Sunday, January 31, 2010

Addictions Can Be Hardwired in the Brain - ABC News

Addictions Can Be Hardwired in the Brain - ABC News:
"Advances in neuroimaging have enabled researchers to peer inside the brains of addicts and patients with addictive behaviors. They can see, in real-time, what gets patients hooked: how the brain's reward system -- based largely on the neurotransmitter dopamine -- thirsts for more, while inhibitory control centers experience a system failure"

I would imagine similar findings for those with trading addictions.

Paulson says he feared run on dollar at start of crisis -FT | Reuters

Paulson says he feared run on dollar at start of crisis -FT | Reuters:
"Former U.S. Treasury Secretary Henry Paulson feared there would be a run on the dollar during the early stages of the financial crisis when attention was focused on the United States. 'It was a real concern,' Paulson says in an interview in Monday's edition of the Financial Times. A dollar collapse 'would have been catastrophic,"

Thursday, January 28, 2010

Interview with Eugene Fama: Rational Irrationality : The New Yorker

Fama defends market efficiency in the following interview. Two look-ins:

Interview with Eugene Fama: Rational Irrationality : The New Yorker:
"It’s easy to say prices went down, it must have been a bubble, after the fact. I think most bubbles are twenty-twenty hindsight. Now after the fact you always find people who said before the fact that prices are too high. People are always saying that prices are too high. When they turn out to be right, we anoint them. When they turn out to be wrong, we ignore them. They are typically right and wrong about half the time."
And another:

"The variance of stock returns for the market as a whole went up to, like, sixty per cent a year—the Vix measure of volatility was running at about sixty per cent. What that implies is not a credit market crisis. It would be stupid for anybody to give credit in those circumstances, because the probability that any borrower is going to be gone within a year is pretty high. In an efficient market, you would expect that debt would shorten up. Any new debt would be very short-term until that volatility went down."

Read more here.

Sunday, January 24, 2010

Economic View - Will More Borrowers Walk Away From Their Mortgages? -

Economic View - Will More Borrowers Walk Away From Their Mortgages? -

"...millions of American homeowners are “underwater,” meaning that they owe more on their mortgages than their homes are worth. In Nevada, nearly two-thirds of homeowners are in this category. Yet most of them are dutifully continuing to pay their mortgages, despite substantial financial incentives for walking away from them."
It is not just about money. Self esteem, future borrowing, and reputation all no doubt play a role.

To which Thaler continues:
"A provocative paper by Brent White, a law professor at the University of Arizona, makes the case that borrowers are actually suffering from a “norm asymmetry.” In other words, they think they are obligated to repay their loans even if it is not in their financial interest to do so, while their lenders are free to do whatever maximizes profits.
No doubt this will make many great class discussions.

Friday, January 22, 2010

Exchange traded funds are a low-cost way to build portfolio -

We just spoke on ETFs in class yesterday, so this great timing

Exchange traded funds are a low-cost way to build portfolio -
"ETFs are mutual funds that trade on the stock exchanges, just as stocks do. Most are index funds, although there are a few actively managed ETFs on the market. The advantages of ETFs:"

here is a list..

Rusal Said to Raise $2.2 Billion in Hong Kong IPO (Update2) -

Rusal Said to Raise $2.2 Billion in Hong Kong IPO (Update2) -
"“Thanks to the SFC these professional investors got it a lot cheaper than they would have otherwise,” said Hong Kong- based Ben Collett, head of equities at broker Louis Capital Markets (Hong Kong) Ltd., before the final pricing. “Looking to the future, I suspect the quality of these listings will decline, ironically, as the confidence increases.”

While Hong Kong’s Securities and Futures Commission approved Rusal’s IPO, it ruled the offering couldn’t be marketed to the city’s retail investors. Rusal sold shares to international institutions, professional investors and wealthy individuals ordering at least HK$1 million of stock each."

Tuesday, January 19, 2010

Bankruptcy of Japan Airlines

Kyodo News - Story:
"Japan Airlines Corp. filed for bankruptcy protection on Tuesday in the biggest nonfinancial corporate failure in Japan's postwar history, paving the way for a massive government effort to keep the flagship carrier flying with the use of about 900 billion yen in public funds....''

Notice again the "too big to fail" principle:

"If JAL was not the biggest airline company, it would have been liquidated,'' Maehara said, referring to the size of JAL's debt.

and finally a good example of the various chapters of bankruptcy. Chapter 15 is one which we don't generally cover in class, but probably should.

"The company also filed for Chapter 15 proceedings in the United States, which is used to deal with bankruptcy cases in foreign countries, while the government also used its diplomatic channels and exposure to the foreign media to ensure smooth overseas operations."

SSRN-National Drought Insurance for Malawi by Joanna Syroka, Antonio Nucifora

Why not? Great idea. Drought insurance for the entire country. Indeed, could hedge many of these risks. This is sure to be a in class discussion.

SSRN-National Drought Insurance for Malawi by Joanna Syroka, Antonio Nucifora:
"...describes a weather risk management tool that has been developed to help the government manage the financial impact of drought-related national maize production shortfalls. The instrument is an index-based weather derivative contract designed to transfer the financial risk of severe and catastrophic national drought that adversely impacts the government's budget to the international risk markets.....This innovative risk management instrument was pioneered in 2008/2009 by the Government of Malawi, with the assistance of the World Bank, and was a first for a sovereign entity in Africa. Several piloting seasons will be necessary to understand the scope and limitations of such contracts, and their role in the government's strategy, contingency planning, and operational drought response framework."

SSRN-CEO Characteristics and the Value of Corporate Refocusing by Sheng Huang

Interesting look at who divests what. Important also as it suggests that CEOs do play a more important role than some might think.

SSRN-CEO Characteristics and the Value of Corporate Refocusing by Sheng Huang: from the abstract:

"...CEOs in diversified conglomerates are more likely to divest divisions that they are less qualified to manage. This evidence is consistent with CEOs divesting divisions to refocus on those divisions in which they specialize, that is, to achieve a better match between their expertise and their firm’s retained assets. Firms that divest for a better CEO-firm match experience significant improvements in operating performance, and significant abnormal stock returns, that persist three years following a divestiture. Further, among firms divesting for a better match, those with more experienced CEOs realize greater gains to firm value. In contrast, divestitures that increase corporate focus but do not improve the expertise-asset match deliver little long-run gain."

Sunday, January 17, 2010

Venezuela Nationalizes French-Colombian Retailer Exito -

And why would a company try to business with Venezuela?
UPDATE: Venezuela Nationalizes French-Colombian Retailer Exito -
"President Hugo Chavez ordered Sunday the seizure of a French-owned retail chain on accusations that it raised prices after Venezuela devalued the currency by half....

Separately, Chavez also ordered the nationalization of a large shopping-mall recently built in a downtown district in Caracas. The stores controlled by Exito and the shopping mall will be used to build up Comerso, a new government-run retail chain which seeks to sell its products at "socialist" prices, according to the president.

During his 11 years in power Chavez has nationalized large swaths of the Venezuelan economy, including a Spanish-owned bank and an Argentine-controlled steel-mill"

Saturday, January 09, 2010

Do Hedge Fund Indexes Tell Only Part of Story? - DealBook Blog -

Do Hedge Fund Indexes Tell Only Part of Story? - DealBook Blog -
"Taken at face value, historic index figures suggest that even an average hedge fund manager can easily beat the stock market while taking less risk. Since 1990, a weighted index of hedge funds has returned around 12 percent annually — about four percentage points more than the returns for the Standard & Poor’s 500-stock index — with just half the volatility, according to Hedge Fund Research.

On closer inspection, these claims look suspect, Breakingviews says. Research published in late 2007 by the Princeton professor Burton G. Malkiel showed that many hedge funds simply stopped reporting results after they became embarrassing."

and later:

"This problem of voluntary reporting adds to what is known as survivorship bias, by which poorly performing funds that shut down drop out of the index. Of course, index providers have tried to work out how to deal with flaws of this kind in indexing, the publication concedes.

The practice is not unique to hedge funds — aggregate figures for mutual funds and other assets can be similarly distorted, Breakingviews remarks. But, it says, the high mortality rates for hedge funds, which tend to die at roughly twice the rate of mutual funds on average, make the issue particularly acute."

This one is so good I had to mention even though I am on a BonaResponds trip. It will definitely make it to class!