Wednesday, September 30, 2009

Excellent Video On The Health Care Debate

I try not to post too many political things on the blog because 1) I have a mostly finance readership, and 2) It brings out the moonbats (from both sides). But sometimes you find something too good to pass up.

Recently Will Ferrell put up a video of celebrities chiming in on the health care debate. It was a masterpiece of typical Hollywood arrogance. As an aside, I often find myself upset when I hear some celebrity preaching to us normal mortals on one topic or another. Just remember - in reality, these are people whose main claim to fame is that they can convincingly read lines written by someone else (can you tell I don't care for celebrity "messages"?).

Well, here's the rejoinder to Ferrell's piece. Whichever side of the debate you fall on, you have to appreciate the level of snark that they use to lampoon the celebrities (or maybe not - but I liked it, and it's my blog).

Monday, September 28, 2009

Can't You Bump My Grade Up?

At the end of the semester, I often get a student or two who want to protest their grades. Not too many, because I make a lot of preemptive moves explaining how their grade is determined, and I try to be very explicit in my syllabus. In addition, I teach mostly upper-level courses with almost all finance majors, so most of my student can actually do the simple computation necessary to figure out their grades. Finally, I think they get the sense that trying to work me for a grade simply won't be worth the effort.

Still, it happens - often because "they need to get a "C" to graduate" (or some variation involving a scholarship, Dean's list, or so on).

Rate Your Students
has a pretty good piece on this topic that nails it. You can read the whole thing here, but the money quote comes at the:
Up until now, I was always suckered into actually engaging in the debate. But this fall I'm going to try a new tactic, and anyone out there who wants to is free to adopt it, 'cause I think it's going to work, and save me a lot of frown lines and email editing. Rather than getting into the specifics of their grades, I'll write the following: "It looks like you're asking to be graded under different guidelines from those in the syllabus, which were used to calculate the grades of the other 170 people in your class. Is this correct?"
Priceless. I think I'll use it.

Sunday, September 27, 2009

A Wet Hilly Ride

I just did the a bikeathon for The Hole In The Wall Gang Camp. Today would have been Jonathan's 11th birthday, so being able to do a fundraiser for the camp had special meaning.

I had initially planned on riding the 60-mile course, but they canceled that ride due to inclement weather(it was raining heavily, and riding for 4 hours soaking wet and doing 15-20 mph could lead to hypothermia). So, I did the 30 miler instead.

It started with a 3 mile, 6% downgrade in the pouring rain. By the bottom of the hill, my feet were soaked, my butt was frozen from the water thrown off by the rear tire, and my glasses were completely covered with water. Since it wandered through Northeast Connecticut, the course was extremely hilly (close to 10 hills of over a quarter mile and greater than 5% grade), and rained most of the way. Since they mismeasured the course, it turned out to be more like 38 miles than 30.

Still, it was a blast. I'm actually glad they cancelled the 60 miler. Where I live is relatively flat, and it's easy to avoid the hills (so, I usually do). Ashford,CT and the surrounding areas, on the other hand, are extremely hilly. So, if I'd done the 60 miler (which, given how they measured the 30 miler, could have been a 70 miler), I'd have ended up in the sag-wagon (or limping for a week).

As it was, there were some ridiculous hills. There was one at the 25 mile mark that was only about 150 yards, but was probably a 8-10% grade. It was so ridiculously steep that everyone just started laughing when they saw it.

But still, it was a great time, and I'll definitely come back next year. Thanks to my supporters - they ponied up almost a thousand dollars, and it was for a great cause.

Saturday, September 26, 2009

New Excel Video

Since students in all three of my classes will need to do a data table in Excel at some point, I decided to put together a short video on 1 and 2-variable data tables.

Teaching three preps has been much more time consuming than I'd expected. Luckily, I'm almost through the most time consuming parts of my classes - in one, the most technical material comes first, and the other two (the case course and the student-managed fund) require a lot of "setup" at the beginning of the class. So, I'm hoping that crunch time will shortly be over.

In any event, here are the videos

click here for the video file in MPEG-4 format, and here if you want it in MOV format.

It takes time to make these, but it should save me a fair bit of time in the long run. For example, I won't need to spend class time on teaching my students the basics of data tables any more. They'll still have questions after viewing the video, I'm sure, but they can review it multiple times, and it'll eliminate the need to go over the basics in class.

I know one person who's put the majority of his introductory finance lectures into video files like these (he did it initially for an online course). Now he uses them as review material for upper-level students who are weak in one area or another.

Any comments on the video are welcome. It's not perfect - there are some "ummm" and "uh" moments. And yes, I've stripped out the identifying data - I finally realize what some people had said in the comments.

Monday, September 14, 2009

A Brief Update

I survived the first week of the semester at Unknown University. This is my first time ever teaching three preps, and it's tougher than I expected. I'm about 1 1/2 weeks ahead in my classes, so I'm not running around playing catch up (another first, it seems). But, it's still no cake walk.

On a different note - I just got an email from a coauthor. It contained a graph with some absolutely kick-hiney (that's a technical term) results. Times like this remind me what I love about this job - finding out interesting new things. I've got great hopes for this project - not only that it'll place in a good journal but that it'll be the start of a new stream of research. Time will tell, but for now, I'm excited.

Ah well - time to give the Unknown Baby Boy his last bottle for the night, and then turn in.

updates the next day - even more good new results. Woo Hoo!

Wednesday, September 09, 2009

Blogging Has Been Light

Blogging's been light lately for a couple of reasons (and probably will continue to be for a while). School just started up at Unknown University and anyone in academia knows that the beginning of the semester is always crazy. In addition, I have THREE preps this fall (I typically have two preps, but one of the faculty went on sabbatical, and I got his class - a new prep).

Most important, I've come to the conclusion that I have to focus more on my research. I have a number of project that are "close" to completion, but it's better to have ONE completed and submitted than THREE that are "close". So, for the fall semester, I'm trying to work on only one project at at time until it (or at least my part of it) is done. I've tried to "juggle" projects in the past, but that ends up with me spinning my wheels. For me, multitasking just doesn't work.

To give you an idea as to what's on my plate:
  • I just finished a paper to submit to the Eastern Finance Association annual meeting - it's a regional conference, but i go more often than not, since I have a lot of friends in the association. The deadline is today (in about an hour), but it's done and submitted. Now we let it sit for a week and then give it another go-round.
  • Next on the line is a couple of days' work on a paper that's being presented at the FMA meeting in about a month's time. All I have to do is write up a short section of the lit review, so it should be done by Friday.
  • Then I put in about a week's work on a third paper. I've done most of the empirical analysis except for one part. Once done, this goes to my coauthor who does the writeup.
  • While I'm waiting for one or the other of these things to come back to me, I work on creating a data set for another paper.
Somewhere in there, I'll be juggling three separate classes. Interestingly enough, one is a "practicum" (the student-managed fund, one is a case class (advanced corporate finance), and the third is a straight lecture course (fixed income and credit markets). Since each class demands a different teaching style, this semester could get interesting (and possibly the beginning of a good case of multiple personality disorder).

In fact, I have some students who are taking all three classes with me, so we'll either end up on very good or very bad terms by December. Either way, it should be interesting.

Friday, September 04, 2009

You Can't Measure Alpha Independent of Risk

When I teach investments, there's always a section on market efficiency. A key point I try to make is that any test of market efficiency suffers from the "joint hypothesis" problem - that the test is not tests market efficiency, but also assumes that you have the correct model for measuring the benchmark risk-adjusted return.

In other words, you can't say that you have "alpha" (an abnormal return) without correcting for risk.

Falkenblog makes exactly this point:
In my book Finding Alpha I describe these strategies, as they are built on the fact that alpha is a residual return, a risk-adjusted return, and as 'risk' is not definable, this gives people a lot of degrees of freedom. Further, it has long been the case that successful people are good at doing one thing while saying they are doing another.
Even better, he's got a pretty good video on the topic (it also touches on other topics). Enjoy.

Tuesday, September 01, 2009

The Summer Winds Down

It's been a busy week here in Unknownville. Unknown University starts up next week (we start later than most), so we've had a rash (or is that a plague?) of meetings. I'm still juggling several papers (writing a lit review for one, doing data work for another, and some polishing/editing for a third) and sequentially disappointing my coauthors.

Ah well - them's the breaks. But I have to be nice, since coauthors on each paper read the blog. So fear not, coauthors - my parts will be done in good time.

Along those lines, I just received a bunch of results from one coauthor, some of which are pretty interesting. It's an area that I had an unsuccessful paper in several years ago, and she usues s new and difficult data set that allows us to revisit the topic in a very new way. WE've got a good story and good results, and it'll gp to the head of the pile, since we're sending the paper to an upcoming conference (the Eastern Finance Association annual meeting) for which the deadline is next week. I hope it gets accepted since the Unknown Wife and I plan on making it a little vacation (she's neve been to Miami). We're pretty confident - its a good idea,goood data, and believable results (And we know the program chair).

After all, that's potentially one of the perks of academia - you can sometimes have the university partially fund your vacations by choosing your conferences wisely.

Finally, I just got an email telling me I've won 12,841,340 Euros in an inernational lottery that I don't recall entering. I have to share it with 14,000 winners, but it'll give my students something to calculate when I cover foreign exchange rates.

UnknwonDaughter is now back in scnool and once agaion well ahead of her classmates.. And Unknown Baby boy continues t alternately make us laugh and make us gag as he exceeds manufacturers capacit on his diapers (or as we call them "Code Brown!). Ah well - the wages fo hchild rearing.



What to Use as the Equity Risk Premium?

I'm teaching Corporate Finance again this semester. In the class, we spend a fair bit of time on the CAPM (yes, I know - it's not perfect. But it is a still pretty good). One of the big issues is what to use as the Market Risk Premium (or, as it's sometimes called, the "Equity Risk Premium). Looks like I'll be using this piece as background: The Equity Risk Premium in 100 Textbooks by Pablo Fernandez of the University of Navarra. Here's the abstract:
I review 100 finance and valuation textbooks published between 1979 and 2008 (Brealey, Myers, Copeland, Damodaran, Merton, Ross, Bruner, Bodie, Penman, Weston, Arzac...) and find that their recommendations regarding the equity premium range from 3% to 10%, and that several books use different equity premia in different pages.

Some confusion arises from not distinguishing among the four concepts that the word equity premium designates: Historical equity premium, Expected equity premium, Required equity premium and Implied equity premium.

Finance professors should clarify the different concepts of equity premium and convey a clearer message about their sensible magnitudes.
It's worthwhile reading - you can download the full version on SSRN here.

HT: Jim Mahar at