Thursday, May 28, 2009

SAS is the Devil

I've spent 10 hours over the last two days debugging a SAS program I wrote about 2 months ago. It was written for a paper that's coming along nicely, but I haven't revisited the data (or the program) for a while.

Unfortunately, I didn't document the program very well.

I thought, "well, all I have to do is run this one test. That shouldn't take long."

Cue Jaws theme song and commence profanity


When will I learn?

Now that I've gotten down to a part of the program that has to run for a while (merging two VERY large (> 50 gig) datasets), I can take a break.

update: It finally finished running. It "only" took 14 hours (yes, that's right, 14 hours). And that's after having used every trick I knew to make it more efficient.

Monday, May 25, 2009

Memorial Day

It's Memorial Day - time to remember and honor all those who fought to preserve our way of life.

As I've done in previous years, here's a link to Ronald Reagan's classic "The Boys of Pointe du Hoc" speech, given in commemoration of the 40th anniversary of D-Day (compliments of American Rhetoric).

After that, go see this PowerPoint file sent to me by Bob Jensen. If you don't have Powerpoint click here to view it without music. If you do have it, download the file here (both stored on DocStoc).

Now it's off the the movies, followed by charring some animal flesh on the grille.

Googlenomics, Auction Theory, and Hal Varian

Like many programs, the Unknown Alma Mater's doctoral program used Varian's Economics text for our Micro Sequence. So, I perk up when I hear Varian's name mentioned.

It turns out he's Google's Chief Economist (who knew - Google has a chief economist?). A recent Steven Levy piece in Wired magazine talks about the ways the company uses economic theory (and auction theory in specific) in their Google AdWords program. Here are a couple of snippets:
At the time, most online companies were still selling advertising the way it was done in the days of Mad Men. But Varian saw immediately that Google's ad business was less like buying traditional spots and more like computer dating. "The theory was Google as yenta—matchmaker," he says. He also realized there was another old idea underlying the new approach: A 1983 paper by Harvard economist Herman Leonard described using marketplace mechanisms to assign job candidates to slots in a corporation, or students to dorm rooms. It was called a two-sided matching market. "The mathematical structure of the Google auction," Varian says, "is the same as those two-sided matching markets."

Varian tried to understand the process better by applying game theory. "I think I was the first person to do that," he says. After just a few weeks at Google, he went back to Schmidt. "It's amazing!" Varian said. "You've managed to design an auction perfectly."


AdWords was such a hit that Google went auction-crazy. The company used auctions to place ads on other Web sites (that program was dubbed AdSense). "But the really gutsy move," Varian says, "was using it in the IPO." In 2004, Google used a variation of a Dutch auction for its IPO; Brin and Page loved that the process leveled the playing field between small investors and powerful brokerage houses. And in 2008, the company couldn't resist participating in the FCC's auction to reallocate portions of the radio spectrum.

Google even uses auctions for internal operations, like allocating servers among its various business units. Since moving a product's storage and computation to a new data center is disruptive, engineers often put it off. "I suggested we run an auction similar to what the airlines do when they oversell a flight. They keep offering bigger vouchers until enough customers give up their seats," Varian says. "In our case, we offer more machines in exchange for moving to new servers. One group might do it for 50 new ones, another for 100, and another won't move unless we give them 300. So we give them to the lowest bidder—they get their extra capacity, and we get computation shifted to the new data center."

Read the whole thing here.

Sunday, May 24, 2009


I also run a blog for Unknown University's Finance department. Unfortunately, I seem to have inadvertantly changed a setting on the blog (either that, or I've got some kind of virus).

I was just trying to post something on the blog, and when I typed anything in, it immediately transformed into different characters. For example, if I typed in


It displayed as


Can anyone tell me what's going on, and how to fix it?

update: yes, I am an idiot. Somehow, I had enabled the "tranliterate into Hindi option" in the settings.

Saturday, May 23, 2009

Interesting Times In The Unknown Household

For a number of reasons, I haven't been blogging much:
  • First off, I'm still in post-semester recovery mode. This happens every Spring - after the semester is over, I need a week or two to decompress, clean out the detritus of the year from my office, and kick back a bit before refocusing on my summer research goals. This time around, between the timing of exams and faculty meetings, it was worse than usual.
  • Second, we've catching up on some "family time". We offloaded the Unknown Baby Boy (UBB) to the Unknown Sister-in-Law and took the kids to Six Flags in Lake George for a couple of days. Unknown Son is currently into a minor Looney Tunes obsession, and they have an entire section of the park with an LT theme. Without UBB, we got to focus on the older two kids, and we even got a couple of good nights' sleep.
  • We're also cleaning up the Unknown House. Because of all the craziness we've had this spring, we're doing Spring Cleaning this time around in June.
  • Meanwhile, we've been arranging some pretty cool stuff for the kids. There's an organization called Famous Fone Friends that works with sick children. They've arranged to set up a meeting between Unknown Son and the author of one of his favorite book series (he lives about 80 minutes from us, and agreed to meet Unknown Son for lunch at a nearby restaurant for lunch). In addition, U.S. will be getting a phone call from Sam on iCarly. The organization also sent Unknown Daughter an actual script from the Hannah Montana show (her favorite), so she's also pretty excited.
On an unrelated note, we just got some potentially disturbing news regarding the Unknown Son. A recent CT scan showed a couple of irregularities in his lungs. We'll be doing a biopsy next week so we'll be keeping our fingers crossed.

Next week continues the crazy pace. We travel to my sister's house for Memorial Day, have a meeting with the Stem Cell Transplant unit at Children's Hospital of Boston on Tuesday (if the irregularity mentioned above turns out to be nothing, this will be the next step in his treatment), and have a biopsy to check out the irregularity in U.S.'s scan scheduled on Wednesday. So, regular blogging might resume by the end of next week.

That is, if my head doesn't explode before then...

Monday, May 18, 2009

Grading - The Gift That Keeps On Giving

Sometimes I think I'm in a Godfather movie (i.e. "Just when I think I'm out, they pull me back in").

Actually, it's my own fault. Last week, I had a touch schedule: lack of sleep, doing executive education, an all-day faculty meeting, and only 48 hours between my final exam and when grades had to be posted. With all that, I somehow managed to get it all done.

Or maybe not.

Turns out I made an error in my grading spreadsheet. Not surprising, since I use the excel functions quite a bit in grading - I pick the highest "n out of k" quizzes, weight the exams differently based on whether then grade on the final is better than on one or more of the earlier exams, and have a few other curves built in.

As a result, I usually spend a LOT of time debugging the spreadsheet before assigning final grades. But not this time.

So now I have to file about a half-dozen grade change forms.

Grading - the gift that keeps on giving.

With a bit of luck, I should be able to get back to productive stuff by this afternoon.

update: regrading is done - only a few grades actually needed to be changed. Now, back to research!.

Q&A With Myron Scholes

Here's a short "Crash Course" interview with Nobel Laureate Myron Scholes, conducted by Deborah Solomon.

The guy's got a sense of humor. Who'da thunk it?

Thursday, May 14, 2009

Stick A Fork In Me!

The semester is now officially over at Unknown University. I gave my last final Tuesday afternoon (the last slot in finals week). Unfortunately, grades had to be turned in by 4 today (only 48 hours later).

I finished the almost all the grading last night at 3 a.m. (except for the final assigning of grades). So, it looked like the coast was clear.

Unfortunately, nothing is ever easy in the Unknown Household.

This morning, Unknown Elder Son was looking and feeling washed out. So, after a quick trip to the local hospital to have his blood counts taken, it turns out he needed a blood transfusion (not an uncommon thing - anemia is a common side effect of chemo).

Unknown Wife took him in for the transfusion, and I got to attend the faculty meeting with the Unknown Baby in tow (he slept through the entire morning, which is probably the best course of action when on a faculty retreat). After lunch, I left to feed him and drop him off at a neighbor's house for the afternoon, so I could finish the grading.

Now it's off to Six Flags for the weekend. Since the Unknown Sister-In-Law is taking care of the little one for the weekend, it'll be almost like we're a family of four again.

Sunday, May 10, 2009

Happy Mother's Day

We're off to a neighboring state to visit my mother for Mother's day. It'll be the first time my side of the family gets to see the Unknown Baby Boy in person.

As for the rest of my life, I have a final exam to write for Tuesday, followed by an executive education class on Wednesday, a Faculty retreat on Thursday, and a trip to Six Flags in Lake George over the weekend (Unknown Older Son is a big Loony Tunes fan, and we wanted to go there before his stem cell transplant in early June).

So, blogging will continue to be light for the next week or so.

Now go tell your Mother (or the mother of your children) how much you appreciate her.

Thursday, May 07, 2009

A Good Conference, Followed By More Crazy

I thought I'd put a few impressions of the EFA conference from this past week. While pretty short, it was a very good time: catching up with old friends, making some new ones, getting a lot of work done, and SLEEEEEP!

Because of all the other stuff going on in the Unknown Household, I was only able to get away for a day, so I took an early Friday flight to Baltimore, followed by the train to Washington. I arrived at the conference hotel just before lunch. Between 11:00 Friday and 1:30 Saturday (when I took the hotel shuttle to the airport for my return flight) I
  • Had two papers presented (both were presented by coauthors), and received good comments on both. In both cases, the papers were well received by the discussant and the audience.
  • Met with coauthors on three papers (the two mentioned above and a third one that's also coming along nicely). On two of the papers, we just talked briefly to discuss what needs to be done next to get them out the door. On the third paper, my coauthor and I spent about a hour applying various methods of statistical torture to the data, yielding some pretty nice confessions (oops! - that would be "results").
  • Arranged to present a paper at my undergraduate Alma mater in the fall. I know a good number of the faculty, none of which were there back in the dark ages when I was an undergrad. We've been talking about my coming to present some of my work for some time, and it looks like it'll finally happen
  • Talked with another potential coauthor about combining some of my data with his methodology.
  • Most importantly, I went to bed by 9:30 and (since there was no-one clamoring for a 3 a.m. feeding) slept almost 9 1/2 hours without interruption. Woo Hoo!
Just to show that nothing ever changes for long, when I got back, I called the Unknown Wife, and she said it was all right to go to a book store and veg a bit (it's one of my favorite ways to decompress).

Of course, this was followed by a second phone call an hour later telling me that Unknown Son was getting nosebleeds. We called the on-call oncologist and was informed that he was likely low on platelets (they are the clotting factor in the blood, and often get depressed following chemotherapy). So, it was a quick drive home, followed by a trip to the ER, followed by an overnight stay at the hospital so he could get a platelet transfusion (since it was the weekend, we couldn't do it on an outpatient basis.).

He was discharged the next morning, and all's been quiet since.

For now.

Next Semester Should Be Interesting

We're winding down the semester at Unknown University (only one exam to go, and I'm done). So, I was looking ahead to next semester (hey - I was on the train, and had little better to do for an hour and a half), and I realized that it will be the most interesting and varied teaching load I've ever had. Here's the lineup:
  • Fixed Income: This is a new prep for me. It's an overview of the Fixed Income field, and is taught with a standard lecture approach. My goal is that students coming our of the class would be comfortable discussing anything they'd be thrown in an interview for an entry-level FI interview. At a minimum, it'll cover everything on the FI section of the CFA Level 1 exam, and about half of the CFA L2 FI material. I approach courses like this in a very structured manner - I give the students in a course like this very explicit guidlines as to what they should be able to explain or calculate (these are similar to the Learning Outcome Statements used in the CFA progtam), and give them a series of problem sets to drive home the material.
  • Advanced corporate finance: This class is taught primarily using the case method. As a result, I spend as little time lecturing as possible (mostly to give basic background on a topic that might be addressed in a case). It's highly interactive, and while I choose the cases with some major themes in mind, the actual topics discussed in any given class run from pillar to post.
  • The Student-Managed Investment Fund class: This class involves a small (10-15 students) managing a real-money portfolio. Most of them come in without experience (other than having take the Investments/Security Analysis course), so they learn the process of security analysis and portfolio management almost from square one).
So, the three classes are discinct in their approach: one is a very structured traditiona lecture, one is case-based and taught with what I've heard called the "Soft Socratic Approach", and one is a practicum.

Interestingly, I have 8 students who are taking all three classes. I'm curious to see if they comment on (or even niotice) the different approaches used in the classes.

Wednesday, May 06, 2009

Hedge Fund Manager Clifford Asness Pushes Back At Obama

One of the hot stories this last week was that the Obama Administration had supposedly pressured and/or threatened hedge fund managers who held Chrysler debt.
ABC News reports:
Thomas Lauria, Global Practice Head of the Financial Restructuring and Insolvency Group at White & Case, told ABC News that [White House financial adviser Steven] Rattner suggested to an official of the boutique investment bank Perella Weinberg Partners that officials of the Obama White House would embarrass the firm for opposing the Obama administration plan, which President Obama announced Thursday, and which requires creditors to accept roughly 29 cents on the dollar for an estimated $6.8 billion owed by Chrysler.


Lauria said the president's assertion that his clients weren't willing to make any sacrifice is false. The clients were willing to take 50 cents on the dollar from Chrysler for their debt, he said.

President Obama also said of Lauria's clients, "I don't stand with them. I stand with Chrysler's employees and their families and communities. I stand with Chrysler's management, its dealers, and its suppliers. I stand with the millions of Americans who own and want to buy Chrysler cars. I don't stand with those who held out when everybody else is making sacrifices."

Clifford Asness, head of quant fund AQR is not a wallflower. So, he gives a very strong pushback. It's well written, and I agree with the vast majority of it. Enjoy:
Unafraid In Greenwich Connecticut
Clifford S. Asness
Managing and Founding Principal
AQR Capital Management, LLC

The President has just harshly castigated hedge fund managers for being unwilling to take his administration’s bid for their Chrysler bonds. He called them “speculators” who were “refusing to sacrifice like everyone else” and who wanted “to hold out for the prospect of an unjustified taxpayer-funded bailout.”

The responses of hedge fund managers have been, appropriately, outrage, but generally have been anonymous for fear of going on the record against a powerful President (an exception, though still in the form of a “group letter”, was the superb note from “The Committee of Chrysler Non-TARP Lenders” some of the points of which I echo here, and a relatively few firms, like Oppenheimer, that have publicly defended themselves). Furthermore, one by one the managers and banks are said to be caving to the President’s wishes out of justifiable fear.

I run an approximately twenty billion dollar money management firm that offers hedge funds as well as public mutual funds and unhedged traditional investments. My company is not involved in the Chrysler situation, but I am still aghast at the President's comments (of course these are my own views not those of my company). Furthermore, for some reason I was not born with the common sense to keep it to myself, though my title should more accurately be called "Not Afraid Enough" as I am indeed fearful writing this... It’s really a bad idea to speak out. Angering the President is a mistake and, my views will annoy half my clients. I hope my clients will understand that I’m entitled to my voice and to speak it loudly, just as they are in this great country. I hope they will also like that I do not think I have the right to intentionally “sacrifice” their money without their permission.

Here's a shock. When hedge funds, pension funds, mutual funds, and individuals, including very sweet grandmothers, lend their money they expect to get it back. However, they know, or should know, they take the risk of not being paid back. But if such a bad event happens it usually does not result in a complete loss. A firm in bankruptcy still has assets. It’s not always a pretty process. Bankruptcy court is about figuring out how to most fairly divvy up the remaining assets based on who is owed what and whose contracts come first. The process already has built-in partial protections for employees and pensions, and can set lenders' contracts aside in order to help the company survive, all of which are the rules of the game lenders know before they lend. But, without this recovery process nobody would lend to risky borrowers. Essentially, lenders accept less than shareholders (means bonds return less than stocks) in good times only because they get more than shareholders in bad times.

The above is how it works in America, or how it’s supposed to work. The President and his team sought to avoid having Chrysler go through this process, proposing their own plan for re-organizing the company and partially paying off Chrysler’s creditors. Some bond holders thought this plan unfair. Specifically, they thought it unfairly favored the United Auto Workers, and unfairly paid bondholders less than they would get in bankruptcy court. So, they said no to the plan and decided, as is their right, to take their chances in the bankruptcy process. But, as his quotes above show, the President thought they were being unpatriotic or worse.

Let’s be clear, it is the job and obligation of all investment managers, including hedge fund managers, to get their clients the most return they can. They are allowed to be charitable with their own money, and many are spectacularly so, but if they give away their clients’ money to share in the “sacrifice”, they are stealing. Clients of hedge funds include, among others, pension funds of all kinds of workers, unionized and not. The managers have a fiduciary obligation to look after their clients’ money as best they can, not to support the President, nor to oppose him, nor otherwise advance their personal political views. That’s how the system works. If you hired an investment professional and he could preserve more of your money in a financial disaster, but instead he decided to spend it on the UAW so you could “share in the sacrifice”, you would not be happy.

Let’s quickly review a few side issues.

The President's attempted diktat takes money from bondholders and gives it to a labor union that delivers money and votes for him. Why is he not calling on his party to "sacrifice" some campaign contributions, and votes, for the greater good? Shaking down lenders for the benefit of political donors is recycled corruption and abuse of power.

Let’s also mention only in passing the irony of this same President begging hedge funds to borrow more to purchase other troubled securities. That he expects them to do so when he has already shown what happens if they ask for their money to be repaid fairly would be amusing if not so dangerous. That hedge funds might not participate in these programs because of fear of getting sucked into some toxic demagoguery that ends in arbitrary punishment for trying to work with the Treasury is distressing. Some useful programs, like those designed to help finance consumer loans, won't work because of this irresponsible hectoring.

Last but not least, the President screaming that the hedge funds are looking for an unjustified taxpayer-funded bailout is the big lie writ large. Find me a hedge fund that has been bailed out. Find me a hedge fund, even a failed one, that has asked for one. In fact, it was only because hedge funds have not taken government funds that they could stand up to this bullying. The TARP recipients had no choice but to go along. The hedge funds were singled out only because
they are unpopular, not because they behaved any differently from any other ethical manager of other people's money. The President’s comments here are backwards and libelous. Yet, somehow I don’t think the hedge funds will be following ACORN’s lead and trucking in a bunch of paid professional protestors soon. Hedge funds really need a community organizer.

This is America. We have a free enterprise system that has worked spectacularly for us for two hundred plus years. When it fails it fixes itself. Most importantly, it is not an owned lackey of the oval office to be scolded for disobedience by the President.

I am ready for my “personalized” tax rate now.
HT: Zero Hedge.

It touches on a couple of very interesting points that are fertile grounds for class discussion:
  • the fiduciary role of hedge funds - would it be correct for them to "back off" on their demands, or is their sole allegiance to their investors?
  • how the bankruptcy process could change as a result of introducing non-economic (i.e. political) considerations into the process). You could ask the question as to whether it is appropriate for the government as bargaining agent to elevate the junior claims of the unions above the claim of the bondholders
  • the "unintended" effects of government intervention. In particular, a rational hedge fund manager might be much less willing to purchase securities in troubled firms if they thought they might end up being involved in bargaining with the government. This could result in lower liquidity, more mispricing, and higher costs of capital for these firms
As a colleague of mine says, we live in interesting times.

Monday, May 04, 2009

Using "Yes! 50 Scientifically Proven Ways to Be Persuasive" In The Classroom

I recently started reading Goldstein, Martin, and Cialdini's "Yes!: 50 Scientifically Proven Ways to Be Persuasive." It could easily be described as "Freakonomics for Social Psychology". It's a fun, easy, and very informative read, with each chapter only about 1500-2000 words long, and highlighting one persuasion technique. So, you can knock out a chapter in 10 minutes or so.

It's a very interesting introduction to the social psychology literature on persuasion - it lists all the underlying research in the appendix.

In addition to learning some interesting things, I've also gotten some great ideas to use in my classes. I'll be discussing these over the next few weeks, starting with

Chapters 1 & 2: "The Bandwagon effect"
One way to increase compliance with a request is to mention that a lot of other people have done the same thing. In these chapters, the authors mention a study where they tried to see if they could increase the percentage of people staying in a hotel who reused towels at least once during their stay. Their solution was simple. The hotels who do this typically put a little card in the hotel room touting the benefits of reusing towels. All they did was add a line to the extent that the majority of people who stay in hotels do in fact reuse their towels at least once during their stay. This dramatically increased the percentage of people who chose to reuse.

In a related study, they added another line stating that XX% of the people who stayed in this room reused towels. This increased compliance even more.

Chapter 3: "What common mistake causes messages to self-destruct?"
The bandwagon effect can also cause messages to backfire. In one study, they seeded the Petrified Forest with fake pieces of petrified wood, and then posted signs stating that "many past visitors have removed the petrified wood from the park, changing the natural state of the petrified forest", accompanied by a picture of several visitors to taking pieces of wood. These signs actually increased the incidences of the behavior they were intended to stop.
Here are the applications to my classes: First off, to use the bandwagon effect in my case course, I'm going to state figures (made up, of course) at the beginning of class as to the average amount of time past students in that class have spent preparing each week. I'm also going to tell my classes that the average evaluation for the professors in the college ranges from 4.2 to 4.8 on a 5 point scale (I know, it's inflated, but it might be interesting to see what happens if I state that several times during the semester). If I really want to use the bandwagon effect, I'll mention that evaluations in THAT particular class have been a bit higher.

As for avoiding the "self-destruct" part of the bandwagon effect, I plan on spending less time talking about how many students are absent. If I need to mention it, I'll focus on the flip side that 94% of the students in this class make the vast majority of classes, and commend them on that fact.

More to come later. It's a great book, and inexpensive, too (the paperback is less than $20).