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).

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.

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).

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.

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.

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 DailySpeculations.com. 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 NewYorker.com. It's pretty long (12 pages), but IMO well worth the time.

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.

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.

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 Indexuniverse.com. 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.