Thursday, March 22, 2007

What if Socrates' Students Filled Out Teaching Evaluations?

I just got the results back from last semester's teaching evaluations. They weren't bad, but they were a bit lower than I'd hoped. Some of it was teaching two new classed, and some was having a new population to work with - each student body is different, with different backgrounds, experiences, and expectations.

Each time I've been at a new school, my student evaluations have been between a half point and three quarters of a point lower (on a five point scale) than they are in subsequent semesters. I generally get pretty good evaluations, and part of it is that I view teaching as not just the transmission of facts but also as a performance. But I always need to adjust the performance for the audience.

So, since I was in a student evaluation frame of mind, I got a kick out of this piece from the Chronicle of Higher Education titled "Hemlock In the Classroom." It asks "what would students say on their evaluations if they had Socrates as a professor?" Here are some of the better parts:
This class on philosophy was really good, Professor Socrates is sooooo smart, I want to be just like him when I graduate (except not so short). I was amazed at how he could take just about any argument and prove it wrong.

I would advise him, though, that he doesn't know everything, and one time he even said in class that the wise man is someone who knows that he knows little (Prof. Socrates, how about that sexist language!?). I don't think he even realizes at times that he contradicts himself. But I see that he is just eager to share his vast knowledge with us, so I really think it is more a sin of enthusiasm than anything else.

...Socrates is a real drag, I don't know how in hell he ever got tenure. He makes students feel bad by criticizing them all the time. He pretends like he's teaching them, but he's really ramming his ideas down student's throtes. He's always taking over the conversation and hardly lets anyone get a word in.

He's sooo arrogant. One time in class this guy comes in with some real good perspectives and Socrates just kept shooting him down. Anything the guy said Socrates just thought he was better than him.

...My first thought about this class was: this guy is really ugly. Then I thought, well, he's just a little hard on the eyes. Finally, I came to see that he was kind of cute. Before I used to judge everyone based on first impressions, but I learned that their outward appearances can be seen in different ways through different lenses.

I learned a lot in this class, especially about justice. I always thought that justice was just punishing people for doing things against the law and stuff. I was really blown away by the idea that justice means doing people no harm (and thanks to Prof. Socrates, I now know that the people you think are your enemies might be your friends and vice versa, I applied that to the people in my dorm and he was absolutely right).

Read the whole thing Here

HT: Daniel Drezner, who probably uses the Socratic method in his classes.

Thursday Link Dump

Since I took yesterday off to see a matinee, today is a research day, with lots of statistical and computing goodness in store (mmmmm, data).

So, here are some links to keep you busy while I torture data:
With the election cycle starting to heat up a bit, I'll probably be logging more often about prediction markets. has a short guide to them if you're interested.

According to a UBS Investment Bank study, acquisitions of high market/book targets perform better.

Joe Carter at Evangelical Outpost has posted the latest installment of his Yak Shaving Razor Series.

For you movie buffs, Craig Newmark has a transcript of Danny Devito's classic speech as Larry The Liquidator in Other people's Money.

Dan Melson at Searchlight Crusade has written an excellent guide to shopping of a mortgage. Read it - the advice on his blog has saved me thousands of dollars. Hey - I may be a finance professor, but he lives with this stuff every day.
Enough bloggery. Back to work.

Wednesday, March 21, 2007

The 300 - A Fine Movie

Since I've had a pretty good week (and it's Spring Break here at Unknown University), I treated myself to a viewing of The 300. It was well worth every penny.

It's definitely not one to take your kids to (and probably not your wife either). It had its share of gore, but that was to be expected from adaption of a Frank Miller graphic novel (and about war, yet. So get over it).. But even that didn't seem as bad as you would have expected because of the somewhat otherworldly lighting and colorization they used.

I know, I know - the Spartans weren't nearly as honorable and praiseworthy in real life as they were depicted in the movie. Some of them were gay, and they were not nice in reality. And I can see how you could read political or racist overtones into the plot. But then, if you want to you can probably read them into just about anything.

But having said that, I can see why the movie has done as well as it has. It's not just that the camera work and special effects were striking (they were). And it's not because it was pretty violent and gory (it was).

Honor, respect, and courage are the themes of the movie. The Spartans depicted in the movie were the epitome of what used to be called "Stand up guys". They were willing to fight and die for a cause, and they went through it all with a definitely guyish and dark sense of humor. I particularly liked the scene at the end when Leonidas tells the traitor Ephialtes "may you live forever", as in "you don't deserve an honorable death in battle." A few people in the audience actually clapped and cheered at that point.

There are a lot of people who still go for those things in movies. And we're not all testosterone-drenched yahoos (at least, we're not JUST those things). So if you like a good guys movie, devfinitely see this on the big screen. I only wish there was an IMAX near me so I could have gotten the full visual effect.

Monday, March 19, 2007

Another Paper Finished

I made another step toward clearing out my backlog of unfinished papers today. I had a small project that's been in the works for a couple of years. For some reason, it kept getting pushed to the back burner by one coauthor or another (and more often than not, it was me doing the pushing).

This week, we finally said "enough", and we did the necesary work to finish the darn thing. I just finished the "final" rewrite and sent it to my coauthors. All they need to do is check to make sure that the sections I rewrote don't have any serious errors (grammatical or otherwise). So, it should get submitted sometime this week. All in all, it makes for a pretty good start to Spring Break.

And that will bring me up to three papers under review (all submitted this semester). Then I'll be in compliance with Mungo's Rule.

As an aside, the paper that got rejected earlier this week has already been sent out to another journal.

And as a reward, I think I'll check out the matinee showing of The 300 tomorrow.

Hillary / Vote Different Video

I try to stay away from politics on this blog since so many people get so vaporated about the topic that rational discussion becomes almost impossible. But I just saw the anti-Hillary Vote Different video on YouTube and had to comment.

For those of you who don't recognize it, it's a very clever riff on the classic Ridley Scott 1984 Apple ad. What makes it so interesting is that it probably didn't come from the Obama campaign. Most likely someone hacked it together on their home computer (probably a Mac). I think that YouTube will change a lot of the way political attack material gets spread.

And for what it's worth, I'm a supporter of neither Hillary nor Obama.

Saturday, March 17, 2007

Size Matters (if it's an interval) When Studying Market Efficiency

Here's a VERY interesting piece that all researchers on market efficiency and predictability should read. It's by titled "The Interval of Observation" by Jacobsen, Marshall, and Visaltanachoti of Massey University, and it has some pretty nice findings. Here's the abstract:
We revisit Kendall's (1953) conclusion that "the interval of observation may be very important". Contrary to his other conclusions on return predictability, this conclusion has received surprisingly little attention. Most tests in finance and economics routinely regress daily, weekly and monthly observations on daily, weekly and monthly observations, respectively. This is especially surprising because, while convenient, this convention lacks economic reasoning in many applications. Using similar data to Kendall (commodity prices and US, UK and World Stock Market indices) we show how conclusions regarding stock market return predictability vary drastically once we deviate from this convention. Even more surprising: conclusions whether or not stock returns are predictable fluctuate strongly for almost similar intervals of observation. In other words, had the "Demon of Chance" in 1953 offered Kendall slightly different intervals of observation, Kendall might have concluded that stock market returns were predictable.

Read the whole thing here.

Essentially, they find that while many series don't exhibit predictable behavior when using the prior month's return (one of the "standard" intervals used by researchers) as a predictor, they do when using other less standard but equally defensible interval lengths.

The key take-away of the paper is not that markets are necessarily predictable (or even that they're not), but that the choice of interval can make HUGE differences in the results.


Friday, March 16, 2007

Friday/Spring Break Link Dump

It's the last day at Unknown University before Spring Break. I have one class to teach at 11, but it's a minimal prep, since it's on Modern Portfolio Theory, a topic that takes little prep (I've taught it many times). In addition, it's snowing outside to beat the band, so the over-and-under bet for attendance in today's class (it's at 11, so the little darlings can sleep in) is about at 50%.

I realized I haven't been doing as many Link Dumps as usual lately, so here's one to keep you busy while I get something productive done:
Private Equity:

Equity Private at Going Private gives a response to the folks who are predicting the imminent demise of the PE party. The link's about a week old, but since the same story keeps popping up, you an just reread it periodically.

And in a somewhat related piece, Business Week highlights some smaller PE shops that don't generate the same publicity as the big boys. They nevertheless make very nice returns for their investors by focusing on smaller deals.

Investing & Markets:

Barry Ritholtz of The Big Picture and Davig Gaffen of MarketBeat comment on the role buybacks play in market returns.

CXO Advisory Group highlights three studies by Keith Anderson and Chris Brooks on approaches to adjusting P/E ratios. They find that the value-growth premium ( the amount by which low P/E outperform high P/E stocks) widens when they sort by adjusted P/E ratios rather than by "raw" ones.

10B-1 plans are intended to be essentially "insider stock sales on autopilot." They're a way for insiders to sell shares on a prearranged schedule and thereby avoid the taint of "informed trading". BusinessWeek reports on a recent study by Stanford Accounting Professor Alan Jagolinzer that provides evidence that insiders use these plans to exploit private information after all. It seems the SEC is now investigating these plans.

Brad Setser at REG Monitor links to a primer on some of the CDO and CDS (i.e. collateralized debt securities) products.

Trader Mike provides a list of short/inverse ETF's. For the uninitiated, these are essentially short (and sometime) leveraged bets on common indexes.


It's always great when you can find a freeware program that's useful. But navigating some freeware sites can be a pain. Sound Money Tips links to a couple of helpful and well organized sites.

Craig Newmark found a link that provides origins of the names of rock bands.
Enough bloggery for now. It's back to editing a paper. We hope to get it done and submitted this weekend. Then it's on to newer projects. In particular, I've got loads of analyst forecast data to torture.

It's like Torquemada said: "Give me an hour with a man in a room and I can make him confess to anything".

Update: Unknown University just cancelled classes because of the snow. Woo Hoo!

Thursday, March 15, 2007

A Quick Rejection

That was fast! I submitted a paper to a journal a few days ago, and I already got a rejection - the fastest one I've ever gotten.

Actually, it was what is known as a "desk rejection", where the journal editors make an initial judgement that the paper is not appropriate for the journal before sending it out to a referee. The decision wasn't surprising, since they editor pointed out a problem with the paper we were already aware of.

But, we didn't mind too much. In fact, I wish more editors did that (not reject my papers, of course, but make a quick decision). It's far better to get a rejection quickly than to go through the alternative: to have the paper sent out to a referee who takes several months to get back to you, get a revise and resubmit, satisfy the referee's demands, and THEN to have the editor tell you that the paper "doesn't make a significant contribution." That way I can either fix the problem or send it out to another journal quickly without having to wait six months or a year.

I know the editors of the journal are trying to increase the quality of the journal. Making quick editorial decisions like this are a good step - if authors know they'll get a quick decision (and yes, it was a reasonable one), they'll be more likely to send their work there rather than to a close substitute journal. And more submissions means more choices, and therefore higher quality publications.

As Shakespeare would say, "If the deed t'were done, tis best t'were done quickly."

At the other extreme, my colleagues and I have all had similar experiences at a particular journal that often takes 12-14 months to get a review back. That's not unheard of at econ journals, but it is WAY too long for a finance one (most of the better finance journals have a 2-3 month turnaround). As a result, we've all decided that we'll send papers there only if there's no reasonable alternative.

Now we figure out whether to fix the issues the editors mentioned or to just send it out to the next journal as is and roll the dice. I know one thing - it's not doing us any good on my desk, after all.

Research and Computers

My research productivity was way down since moving to Unknown University. Getting set up at a new school always takes more time than I expect, so the fall wasn't that productive. And the first part of the Spring semester was tied up with prepping for the CFA classes I've been teaching, which took far longer than I'd planned on.

But now that that's over, I'm back to research. So far this semester, I've submitted two papers to journals and gotten papers accepted at three conferences (granted, they're smaller regional conferences rather than the national ones, but it's a start). And this week, I should finish up a third (smaller) paper that's been in progress for FAR too long.

Now that I've cleared the deck of my older papers, I get to work on some newer ideas (caution: nerd alert ahead).

Without revealing too much information (after all, I am blogging pseudonymously), I've been working on a project lately that requires me to make pairwise comparisons between each and every security analyst who makes forecasts in a given two-year period. This results in over 25 million pairwise comparisons (and that's just for a two-year period). If you think this is a huge amount of data, you're right - it is.

But the truly amazing thing is how easily my computer can handle this. My setup is pretty basic - I'm running SAS on a 6 month old desktop machine with 2 gigs of ram. The program runs through one iteration of the analysis in less than two minutes. In the grad school days of yore, it would require a day or two on the mainframe, and I'd have to break the job into multiple parts to avoid crashing the system.

Life in the time since the meteor hit and the dinosaurs died is good.

Tuesday, March 13, 2007

Some Different Bumper Stickers

I have smart kids. No bragging, just a fact - Unknown Son probably reads a grade level (and maybe two) above his second grade classmates, and Unknown Daughter can add two two-digit numbers in her head and is still in kindergarten.

But I doubt I'll put a "My Kid Is An Honor Student" bumper sticker on our cars. For some reason, they just bother me (note: your mileage may vary, and that's o.k.). But here are a few that gave me a chuckle:

Insensitive? Yes. Tasteless? Probably. Funny? Absolutely.

For more, click here.

HT: Neal Boortz

Sunday, March 11, 2007

Another Paper Submitted

I just submitted another paper to a journal. While it's not a "top tier" journal, it's one of the best of the remaining ones. And a couple more publications at this level would be sufficient to lock in tenure at my current school. We figured there were several more things we could add to the paper, but there's a competing paper out there which is similar to ours. So in this case it's better to be quick and done than perfect.

It's always a good day when you send a paper off. At that point, it's off your desk and out of your hands (at least until you get the referee report back in a few months).

We figure that if the reviewer likes the idea and wants changes made or additional work done, he or she will tell us. If not, we just saved some work. And time is of the essence here.

So now I have two pieces under review. I still fall short of Mungo's Rule (i.e. have at least three papers under review at all times), but now I'm within shouting distance. And I have another that I think I can finish within the next two weeks (the week after this is Spring Break at my school, so I can work without distraction).

Friday, March 09, 2007

Friday Link Dump

It's the weekend, so it's time to clear out my Bloglines account. Here are the things that have been accumulating for the last few days (in no particular order):
The Wall Street Journal has a piece today on how ETFs affect the float (shares outstanding) for smaller stocks.

The New York Times highlights the SEC's Operation Spamalot, aimed at investment scam spam.

In travel-related pieces, Sound Money Tips discusses travel-related search engines, and Craig Newmark links to 7 Amazing Travel Secrets.

Joe Carter at Evangelical Outpost has put up the latest installment of his Yak Shaving Razor Series

Finally, Abnormal Returns has a collection of links on the theme that correlations in asset classes increase in times of market drops.
That's enough for now - time to kick back with some colleagues at the local tavern to celebrate the end of the week.

Thursday, March 08, 2007

An Easy Day

Wednesday was my last night teaching CFA prep for the spring. This is great news, since between prep time, teaching, and traveling, I probably get an additional 15-20 hours of "free" time a week from here on out (it seems like a lot of time, but most of the time costs were because of prep time since it's the first time I'm teaching it and I'm neurotic that way).

The money was great, and getting to talk with so many varied people in industry was extremely enlightening, but I'm just realizing now how much of a drain it was both on my time and on my body (the lack of sleep was probably a big contributing factor to my being sick for the entire month of February). Next time around it should be much easier, since most of the curriculum stays unchanged from year to year.

Today was a bit of an off day. I went in to the office to get some things done for class tomorrow, but mostly I did some organizing and cleaning up. Now that I can see my desk again, I'm eager to focus on my research for the rest of of the semester. I have two conferences to go to (the Eastern Finance Association meeting in New Orleans in Late April and the R.I.S.E. Symposium in late March, but other than that, I don't have a lot of constraints on my time.

My goal is to get two more papers under review by the end of the semester and one other working paper completed. It's a doable goal since I should be done with the final edits on a paper within the next week or so, and I've got also got another in its final stages.

On a lighter note, the Unknown Wife and I took the Unknown Kids' to a movie night at their school tonight. It was loud, but good. Just picture 150 1st-4th graders in a gym watching "Open Season" and you'll get the picture.

Tuesday, March 06, 2007

More on I/B/E/S Revisions

Back in November, I mentioned a working paper by Ljungqvist, Malloy, and Marston titled Rewriting History. In it, they find evidence that the analyst recommendations and forecasts in the I/B/E/S analyst forecast database were altered after the fact in several ways:
  • Alterations of levels of recommendations (i.e. changing a strong buy to a buy)
  • Additions and deletions of records
  • Anonymizing (i.e. removing the analyst names from recommendations)
Thomson subsequently attributed the changes to technical glitches and argued that the authors' results were merely due to their having used the wrong data tapes. Following Thomson's defense, the authors withdrew the paper.

Now it's back, with even more interesting results. The revisions they document have systematic patterns to them:
  • Additions were far more likely to be of the "hold" or "sell" variety
  • Deleted records were far more likely to be of "buy" or "strong buy" recommendations.
  • Alterations were primarily seen on "buy" and "strong buy" recommendations, which were subsequently revised downward."
  • Anonymization" of recommendations is more likely for bolder recommendations, for more senior analysts, and for those who had Institutional Investor "all star" status.
  • Changes were more likely to be seen in the records of larger investment houses, whether measured by analyst staff or the size of their investment banking operations.
  • Finally, changes pretty much never were seen for brokerage firms that subsequently ceased operations - only for those that survived.
As a whole, these changes make a "revised" brokerage firm's recommendation pattern appear less optimistic after the fact. The overall impact on optimism might not be that large, since only about a sixth of all stocks are affected in a given year. But for the affected stocks, it does make the recommendations appear significantly more conservative than they originally were (particularly in the latter part of the 1990s, when analyst optimism got a lot of scrutiny).

The paper also does some nice testing to see whether the changes affect the usefulness of analyst forecasts and recommendations for making trading strategies.

A good read, and recommended for anyone who uses I/B/E/S for research or trading purposes.

HT: Barry Ritholtz at The Big Picture (who, as usual, has a better title for his post than I do).

Monday, March 05, 2007

Do Industries Lead The Market?

The title of this post comes from an article of the same name by Harrison Hong, Walter Torous, and Rossen Valkanov in the February 2009 Journal of Financial Economics (one of the top two or three academic finance journals). Their answer is "yes". Here's the abstract (emphasis mine):
We investigate whether the returns of industry portfolios predict stock market movements. In the US, a significant number of industry returns, including retail, services, commercial real estate, metal, and petroleum, forecast the stock market by up to two months. Moreover, the propensity of an industry to predict the market is correlated with its propensity to forecast various indicators of economic activity. The eight largest non-US stock markets show remarkably similar patterns. These findings suggest that stock markets react with a delay to information contained in industry returns about their fundamentals and that information diffuses only gradually across markets.
It's a bit heavy on the math for a typical undergrad or non-quant-jock, but well worth discussing in an investments class. My take on the article (at least as far as using it in the classroom) is that it provides pretty interesting evidence that economic fundamentals matter, and that markets are forward looking. Yeah, I know - these aren't new findings. But since I'm teaching CFA, I've been talking a lot about "fundamentals" (it's a big emphasis in the program). So it's been on my mind.

One More Week

It's another busy week, but this should be the last one for a while. This is the last week I teach CFA for the semester. It's taken a lot of preparation, since the class moves fast (lat week, in a 3 hour session, I covered almost 115 PowerPoint slides). So, having it end will be a major boon to my time. Tomorrow's session is relatively short, but I'm also giving an overview/summary of the last three modules. So, that'll take some time to put together.

I also have an 40+ page article to edit for a couple of coauthors. So, it's busy, busy, busy...

But at least my lungs seem to have cleared up.

Sunday, March 04, 2007

Mixed Martial Arts

This is a bit off my usual fare, but it was a real "guy's night" last night. I've been working a lot lately, and made a few extra $$, so I ponied up for Pay Per View and watched the UFC Mixed Martial Arts fights last night. It was worth every penny.

They had two former champions who'd just lost their titles (Matt Hughes, a welterweight and Rich Franklin, a middleweight) who were both in their first fight since losing, and a retired 4x champ (Randy Couture) who came out of retirement to fight reigning heavyweight champ Tim Sylvia.

All the "good guys" won. And in the title bought, the 43 year old Couture completely dominated the 30 year-old, six-inch taller, 40-pound heavier Sylvia. He manhandled him on the ground (not surprising - Couture's a top wrestler), but he even beat Sylvia at his own game (on his feet). They don't call him "Captain America" for nothing.

Not surprisingly, the Unknown Wife opted out and went to bed early (it started at 9:30 and didn't end until about 1 a.m. She asked why I enjoy this so much. Well...
  1. I played competitive Judo in college and took a couple of years of taekwondo in high school. So, I know just enough to appreciate just how technically good they are (it's not just a bunch of guys slugging away at weach other. They're amazingly skilled.
  2. Having competed in a number of sports, I appreciate the whole competitive thing. The pre-competition "whoop whoops" in the stomach before a competition are something that's hard to describe if you haven't experienced them. But of everything I've done, there was nothing like the feeling of anxiety before a Judo match. There's just something about facing someone one-on-one -- it's probably the purest (and potentially most daunting) form of competition out there.
  3. Finally, the fighters are almost without exception stand-up guys. Very few of the top guys talk much smack (in fact, Hughes is a churchgoing Illinois farm boy and Couture said he'd dedicated his fight to "Jesus Christ who stood up and died for our sins and the American Soldier who stands up and fights for our freedoms." ). And it's pretty cool to see two guys try to beat the hell out of each other and then hug and laugh with each other once the fight's over.
Anyway, it was a nice change of pace for some entertainment.

But I made a tactical error - we were out of chips and salsa, so I had to snack on edamame during the show. That's just a bit too froo-froo for fight night.....

Saturday, March 03, 2007

Interview With Myron Scholes

Holman Jenkins recently conducted a must-read interview of Nobel Prize Winner Myron Scholes. It's available in today's Here are a few choice nuggets:
...Why can't things always be smooth and nice and predictable? Myron Scholes, operator of the hedge fund Platinum Grove Asset Management, says you wouldn't like it if they were.

...Start with the commonplace that risk is one side of a coin whose other side is reward. "We all have a taste for it," he says. "In life, it would be kind of boring if there was no risk. On the other hand if there's too much risk, too much uncertainty, too much chaos, we can't handle it either. We simultaneously want order and disorder, simultaneously want risk and quiescence."
And my favorite, when asked about the now-famous (infamous?) Long Term Capital Management failure (note: emphasis is mine)
He readily acknowledges that the episode was financially and personally embarrassing: "In life you pay tuition, right? Sometimes you pay too much tuition. Sometimes learning is costly."
Read the whole thing here. All in all, it's a fascinating look at one of the most influential financial thinkers of our times, and an easy read to boot.

Friday, March 02, 2007

Friday Link Dump

It's been an interesting day at Unknown University. We had a huge storm blow through, and there was flooding in many buildings around campus. Unfortunately, one of the buildings housed the university servers, and they had to shut down before there were short circuits that could really mess things up. As a result, they cancelled afternoon classes, and I've had no internet access all day. In any event, there have been a few interesting things that came across my bloglines account, so I thought I'd post a Link Dump before I turned in for the night.
At the Super Returns PE conference, someone asked a number of PE bigwigs what keeps you up at night worrying. Dealbook reports their answers.

Barry Ritholtz at The Big Picture put up some very nice analysis of of issues surrounding Tuesday's big stock market decline. And in a related piece, he presents the Top Ten Myths of Tuesday's Correction.

Greg Mankiw's top-selling economics principles text is centered around Ten Principles of Economics. Yoram Bauman (the world's only "stand-up economist") gives the unofficial, humorous version in this video.

The Wall Street Journal (online subscription required) reports on a large insider-trading scheme involving over a dozen individuals at investment banking firm UBS AG and several hedge funds.
That's all for now, folks.