 between lectures and cases, and this time around I think I'll play this clip from Other People's Money. It's the speech by Larry The Liquidator at the shareholders' meeting, and it's a pretty good representation of the PE/buyout/corporate selloff world's approach to things. It's also one of the best finance clips you'll find in any movie anywhere. .


Friday, December 28, 2007

"Shocking" Economics Facts

I thought this short Youtube clip had some very interesting facts. They illustrate just how amazingly large our economy is relative to that of most countries. Let's just say that I'm glad to be living here.

Back to CFA studies.

Boys Day and Night

The Unknown Daughter is going for a sleepover tonight at her cousin's house (about 80 milkes away in an adjoining state). So, Unknown Wife is using the opportunity to take an overnight herself at her sister's house (she lives near where the sleepover is, and this'll save an additional trip).

That means Unknown Son and I temporarily have the house to ourselves. He gets to watch Pink Panther Cartoons most of the day (he got the 6 Disk complete set for Christmas) while I spend my time going over material for CFA level 2. I teach in a prep program starting in about four weeks, and I'm taking the exam myself this June (assuming I passed level 1), so it's a good opportunity to get a bit ahead.

He's been having intermittent fevers (on one day, off the next) for the last couple of weeks. We know he had pneumonia, and is almost done with his antibiotics. But maybe he caught another virus. Either way, he's content to sit around and watch classic cartoons.

I'll probably watch some too.

Plus, this means I get to watch the buildup tonight to tomorrow night's big UFC fight between Hughes and St. Pierre.

Monday, December 24, 2007

The Law Is An Asset Class

Here's a new asset class - investing in litigation. It's not yet legal in the US, but in other countires, it's possible to fund a lawsuit in exchange for a stake in the proceeds. This seems like a logical progression - there's already divorce settlement financing. This just extends the range of claims on litigation to equity stakes.

My guess is that the investment (if it ever catches on) would have pretty low covariance with most other asset classes, so it could be a good hedging mechanism.

What's next - derivatives on lawsuits?

HT: Marginal Revolution

Trunk Monkeys

I just recently figured out how to put videos on the blog (so I'm slow - sue me). When I was showing it to the Unknown Kids, they both agreed that the Trunk Monkey videos would have to be among the first to be posted. So by popular demand, here's a compilation of the first six installments:

For those who aren't familiar with the Trunk Monkey, it was a series of web videos put together a while back by Suburban Auto Group.

If you're interested, you can buy Trunk Monkey gear at their online store here. For a while (and much to the Unknown Wife's chagrin), we had a Trunk Monkey sticker in the back window of our van). She hated it, but the kids and I were mighty proud...

Sunday, December 23, 2007

A Great Christmas Video

I try to stay away from most political things on this blog. But this Christmas Video from Fred Thompson pretty much hits all the right notes.

Here's Wishing A Merry Christmas To All (and safety to our men and women in uniform) from the Unknown Family.

Saturday, December 22, 2007

All Hail The Mighty Excel For Grading

As a finance guy, I'm pretty good with Microsoft Excel. MOst of my immediate peers use it for grading. But if you do, here are a few functions that you might find useful:

1) The IF function is useful if you have two different weighting schemes. For example, to give the poorly performing students incentives to push hard in studying for the final, I often tell the students that I will grade them using two different weightings on their grades - in one I put greater weight on the exams and quizzes that take place throughout the cours, and in the other I put more weight on the final (I assign them the higher of the two grades).

Use the syntax =IF(Scheme1>=Scheme2, Scheme1, Scheme2) where Scheme1 and Scheme2 reference the cells containg the scores under the two weighting schemes, and you'll get the higher of the two cells.

2) The LARGE function is very helpful when you want to pick N out of K scores (for example, if you calculate the average of quizzes after trhrowing out the lowest N scores). The Syntax LARGE(A1:J1,2), will identify the 2nd highest score out of the 10 elements soted in the array from A1 to J1. To calculate the average of the 8 largest scores in the cells from A1 to J12, I'd use the following syntax:

=(SUM(A1:J1) - LARGE(A1:J1,10) - LARGE(A1:J1,9)) / 8

In other words, I calculate the sum of all ten, then subtract the two lowest scores,and then divide by eight (make sure you keep track of the parentheses).

I Vant To Be Left Alone!

Like almost any college, we have a few folks who get upset at from time to
time. I just got this email from one of my more collegial fellow finance faculty at Unknown University:

I would like to let you know that I have decided that I am no longer going to belong to the Finance area faculty. When you or any other Finance area faculty correspond to the Finance area faculty in the future, please remove my name from the list.

-Dr. Hothead
And they say academics get all bent out of shape. I forwarded the email to the Dean, and asked if this means we get to hire a new faculty member. He hasn't responded yet.

Friday, December 21, 2007

Stick A Fork In Me - I'm Done

I FINALLY finished my grading for the semester.

The hardest part was reading about 20 investment analysis projects that averaged 20-25 pages each (basically a full-blown analysts report on a company of my choosing). Some of my students did a surprisingly good job of it. As for others...

The "best of breed" comment was something to the effect of

"The stock market has historically been a very effective way of valuing companies".

Oh well, it reminds me of the far side cartoon showing a class of dinosaurs and the teacher saying

"I'm afraid some of you won't be evolving next year"

Thursday, December 20, 2007

Tis The Season To Be Phlegmmy

Unknown Son has had intermittent fevers for the last couple of weeks - one day he has one, the next he doesn't. Finally, we took him to his pediatrician.

Turns out he has a mild case of pneumonia. So, it's back on antibiotics (nasty tasting stuff, there) for a couple of weeks.

The good news it that I have yet another excuse to avoid grading my last few projects - I have to be home with my son.

Of course, I could have just taken the projects home with me, but that wouldn't be any fun...

On the bright side, I've just about finished reviewing the Quantitative Methods section of CFA Level 2. Good thing, since I teach it in a few weeks.

Wednesday, December 19, 2007

A Good End To The Semester

Teaching can be frustrating, but it has its moments. I just ran into one of my best students - 3.9 GPA, got a CFA scholarship, is doing an honors project, etc...

Since he's planning on taking the CFA Level 1 Exam in June, he had some questions about how best to get started on the material. So, we talked for about a half hour, and I lent him my study notes so he could get started over the break (he hasn't yet gotten his material from Schweser and CFA Institute).

I wouldn't be surprised if he has the Accounting and Ethics sections (and probably the Quantitative Methods) of the CFA material locked down before he gets back from Christmas break.

If only I had a classroom full of students like him. But that would be too easy.

Tuesday, December 18, 2007

Our Students Are Still Ahead - But Monkyes Are Closing The Gap

I often tell my students that giving an idiot a financial calculator merely gives you a faster idiot.

I also tell them setup is the key to solving problems - you can train a monkey to push buttons on a calculator - just give him a banana.

Now it turns out that my analogy wasn't fair - monkeys are surprisingly good at mental math.

Unfortunately, my students aren't - once you take away their calculators, they're in trouble.

Sunday, December 16, 2007

Head Wounds Are Always Bleeders

Growing up in a family of boys, you quickly learn that any cut above the neck (no matter how small) bleeds far out of proportion to the seriousness of the injury. After all, there're a lot of blood vessels in the skin in the face and head. Yesterday, Unknown Son and Unknown Daughter found out too.

Since it snowed two days ago, he went sliding with the neighborhood kids, and promptly slipped on an icy patch - right into a classic face plant. So, Unknown Daughter comes running in, and when I look out the bedroom window, I see U.S. lying on the snow on his back with a large red spot staining the snow beside him and several kids standing over him with worried looks.

I ran out with a handful of paper towels (rule #1 - always swab the blood away to see how bad it really is before panicking). Luckily, it was only a bloody nose. So, I picked up U.S. and carried him back to the house (he could walk, but if you can't get carried when you're covered in blood, you can't get caried any time), and we watched Tom and Jerry for a while. Bloody noses DO go better with slapstick old-school cartoons.

He was extremley impressed a few hours later when he pulled a huge clotted bloody booger from his nose. Of course, he just HAD to show it to Unknown Wife and Unknown Daughter - he is a boy child, after all.

More snow today - just spent an hour shoveling it off the driveway and drove to Dunkin Donuts for the traditional Unknown Household Snow Day Breakfast: powdered sugar for the kids and chocolate covered for She Who Must Be Obeyed. As for me, I'm not picky as long as I have coffee to wash it down with.

Winter wonder Land - feh.

Saturday, December 15, 2007

How Can Markets Be Effificent If People Are such Morons

The always enjoyable Megan McArdale has a great piece explaining the EMH with the above title in The There's also a pretty good snark-war in the comment section between a trader who insists markets are easily beatable and someone else who pretty much shoots him to pieces.

Read it, and give it to your students.

Another Crop Almost In

At the risk of sounding like Chauncy Gardner, teaching at the university level is a lot like farming - there's a definite rhythm to the semester that mimics the farming calendar. In the off season, you prepare the soil (make changes to the syllabus, do some reading for new materials in your classes, etc...). During the semester, there's planting (the first week or so), pruning and weed pulling (usually done with exams and quizzes), and finally, at the end of semester there's the harvest.

I gave my last final exam yesterday. So, the crop's almost in. Now all I have left to do is grade them (and the remaining class projects) and I'm done with teaching-related stuff for the semester.

No cracks about vegetables, please (or at least, not too many...).

But as for research in the "off season", there's a lot to do:
  • I just yesterday finished my part of the work on one revise and resubmit (I'll call it R&R-1), which involved a fair bit of empirical work, and SAS programming out the yazoo. Now I can turn everything over to my coauthors, who'll do the remaining writing, and deal with the rest of the referee's comments.
  • Since my part of R&R-1 is done, I now get to work on another R&R (R&R-2) where I get to do most of the writing (both coauthors are not native speakers of English). Unfortunately, the referee was extremely picky, so there's much to do.
  • There's a third R&R (R&R-3) for which a coauthor is doing the first draft on the revisions (it's all writing - no new empirical work is needed). Then, he'll pass it back to me for further editing (I'm the "senior" writer on this one - the coauthor was my student previously). With luck, I'll finish R&R-2 before this one comes back to me.
  • Then, there's a piece with a former colleague and a former Ph.D. student. It was sent out and soundly rejected previously. So, we (actually, the former Ph.D. student) did a lot of additional empirical work. Then the former colleague did a rewrite, and I'll get to do the final buffing and shining. Hopefully, it'll come back to me after R&R-2 is done and before R&R-3 comes back to me).
  • Somewhere in there, there's another piece that I'm trying to finish before the FMA submission deadline. It's with another former student - we'd previously done a pilot study with interesting results. Since then, we've expanded the data set to about 5x its original size, and then ran some additional tests. If the coauthor can finish his part of the data work (mostly the coding of governance data from about 500 proxies) soon, we can write up the new results and send it off.
  • There are a few other pieces in various stages, but I'll save discussion of them until they move out of the "vaporware" category.
Luckily, I have almost five weeks before the next "planting". Looks like it'll be a busy time. But that's what makes it fun.

Thursday, December 13, 2007

More Good News On the Cancer Front

As I've mentioned previously, the Unknown Son was diagnosed with neuroblastoma shortly after his 4th birthday. He was successfully treated at Children's Hospital of Philadelphia, Memorial Sloan Kettering in New York City, and Johns Hopkins Hospital in Baltimore. We believe he went into remission about 3 1/2 years ago (see this previous post for more details, and an explanation why we can't say exactly when). But, since there was still one spot on his leg that showed up faintly on the scans , we continued to go to back to CHOP for quarterly checkups. We were fairly sure that it was a ganglioneuroma rather than active cancer, but we still had to play it safe.

We just got back from the latest checkup. This time around, U.S. had his first totally clean scan. So, we can be a lot more confident now that he's in remission.

Nice to get an early Christmas present, eh?

Tuesday, December 11, 2007

Financial Rounds Gets Its 100,000th Hit

Sometime yesterday, Financial Rounds had its 100,000th hit. Man - that's a lot of people with too much time on their hands.

But seriously, it's been a great experience. Now on to the next 100,000.

Sunday, December 09, 2007

Another Online CFA Resource

A surprising number of folks find Financial Rounds when searching about CFA related information. So, whenever I find information that might be helpful to those making the slog towards the designation, I'll post it here.

I was looking through my Sitemeter log, and I came across a number of hits from people who'd recently visited AnalystForum.Com. So, I checked it out. If you're working towards your charter, it's definitely worth a look-see. They have a number of online forums - one for each exam level, and a general one for everything else. There's a lot of information there, and a very open group of folks who are extremely willing to answer questons. And it looks like a great way to get linked in to a community of like-minded folks (and networking is always useful).

Saturday, December 08, 2007

CFA At Unknown University

This seems to be the season for things CFA-related. I've just seen the pool of students who've applied for CFA scholarships from Unknown University. We had eight apply, and the weakest of the bunch has a 3.4 GPA (and there's one student who's a finance undergrad currently getting a Masters in Accounting - definitely a plus when dealing with all the Financial Statement Analysis/ Accounting material on the exam).

So, I think we'll be able to pick five extremely good candidates. We also just found out that the local CFA chapter has a few additional scholarships to award, and that they'll be happy to let us do the initial sorting for the scholarships.

I'm particularly happy that seven of the eight applicants for the scholarships are my current or former students (one took me for three separate classes). So, they actually listened to some of what I'd been saying all semester.

On a somewhat related note, this Wall Street Journal article details the lengths that CFA candidates go to take the exam in India. And here I was worried that I had to drive a couple of hours to take it myself.

Friday, December 07, 2007

Twas The Night Before Finals

I read the blog "Rate Your Students" on a daily basis - it's the electronic equivalent of the lounge where the faculty share stories about students among ourselves. Here's their latest offering - Twas The Week Before Finals

‘Twas the week before finals
And all through the U,
The students were yawning
And some drooling too.

While papers are now due
Students are at the mall,
With not one single fear
That their good grade might fall.

“I can write it all one night,”
Thinks the tattooed pierced girl,
“I’ll just peek at a Wiki
And give it a whirl.”

They don’t come to class
There is always a reason,
These vary quite little
From season to season.

“A cold” has the tall one,
“With me it’s the flu,”
“My sister’s in jail
And Grandma’s dead too”

“Hangover” “flat tire”
“My boyfriend dumped me,”
“Alarm didn’t go off”
“Had to play with my Wii

“This class ain’t important,
Many other things are.”
With an attitude like this
Frat boy’s sure to go far.

“I’m going to med school
Organic’s the crux,
Have to go over anatomy
With my buds at Starbucks.”

“After that comes my psych
And the math quiz I missed.
Your class is ‘bout tenth
On my priority list.”

Outside my office
There arose such a clatter.
A line of students?
Now what is the matter?

Here come the grubbers
The beggars and thieves,
With the crap that they’re dishing
I’m going to heave.

“This paper is all mine.
I never would fake,
That you found it on Google
Is just a mistake.”

“You’ll ruin my average
My perfect grade,
A ‘C’ isn’t part
Of the deal that we made.”

“I pay tuition
You give me an ‘A,’
Then everyone is happy
And I’m on my way.”

“Get lost all you losers!”
I wanted to shout,
But the tenure committee
Would then throw me out.

I brought out a six pack
Some pills and a noose
But settled down with exams
and a vodka and juice.

For many this season
Is chock full of cheer
But for profs, December
Requires much beer.

Let the games begin!

Tuesday, December 04, 2007

One Step Closer To Fine

It's that time of the semester - the last week of classes. Whether they're a student or faculty member, everybody is tired.

The students in my Student-Managed Investment Fund gave their end-of-semester presentation to the Board that oversees the fund. In addition to the Board members, there were a lot of heavy hitters there: Unknown University's VP of Advancement (that's what we call the guy who is in charge of hitting up the alumni for money), the head of the Alumni Association, two Associate Deans of the college, and (of course) the Dean. So, it was a high visibility event.

The students nailed it. Everyone was impressed. They exceeded every one's expectations, and they made some very nice connections -the Board has some venture capitalists, a couple of hedge fund managers, and some big-time analysts on it. With luck, they'll be able to put some of the students in touch with some very nice contacts.

So, that's one more thing I can cross off my plate for the month.

Now all I have to worry about is:
  • The exam I'm giving Thursday that I've yet to write (that's tomorrow's work in a nutshell)
  • The three revise-and-resubmits that I've got to get out
  • The rewrite of another paper that got thrashed at a journal recently - we've spent the last two months retooling it.
  • The final exam I give in a week or so.
  • The 15 investment analysis projects sitting on my desk that have to be graded by Friday.
But the good news is that there's only 10 days left until my last exam is done, done, done!

Saturday, December 01, 2007

CFA Level 1

I took the CFA level 1 exam today. It was an interesting experience, and the first exam I'd taken in ten years.

At one time or another, I'd taught approximately half of the material on the exam (Study Sessions 2, 3, 11, 12, 13,14, and 18). But unfortunately, I put off studying for the remaining parts until about 1 week and a half ago). And there is a LOT of material in the Accounting and Econ sections, much of which is pretty involved. Luckily, people from my "tribe" (Ph.D-holding , alpha-nerd types) are typically pretty good at processing and retaining large amounts of material, and quickly.

I think I did fairly well - of the 120 questions in each session, there were probably 10 for which I had no clue and another 10-15 for which I was able to eliminate two of the four answers. For what it's worth, I finished the morning session a half hour early, and the afternoon session about an hour early. And this includes checking answers (I've always worked fast on tests).

Now I just have to wait until January/February to get results.

Ironically, now that I'm back at the Unknown Household, the next thing on my plate is to write about a half-dozen recommendation letters for students who've applied for Unknown University's CFA Scholarships (I also sit on the committee that makes the decisions, BTW). We give out five, and the local CFA chapter also has a few to hand out. It's a great deal for the students - it cuts the effective cost for the first exam from almost a grand to about $200, and also allows them to get study guides from one of the major test-prep vendors for $100 versus the usual $500 cost.

Since it's fresh in my mind, here are a few study tips to those studying for the exam in June. Realize that the suggestions are free (and probably either fairly priced or even a bit overvalued):
  1. Start early - the material isn't that difficult, but there is a lot of it. A LOT.
  2. As much as is feasible, spend at least a little time studying every day. If you have a study guide (i.e. Schweser's or Stalla's), keep one of the books with you at all times and try to squeeze in a half hour here and there - these little sessions help. If you're diligent, you can probably get in 5 or so hours a week just by filling in the down time that comes with many people's days (i.e. lunch, commuting on the train, etc).
  3. Work as many of the problems as you can well in advance of the exam (See #1). Much of the material is algorithmic, and you only learn algorithmic material by working through problems.
  4. When you work a problem, first try it "cold" (after reading the relevent material, of course). If you don't have a clue, review the material and then try it.
  5. Don't cheat by looking at the solutions until you've worked the problem - you learn more by finding out WHY your answer was wrong than by seeing the correct answer first.
  6. As a final thought on working problems, don't try to study by memorizing practice problems. By all means work them, but mostly as diagnostics. Get the material down first, then work as many problems as possible, but memorizing solutions isn't going to cut it.
  7. Get a study guide - both Schweser and Stalla have good ones (IMHO, Schweser's is better).
  8. Plan your studying so that you finish all your preparation with a couple of weeks left before the exam.
  9. Realize that even if you plan to be ahead of the schedule (see #8), stuff happens. So try to arrange things so that you have the last week or two before the exam largely free for final cramming. No matter how much time you put in ahead of time, you'll need the last week or two for final preparations.
  10. Schweser has a great book called Secret Sauce that has a lot of helpful tips for that final polishing).
Hopefully, I'll pass this level and use these suggestions for the Level 2 exam in June.

Of course, when results are in, you'll be among the first to know.

Saturday, November 24, 2007

I Just Declared Email Bankruptcy - Woo Hoo!

I looked at my email (my "real" email, not my Financial Rounds one) last week and decided it had gotten out of control - over 1000 old messages. I started deleting the old ones, but thought I'd never get it done - thee were just too many.

Then, I solved the problem by accident - I inadvertently ended up declaring "email bankruptcy".

I signed up for Hotmail's premium service a few years ago, since at the time it was the only one offering the capability of emailing large file attachments. The bill for renewal came due a while ago, and I forgot to renew it. So, Hotmail bumped me down to the "standard" version. In the process, they deleted all but the 200 or so most recent messages. Of course, this includes messages I received way back in 2006, so there probably wasn't anything I needed in the older ones anyway.

I feel much better now.

More on The Accrual Anomaly

Here's another paper on "tradable" patterns in stock returns. The CXO Advisory Group recently put up a summary of the study titled "Repairing the Accruals Anomaly" by Hafzalla, Lundholm and Van Winkle. The paper examines the pattern that stock market performance of firms with low accruals (i.e. the difference between the firm's earnings and cash flows) is significantly greater than the performance of their higher accrual counterparts. It does a pretty good job of examining Sloan's "Accrual Anomaly" with a few tweaks:
  • It corrects for the extent to which the firm is financially healthy, using Piotrowski's "financial health" indicator.
  • It measures accruals in relation to earnings rather than to assets
Their findings are that the accrual anomaly does a better job of sorting out investment performance for financially healthy firms. Their results are pretty strong (note- the following is CXO's summary):
  • A hedge strategy that is long (short) firms of high (low) financial health (ignoring accruals) generates an average size-adjusted annual return of 9.36% across the entire sample.
  • After excluding firms with the lowest financial health scores, a hedge strategy that is long (short) the 10% of firms with the lowest (highest) traditional accruals generates an average size-adjusted annual return of 13.64%, with 7.98% coming from the long side
  • Using the total sample, a hedge strategy that is long (short) low-accrual, high financial health (high-accrual, low financial health) firms produces an average size-adjusted annual return of 22.93%, with a 14.92% from the long side. (See the first chart below.)
Here's a pretty good grapic of size adjusted abnormal returns on the various portfolios. Note that financially healthy firms with low accruals earn a size-adjusted abnormal return of about 15% annually, while those in the "financially unhealthy/high accruals" group have negative size adjusted returns of about almost 10% a year.

Read the paper here.

It looks like my students in Unknown University's Student Managed Fund will have another indicator to look at next semester.

Thursday, November 22, 2007

Happy Thanksgiving

We're off to the Unknown Wife's sister-in-law's house for the family get together - it's great finally being close enough to spend the holidays with family without having to drive 300 miles.

I should emerge from my turkey and football-induced stupor tomorrow. Until then, here's wishing a Happy Thanksgiving to you and yours.

Sunday, November 18, 2007

Econometric Haiku

From econometrician Keisuke Hirano.
T-stat looks too good.
Use robust standard errors--
significance gone.
HT: Marginal Revolution

This hit home, since I just had to figure out how to do clustered standard errors for a paper. Lukily, my significance didn't go away.

Wednesday, November 14, 2007

Busy, Busy, Busy

Not much time for bloggery this week - here's what's on my plate:
  1. I have a conference (the Southern Finance Association annual meeting) to prepare for. I leave tomorrow and still haven't finished my presentation. Luckily, I've done enough of these that I can put one together in a couple of hours.
  2. I've giving an exam (well, actually, my grad student is proctoring it) on Friday while I'm away. It's written, but I want to give it one last checking over before I hand it in just to make sure. Even so, I'm sure there'll be some errors (there always seems to be).
  3. My students have a problem set due today, and I have to write up the solutions (I give one before every exam to give them some practice and "enforced study"). Since I hand it back today, I need to have it finished by 11.
  4. There's a revise and resubmit that I have to get back to my coauthors ASAP (I have to do a couple of empirical things). I'll see one of them at the conference, so it's pretty urgent to get it done (or at least, it'll be embarrassing if I don't).
  5. I have a revise and resubmit that must be finished by 12/10 when my coauthor leaves to visit China for a month.
So as usual, it's a big ball-o-crazy. Still, it beats a regular job by a country mile.

Wednesday, November 07, 2007

Faculty Meeting Bingo

I'm on my college's undergraduate curriculum and assessment committee, and I'm sure it's because of some egregious sins I committed in a past life. We had a meeting the other day, and after an hour and fifteen minutes, it was still going strong with no end in sight. So, I left to go pick up my kids. After looking at the agenda, I thought we could get 'er done in about 30 minutes, but that means they would have had to try something that was clearly out of their comfort zone - like SHUTTING UP AND FOCUSING ON THE MATTER AT HAND!

It seems like you have the same characters and scenes in far too many faculty meetings (the actual people and issues involved change from meeting to meeting, but the play remains the same).

A while back, I came across the game called "Buzzword Bingo" (as pointed out by some of my commenters, there's an Educational Buzzwords version and a Law School version known as "Turkey Bingo"). For those who aren't familiar with it, in the game of BB you get a Bingo card filled with common business buzzwords. You take it to a meeting, and when you hear an overused buzzword, you mark it off on the card. That way, what had been an irritating, overused phrase becomes something you get excited hearing.

I'm convinced there's a niche market for an academic version of BuzzWord Bingo that can be played at faculty meetings (particularly in committee meetings). The main difference between Faculty Bingo and Buzzword Bing is that you can have boxes not just for buzzwords but for cliched behaviors. I've listed a few options for the squares of the Bingo card, but I'll add others as readers send them in:
  1. A senior faculty member brings up the same sore point that he's been harping on for the last 10 years. It has nothing to do with the issue at hand.
  2. A spirited discussion breaks out about changing ONE word on a document that (at most) two people will ever read. The discussion goes around and around for an hour or more.
  3. The word "Rubric" (our new word du jour) is used. And I always thought Rubric was the character Steve Martin Played in Dirty Rotten Scoundrels. Also (from the Cynical Professor: the terms cognate disciplines, course embedded assessment, and subvention, from King Banaian: the terms student learning outcomes, program assessment matrix, degree map, and strategic cooperation (which I think is the antonym of sincere cooperation), and from Frank: the term "co-curricular " (often used in the same breath as "extra-curricular")
  4. Someone (usually the guy in #1) complains about how things have changed (i.e. students are so much worse, they used to have a 5/5 load, it was much harder to publish in top journals, etc...) since they they were starting out.
  5. Don't forget the ever-exciting "Let me give a little institutional background" guy. He is worth 20 dead minutes in every gathering. (also from Cynical Prof)
  6. Someone frets about how any disagreement will reflect badly upon the program / department / institution's 'mission. Bonus points for being in a very secular setting or campus while muttering about the same. (HT: Ancarett)
  7. The tired old hand who tells everyone that whatever's decided doesn't matter because nobody has any real power here, anyway. (HT: Ancarett)
  8. #s 11-16 are compliments of Mike Munger: When I was at [name of previous job university], we always....[what they did].
  9. I hear that in [name of department], they just got [n new positions, a budget increase, new space]. Why don't you get that for US?
  10. The "snatch defeat from the jaws of victory" guy. Committee chair reads proposal, clear that everyone agrees, if you voted now. But the Snatcher prepared a talk, and by golly he's going to give it. Starts by talking about how 25 years ago he proposed something like this (not MUCH like it, though), and was turned down. So, it's really time that anyone opposed then explains how they could have been so stupid. 7 or 8 people raise hands to respond. Vote is finally taken, an hour later, and it's 15-9. The 9 people, who were ready to support the proposal, end up sabotaging it because they are so angry at the Snatcher. After meeting, Snatcher congratulates self on "victory", since vote was positive.
  11. The by-laws guy. Either we are doing something not in the by-laws, or the by-laws need to be revised to reflect what we are doing.
  12. They guy who starts out with, "I'm going to support this, but..." and then runs down the proposal, or candidate, for ten minutes. Finishes with, "But I'm going to go along, and vote yes."
  13. The Dean's mouthpiece. "I don't think the Dean is going to like that. We need to think strategically!" This same person is perhaps the least strategic, and most politically inept, person in department.
  14. #s 17 & 18 are from Mike Barry: At our faculty meetings, there's always at least one blatant suckup. The dean will start the meeting off and the suckup will loudly thank the dean for all of his support (in something that made the suckup's job easier).
  15. We also have a social issues person. We could be talking about something like upgrade cycles for our computers and she'll somehow try to weave in a socially responsible angle. There are always a few faculty who, as soon as their hands go up, the rest of us groan. Of course, we have students like that!
  16. David Tufte contributed #s 19-23: The guy who insists that everything has an ethical angle that is in conflict with how we should present ourselves to stakeholders.
  17. The person who is secretary or otherwise in charge of documents who doesn't seem to be able to use Word, PDF or e-mail properly (usually you see this one on campus-wide committees
  18. The person who makes copies for the committee, but never makes enough - as if they had to type them all by hand.
  19. The former administrator who views the committee as a forum to perpetuate the views and continue the actions that got his butt booted out of the previous position.
  20. The student representative who never shows up for meetings.
  21. #s 24-25 are compliments of David Hammes: There's the "Oh, so what you're saying " or "Let me see if I understand you" guy who restates everyone's previous comments (oft times incorrectly), thereby dragging the meeting out even longer.
  22. The guy who "debates" himself out loud, changing his position with every comment he makes (kind of like Colin "Bomber" Harris)
  23. Someone says the word "Stakeholder". NOTE: this was found on the comments on Newmark's Door: "Personally, every time I now hear the word 'stakeholder' the first thought that comes to my mind is putting a stake thru the heart of the person who said it."
  24. Free-Wheelin' Guy: After anyone has presented their scheduled, carefully thought-out proposal, Free-Wheelin' Guy takes the floor for 20 minutes coming up with off-the-cuff suggestions for "Someone" to do. No-one ever does what he suggests (including him) but every meeting he still does his thing.
Any other suggestions? Put them in the comments, and I'll add them in as they come (with appropriate citation in the style manual of your choice). And pass this along to your friends. Once I get to about 40 or 50, I'll make up a handy sheet with boxes to check so you can keep track.

And thanks for playing...

Da Merc!

Here's a piece from Wallstrip on the Chicago Mercantile Exchange. It's a pretty good riff on the old SNL skit "Da Bears".

HT: Barry Ritholtz

Luckily, My Grad Assistant Hasn't Seen This

Monday, November 05, 2007

Tuesday, October 30, 2007

15 Laterals and A Touchdown

Now this is cool - on the last play of the game, Trinity College makes 15 laterals before scoring!

update: I've been corrected by one of my readers (thanks, Bob) - it was Trinity University, not Trinity College.

How To Keep Your Paper Within Page Limits

Once again, PhdComics nails it. My students are starting to hand in early drafts of their projects for my securities analysis class. I think I'll staple this to the back with my comments when I return them.

Think it'll help?

Saturday, October 27, 2007

Three Collections of Advice About The Academic Finance Job Market

I recently came across two very good guides to the academic finance job market in a journal called Financial Decisions (formerly the Journal of Financial and Strategic Decisions).

The first one, titled "The Academic Job Market In Finance: A Rookie's Guide" is by Timothy Falcon Crack and Alex Butler. It's floated around the Internet for a while, and it's a pretty thorough guide to the job market for candidates at research-oriented schools. In addition to providing a lot of very helpful tips, it also lays out a timeline that would be useful for anyone just starting out graduate school - the choices you make in the first year or two are very important to your eventual job search.
note: they have a short update with a few additional pieces of advice here.

The second piece, by Delbert Goff and Stephen Huffman, is titled "The Finance Academic Job Search: What your Advisor Might Not Be Telling You". It's geared more towards the market for jobs at schools that are more teaching oriented. It has a very good list of questions to ask when you interview.

I wish I'd found these before FMA - they could have helped a few of the candidates we interviewed for our position.

Friday, October 26, 2007

Reflections on Interviewing at The FMA Meeting

Now that I've been back from the FMAs for about a week, I finally have time to put some thoughts together about the experience. Although I've been in the job candidate's seat a number of times, this was my first time being on the "hiring committee" side of the interviewing table, and it was an interesting experience, to say the least. Here are a few thoughts, in no particular order (like many of my thoughts, but let's not go there):
  1. There was a huge (and noticeable) variation in the amount of preparation candidates had done on my school. If they didn't know anything about the school other than the location, it signalled a general lack of interest on their part (and resulted in a lack of interest on ours).
  2. A surprising number of candidates did a very poor job of what I call "setting the table" for their research. By that, I mean the anecdotal part of showing me why I should give a rat's hiney about their topic. As an example, consider a candidate researching the effect of syndicate composition on the outcome of an IPO: A bad candidate would jump right into their model and/or hypotheses, while a good candidate might first talk about a recent underwriting syndicate put together by Goldman, and what some of the salient facts illustrated about their topic.
  3. It's impressive when you can site literature to buttress your arguments and do it smoothly. It shows you have a good grasp on your literature. It's even better when you can bring it back to the big picture.
  4. I found out that I really like asking questions about factors that the candidate hadn't considered in their tests (for example, if they were examining some aspect of merger bid premiums, I'd ask how the composition of the institutions (transient vs. indexers) holding target shares might affect their analysis). My main interest wouldn't be their specific answer, but rather how they approach the question. Again, if they can link it back to important prior research, all the better.
  5. Here are some f the things that made candidates seem less attractive: not knowing their topic (or not caring) well enough to show me how it fits into things (see above), not taking care in answering questions (See above again), not at least making eye contact with everyone in the room (even if one is the dominant interviewer, we all count), and not having any good questions to ask US - it shows you're interested and know at least a bit about our institution. Make sure tehy're not dumb ones.
  6. We had one or two candidates that were extremely sharp - they were prepared, articulate, passionate, interpersonally gifted, and had great dissertations that they really had a grasp of. Of course, we have NO chance of actually hiring these people (we're a bit under the market salary. But at least they serve as a benchmark.
  7. The process can be stressful for the candidates, and stultifyingly boring for the interviewers. Regardless of which side of the table you're on, if you don't take careful notes, the interviews quickly run together.
  8. One candidate had 35 interviews! I have no idea how they either prepared for all of them or how they survived the stress. On a related note, this candidate was 10 minutes late for OUR interview. So, they had probably gone past the optimal number. And we're not sure we want to get into a "multiple bidder" situation. So, thanks but no thanks.
  9. We've met as a group since coming back, and have a short list of candidates we'd like to call for fly-outs. But before we can invite them, we have to clear the hurdle of our affirmative action office. And they're a picky and verrrry slow group. So, I suspect we'll get some sand thrown in the gears shortly, and we'll have to wait a while longer before the campus visits.
  10. You run into a surprising number of candidates (and their professors) at the cocktail party and at the bar. This is a good place to find out if they're the sort of people you want as colleagues. (the well known "soft" information). If they can loosen up a bit (but not too much), it's a plus. Even better if they've been reading any interesting books lately.
I'll post more on the process as it continues. Stay tuned

Thursday, October 25, 2007

The Financial Rounds FAQ

Note: Updated 10/25/2007

I looked up the other day and realized that I've been running Financial Rounds for over 7 1/2 years now (and have exceeded 400,000 hits and 1,000 subscribers). That makes me pretty small fry in the bigger blogosphere, but I'm very happy with it. If you've been reading for a while, you've picked up a lot of info on who I am, my background, and so on. But in case you're new to Financial Rounds, this will hopefully answer some of the questions you may have. So, welcome to the Financial Rounds FAQ page -- I'll update it periodically as time goes on. If you want to go back to the main page, you can click here. And if you want to contact me, you can send me emails at unknownprofessor-at-hotmail-dot-com.

When did you start the blog, and why?
I started blogging in February of 2005 mostly as a way to keep track of all the random Internet stuff I come across (like many nerds, I spend FAR too much time online). Originally, I thought it would be a good way to help me remember some of the interesting Internet resources (and bizarrely humorous stuff) I though might be useful in the classes I teach. And of course, once I started, it's just become a habit.

Why blog anonymously, and why the name "The Unknown Professor"?
I try to keep my blogging identity separate from my work one. So I thought it would be best to blog under a pseudonym. There's always the possibility that some of my colleagues might be offended by something I've written, or they might be afraid that I'll use the blog to air my department's dirty laundry. And that's always a temptation -- in any setting whee there are people involved, there will be stupidity, lack of common sense, or just plain nastiness (present company included). As the members of a group of guys I used to meet for breakfast with every Saturday would say, "We are not an impressive species".

So, rather than take the chance, I decided to play it safe. But it makes things interesting -- not knowing my identity forces people to evaluate what I say solely on its own merits (for all you know, I'm really a dog). In addition, I have to be careful not to reveal too many details on my research or my school.

My pseudonym comes from the late-70's comic known as the Unknown Comic, who did his incredibly schlocky comedy routine with a paper bag over his head. I guess that means at some point, I'll have to upload a picture of me at the blackboard with a paper bag over my head.

What's your background?
I received a Ph.D. in finance sometime in the 1990s from a pretty good (not top-tier, but pretty solid) university (FYI - for those of you who are wondering what's involved in getting a Ph.D., click here). Since then, I've been a college professor at a number of universities (including one stint where I was a visiting professor at a pretty good research school for a couple of years). I've published research in a number of areas (some are kind of accounting-ish, but most are squarely in the midstream of finance), and at one time or another I've taught classes on just about everything but derivatives and multinational finance. I'm interested in most finance topics (and a fair number of accounting ones too), and blogging helps keep me aware of a broader set of things that I otherwise might.

What topics do you blog about?
I pretty much write about whatever strikes my fancy. However, there are a couple of areas that I keep coming back to. I'd guess about half my posts are related to either Finance or Economics, and are usually prompted by things I come across in the news. For finance topics, I mostly comment on corporate finance and investment topics (after all, they're the topics I teach and do research on for the most part). I regularly discuss the trials, tribulations, joys, and general weirdness of the academic life. And of course, there's always my family: the Unknown Wife, Son, and Daughter (and others).

How about some personal information?
I'm middle-aged, been married to the same woman for pretty much forever, and have two great kids: the Unknown Baby Boy (age 2) and the Unknown Daughter (age 10). My formative years were spent in a blue-collar, northeast USA mill town where much of the town had immigrated from the same small Northern Italian village in the early 1900s. Many of my older relatives (and there were a lot, since I'm Italian on my father's side) spoke fluent Italian, and one of my relatives actually made his own salami and cured it in his basement (he may have actually caused a trichinosis epidemic in my hometown, and I may have caught it, but that's a story for another day).

Most of my later perspective on life comes from three things: I became a born-again Christian in my late teens, and have been fortunate enough to be surrounded by many wonderful, mature older folks who have been willing to kick my hiney when it's needed (and that occurs much more often than it should). I've been married to the Unknown Wife since just about forever, and she has most of the qualities I lack - tact, grace, and a great sense of what people are thinking and feeling. Were it not for her, I wouldn't even have the minimal levels of people skills I currently have (see Italian immigrant mill-town upbringing above). And finally, I had a child that suffered through a long battle with cancer before passing away a few years ago.

What are your favorite blogs:
I read FAR too many blogs, and definitely need to cull my feed reader. But there are some constant favorites: In the Econonomics area, I read Marginal Revolution, Econlog, Gregg Mankiw, and Freakonomics pretty much daily. For academic-related finance, Jim Mahar's far and away leads a relatively small pack. For non-academic finance, I regularly read Abnormal Returns and. And as for others, there's Protein Wisdom, Evangelical Outpost, and

Do you give investment advice (or stock picks)?
If you mean do I give stock recommendations, the answer is definitely no. I often comment on particular companies or investment vehicles, but mostly as a means to show how some goings on or other illustrates a larger finance or economics point. After all, I'm a believer that markets are efficient (or sufficiently close enough that you and I can't beat them consistently). So, giving stock picks would be inconsistent.

What makes your blog different from all the rest?
Other than Jim Mahar's, I'm still one of a relatively small group of bloggers who look at the finance world from the perspective of a finance academic. So, I'm naturally skeptical, and can comment on things from the perspective of what academic research has to say on the topic of the day (at least, when it has something to say). I also have a fairly good sense of humor and don't take myself too seriously (having been married to the Unknown Wife for 16 years has cured me of that). Finally, I may be one of the few bloggers that provide a window into the life of a finance professor.

Do you want to trade links?
While I occasionally find myself linkslutting, it's usually because I think something I've written might be interesting to other bloggers. I'm not big on link exchanges. If you think Financial Rounds is worth linking to, please do - I appreciate the traffic. Likewise, if you think your blog might be of interest to my readers, send me an email (unknownprofessor-at-hotmail-dot-com) and I'll be glad to take a look at it. If I think it'll be of interest to my readers (or if it strikes my fancy), I'll be glad to link to it without expecting a reciprocal link. Likewise if you've either written or come across something you think I might find interesting, send it along. Many of my favorite blogs were initially recommended by some of my readers.

I'm thinking of getting a Ph.D in Finance. Can I email you some questions?
Absolutely! I get about a dozen questions a month in that vein. It's one of the surprising parts of the blogging experience - a lot of my readers have questions about the life of a finance professor, grad school, research, and other related topics. There's a surprising lack of info out there that's available in an easily digestible form. So ask away. My advice is free, and usually fairly priced.

If you have any other questions, please send them in to (just remove the hyphens) unknownprofessor-at-hotmail-dot-com.

Tuesday, October 23, 2007

Alumni Networks Matter

Ever wonder how much impact a school's alumni network has on career success? In the world of Wall Street, apparently quite a lot. In this article, DealBook reports on the school connections of major Wall Times figures. Apparently, there's a lot of "school clusters".

If you want to see a pretty cool visual of the relationships, click here (it comes up small, but click on the image to enlarge it).

You could interpret the relationships as anecdotal evidence that networks matter. But I think it's just as likely that these top schools are the major producers of future "masters of the universe". So it's not surprising to see a lot of big form Wharton (for one example) or Harvard (for another).

Wednesday, October 17, 2007

The "Shotgun" Approach

Recently, I made a short post about a rejection we got from a journal, and noted that we'd "make a few changes and send it out to another journal". Robert Jensen (emeritus professor of accounting at Trinity University, and one of the earliest academic bloggers) picked up on this and made some very insightful comments on the research "Shotgun approach"
Most academics still actively seeking publication in research journals are playing the same game.

Think of each shotgun pellet as a research paper which in modern times is generally a co-authored paper that gives rise to more pellets (i.e., more papers) loaded into the shotgun shell. The "Shotgun Game" (my definition) is analogous to standing at one end of a football field and firing a 12-gage into the air while hoping that one or more of the tiny pellets will fall down on a target beyond the opposite goal line. At first the target is a very small Tier 1 academic journal target. There may even be several of small targets of about the same Tier 1 small size, especially when foreign journals are allowed to be targets. The game may be replayed several times with substituted Tier 1 targets until the player and/or the referees grow weary of repeated plays at the Tier 1 level. Then the player moves up to Tier 2 journals that have targets twice the size of Tier 1 journals and are, accordingly, easier (not necessarily easy) to hit. Then there are Tier 3 journals, Tier 4 journals, and on and on. Ultimately there are conference proceedings with targets that take up half a football field and are easy to hit even when played by blind researchers. Each shell fired is reloaded with pellets that missed the targets on earlier plays of the game.

Read the whole thing here (it's about a quarter of the way down, and the the easiest way to find it is to search on the page for Unknown Professor).

His comments, and those of the commenters who chime in, are pretty much on target. Unfortunately, Professor Jensen makes one mistake: he thinks I'm now tenured (I'm not yet). At my school, both the number and the quality of my publications count (unfortunately, they place more weight on numbers than quality). So, my interests are best served by getting stuff out quickly, particularly since I will likely go up for tenure in the next couple of years.

I admit, this strategy imposes some costs on the profession as a whole (particularly for the poor referees that have to read the stuff I submit). And the work I'm submitting isn't terrible - it's just admittedly not up to the standards I'd like to maintain in a perfect world. Were I aiming for tenure at a "top" research school, it definitely wouldn't be an optimal strategy.

However, here at Unknown University, quality counts within the department (quality meaning publications in either first or high second-tier journals), but numbers count within the larger college and with the Dean (yes, a Dean is someone who can't read but can count). And while Unknown Son was undergoing cancer treatment, I simply didn't have the energy to work on "big" projects. So, I started a lot of smaller things. They're not great, but they'll get published somewhere, and my dean will have things to count.

But I do hope to kick up my research in terms of quality (and I'll have to to get the tenure vote of at least one of the senior faculty in my department). I currently have three revise-and-resubmits that should all be resubmitted within the next month (unfortunately, all at lower-tier journals). Once these are off my desk, I'll have cleared out the "old" material from my research folder, and can start working on the higher-impact stuff.

We've gotten pretty strong positive signals from the editors on two of the three. So if those two hit, I could end up having 5 acceptances in my first eighteen months at the new school. Granted, they're mostly at lower-tier journals, it does give me some cover while I send out some pieces to higher-tier journals.

I agree wholeheartedly Professor Jensen that a great deal of research that gets done would be FAR better served posted on blogs or some Wiki-style forum. But the school I'm at is the one I plan on staying at (it's one of the three target schools I had when I graduated, and it took me eight years and 3 moves post-Ph.D to get here). So, I bite my lip and do what I have to to get tenure.

Nontenured faculty (particularly at lower-tier schools) have a difficult task that involves balancing two competing approaches: the "Shotgun" approach is unfortunately the optimal one for minimizing the risk of not getting tenure, and the "high quality" one (do only research that answers big questions and has a high probability of ending up in "top" journals) that most benefits the profession and makes it likely that they'll eventually end up at top research schools.

But no one ever said it would be easy.

Monday, October 15, 2007

Myerson, Maskin, and Hurwicz Win Nobel Economics Prize

Once again, I guessed wrong - Fama once again didn't get the nod. Instead, the prize went to three Americans who were instrumental in developing and forwarding the economics sub-field know as "mechanism design". Congratulations to Leonid Hurwicz of the U of Minnesota, Roger Myerson of the U of Chicago, and Eric S. Maskin, a professor at the Institute for Advanced Study in Princeton.
For more about them, read this piece in the NYTimes Online.

If I keep guessing Fama, I should eventually be right (as long as he stays healthy).

Friday, October 12, 2007

Getting Ready For The FMA

It's that time of year when a good part of the academic finance community is madly preparing for the Financial Management Association annual meeting. This year, it's not nearly as hectic for me as usual. I'm participating in a panel discussion and have one committee breakfast I have to attend, so there's not that much to prepare. In contrast, one year in a fit of temporary insanity I submitted three papers, of which all three were accepted. That seems to be a general rule - submit one paper and you often get rejected. Submit 2 or more and they all get accepted so you run around like you're on sugar and speed. At the same conference, I somehow ended up agreeing to discuss two papers.

Never. Again.

While I'm not presenting much this time around, my school is (unfortunately) interviewing for an assistant professor position (and in case you're wondering, I'm not accepting applications sent to the blog). So I get to spend the better part of 2 1/2 days sitting in a hotel room with two or three of my colleagues listening to one candidate after another tell us about their dissertations.

Since I'm at the other side of the table this time, there's not any pressure on me. But in exchange, there's the distinct possibility of extreme, mind-numbing boredom. Given all the b.s. I spread around when I was on the market the last few times, I guess this is just karma coming back to bite me on the butt.

So if you're a regular reader and you'll be there at the conference, send me an email and maybe we can have a drink. I may need it after interviewing.

Wednesday, October 10, 2007

Another Rejection Letter (Sniff!)

Just got aother rejection from a journal. I'm not all that surprised, because it was a pretty good (I think it was ranked #5 in it's area) journal and it was a stretch to send this piece there. But you never know - sometimes you catch a referee (and editor) in the right frame of mind.

Oh well, this just means we make a few changes and send it back out to another journal. I used to panic about this stuff, but I now know that most papers (if they're decently well done) eventually find a home somewhere.

I felt pretty good a couple of weeks back, since I had five pieces under review. But one of them got accepted (darn!) another came back with a revise-and-resubmit, and this one got rejected. So, I'm no longer "Mungo Compliant" - I fall short of the "three paers under review" standard. So it's time to get the R&R's off my desk and back in an editor's hands.

I have five other projects in various stages (two of them are actually somewhat completed working papers), but until they're submitted to a journal somewhere, they're nothing but vaporware.

So it's back to the academic salt mines...

Prediction Markets and The Nobel Prize in Economics

The lists of likely Nobel Economics Prize winners have started. I chose Eugene Fama for last year's prize based on his early work supporting market efficiency and his more recent work examining weaknesses in the tradional Capital Asset Pricing Model (CAPM). You've just gotta love an academic with the stones to turn his back on his career-making earlier work when he finds new evidence that contradicts it.

But last year, I came up with bupkes/nada/diddly. So this time I'll stick with the same hand.

In case you're interested, InTrade has opened trading in the Nobel Prize contracts. Fama's currently leading the pack in the econ trading, but it's still early.

HT: Greg Mankiw

Update: When I wrote the original post, I probably should have chosen my a better phrase than "debunking" when referring to Fama's recent work . I was referring to his work with Kenneth French on Size and Book-to-Market as proxies for factors with more explanatory power than the traditional CAPM "beta" in explaining returns. So a more correct way of describing Fama's later work would be "debunking the traditional CAPM model".

One way to interpret his work with French is that there are risk factors (size, book to market) other than the CAPM systematic risk beta that are priced in the market. So he's not exactly taking shots at the efficient markets hy[pothesis rather than at the risk-return model that was most often used to test it.

Monday, October 08, 2007

Interview With Victor Niederhoffer

Victor Niederhoffer is one of the more colorful figures in the investment world. He earned a Ph.D. from the U of Chicago in the 60s (where he regularly sparred with proponents of the Efficient Markets Hypothesis), was a national squash champion, and has seen it all, from being one of the top investment managers in the country to running a couple of hedge funds into the ground (and bouncing back to start others).

He wrote quite a few pieces on a site he started in the late 90's called One of them actually got me started on a research project (it didn't pan out, but it was still a good idea). He's also written a couple of very interesting books.

If you'd like to read more about him, here's a very good piece, compliments of It's pretty long (12 pages), but IMO well worth the time.

Friday, October 05, 2007

I Made It Through The Week!

I survived the week. And everything went well:
  • My trip to my former school went well - my student successfully defended her proposal, and won't have to do much more empirical work to finish her dissertation. She does, however, have to do a better job of fleshing out her literature review, hypothesis development, and discussion of results.
  • The class I taught on SAS programming was well received - the students were pretty engaged, asked a lot of questions, and seemed to get a lot out of the material.
  • My coauthor and I did a lot of work on our paper.
  • I survived the CFA class - it's the same modules I taught last year, so there was minimal prep.
  • My graduate assistant is working on the project I assigned (the one he was trying to duck earlier). He seems to have actually made some progress.
  • My students blew off class again today. So, those who showed up got another bonus. And in addition, they actually got to see the problem set that's due on Wednesday. And since there's no class on Monday, those that were absent pretty much gave themselves an auto-screwing.
And last but not least, I just got another revise-and-resubmit from a journal today. Now it's off to the Unknown Wife's Homecoming at her former school. We're spending a couple of days with a college friend of hers and touring the Big City on the way back.

Tuesday, October 02, 2007

A Crazy Week Ahead

It's yet another week where I've bitten off more than I should have:
  • I taught my regular classes yesterday (Monday). After my last class I met with my grad assistant to give him his first assignment for the semester. I'm starting a project on the effect of dividends on firm risk, and he's putting together the initial data set. So, I spent an hour with him going over the steps needed to be done, the layout of the CRSP data files, and a few SAS tips he might need to know (or research further). Right after that, another grad student stopped by with some "simple" questions on how SAS handles date variables (ironically, some of the same stuff I'd just gone over with grad student #1). One hour later, I finished with him and left to meet Unknown Family at Unknown Son's new dojo (karate school) for his first "group" class. He looked pretty sharp in his new gi (the uniform). But it was all I could do to keep from laughing as he repeatedly spaced out in class and started posing in front of the mirror (I think he's still more excited about the idea of learning Karate than he is about the actual learning itself). He's also completely smitten with the 12 year-old brown belt who was helping out with the class (I guess he didn't realize that it's always dangerous to go after older women who can kick your butt).
  • Once home, Unknown Wife went off to a parent's meeting for Unknown Daughter's Girl Scout troop while Unknown Son and I wrestled with his homework. After Unknown Wife got back and we got the kids to sleep, I ended up writing SAS code until midnight to put together a small data set for a short tutorial I'm giving to doctoral students at my former school (more on that in a minute)
  • Today I take the train to the nearby big city for the day. I'll spend the day in the library at a large research university gathering data (they have resources we don't, but graciously allow access to nearby faculty), and then teach a CFA prep class in the evening. After all this is done, I'll end up back at the Unknown House at around 11.
  • Wednesday, I teach classes until about 2, and then immediately rush to the airport for a short (1 hour) plane ride back to my old haunts. After landing, I'll work until the wee hours Wednesday night on a paper with a colleague (I'm staying at her family's place).
  • Thursday morning, I attend the dissertation proposal defense of one of my former students (I sit on her committee, and the colleague mentioned previously is her dissertation chair). Then in the afternoon, I give a two-hour tutorialto the grad students at the same school on basic SAS procedures used often in financial/accounting research .
  • After that, it's back on the plane and back to the Unknown Household for a few hours sleep.
  • Friday, it's back in the classroom, followed by a meeting with my grad assistant to check on his progress (he's tried to weasel out of a previous assignment, s0 this time he gets tight controls put on him - after all, if a corporate finance guy doesn't understand agency problems, he doesn't understand much).
Somehow, in the midst of all this I have to put up slides for the following week's classes and put together a problem set for my investments class (they have an exam next week, and I always give a pretty tough problem set the week prior to the exam as a form of "enforced" practice). And then there are the matters of the revise and resubmit that's sitting on my desk and the new project that my coauthors are breathing down my neck on.

But griping aside, I'll get it all done somehow. Even with all this, academia is still the best job in the world. I should know - I've had a number of "real" jobs, and there's no comparison.

Monday, October 01, 2007

More On Fundamental Indexing

In doing a bit of preparation for this week's classes (it's mutual fund week in my investments class) I came across a resource called The Journal of Indexes - put out by It has a wealth of information on indexing and index funds, and is well worth a look see.

To whet your appetite, here's a piece from the journal on "fundamental indexing", which I've blogged about before (i.e. here, and here). In case you're unfamiliar with the term, a "fundamental" index is one where the individual stocks in the index are weighted based on some "fundamental" factor, like cash flow, dividends, revenue, or profits. So in one sense, they're the close relatives to market capitalization-weighted (instead of weighting by market cap, they weight by dividends, sales profits, etc...). Proponents of fundamental indexing claim that cap-weighted indexes over-represent companies that have grown rapidly and are therefore likely to be overvalued. So, their reasoning for "fundamental" indexing is that it corrects some of this supposed mis-weighting.

The article, titled "Fundamental Indexing Smackdown", consists of discussions between two proponents of fundamental indexes (Rob Arnott and Jeremy Siegel) and one sceptic and promoter of traditional mcap-weighted indexes (Gus Sauter).

The three commenters are among the biggest dogs in the indexing pack, so the article is (not surprisingly) a pretty good one. Enjoy.

Friday, September 28, 2007

Another Article Accepted!

Seems like I'm on a roll lately (it's a slow roll, but a roll nonetheless). I just heard from a coauthor that a small paper of ours just got accepted. It's at a lower-tier journal, but at least we placed it somewhere (articles are like orphans - if they keep trying, they eventually find homes). The coauthor is a former student of mine who's done pretty well for himself - he started at a lower tier school and has published well over a dozen articles in four years (mostly at lower-tier journals, but one at a top-tier journal in a related discipline and several at just-below top-tier level).

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!"

The Unknown Son Takes His First Karate Class

We've been meaning to do it for some time, but we finally got around to it - the Unknown Son finally took his first Karate classes. We figured that it would help his strength, coordination and balance, and give him something of his own to do that's not shared by his sister.

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.

Stay tuned.

It's a Nice Day, So A Quarter Of My Class Is A.W.O.L.

It's a beautiful Friday here at Unknown University - it rained last night, and today is clear and sunny and about 80 degrees. So of course, 11 of my 45 students were absent from my investments class (they had a quiz Wednesday, so they figured "Why not? It's not like he'll give us a quiz!"

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

Good Early Results

I've been working for the last few months on a project that uses five (count em, five) different databases. It's taken me a couple of months to line up all the data (I usually end up doing the initial "data grinding" on these types of projects, since I like doing SAS work). We finally got initial some results, and they look pretty good - everything we expected to be statistically significant, was.

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.

A Website On Game Theory

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

The Class Continues

A pretty easy teaching day today - my investments class gets a fairly long quiz, and we begin coverage of mutual funds, ETFs, Hedge funds, and such.

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.