Friday, July 29, 2011

‪Paul Bloom: The origins of pleasure‬‏ - YouTube

Interesting behavioral finance implications of this.

For example:

1. Boasting/bragging that you own something matters.
2. The history of an asset matters (people would pay more of something that has an interesting story, or was owned by someone they "liked").
3. Pain is state dependent.
4. Pleasure/pain is subjective and relative.

‪Paul Bloom: The origins of pleasure‬‏ - YouTube: "Psychologist Paul Bloom argues that human beings are essentialists -- that our beliefs about the history of an object change how we experience it"

‪Geoffrey West: The surprising math of cities and corporations‬‏ - YouTube

‪Geoffrey West: The surprising math of cities and corporations‬‏ - YouTube:

"Physicist Geoffrey West has found that simple, mathematical laws govern the properties of cities -- that wealth, crime rate, walking speed and many other aspects of a city can be deduced from a single number: the city's population. In this mind-bending talk from TEDGlobal he shows how it works and how similar laws hold for organisms and corporations."

I really can not decide where to put this one. I opted for FinanceProfessor since in class when we try to project out long term growth rates, students always try to say growth will be constant forever, this say otherwise.

Thursday, July 28, 2011

Ritter Says Buyout-Backed IPOs, Larger Firms Do Better - The Washington Post

Ritter Says Buyout-Backed IPOs, Larger Firms Do Better - The Washington Post

"July 26 (Bloomberg) -- Jay Ritter, a finance professor at the University of Florida, talks about Dunkin' Brands Group Inc.'s planned initial public offering, the state of the U.S. IPO market and the performance of companies after they go public. Ritter speaks with Lisa Murphy on Bloomberg Television's "Fast Forward." (Source: Bloomberg) (Bloomberg)"

Finance does not get much better than listening to Jay Ritter speak on IPOs. He is that good!

Wednesday, July 27, 2011

Dunkin' Donuts IPO makes a scorching debut -

Dunkin' Donuts IPO makes a scorching debut -
"The parent of Dunkin' Donuts and Baskin-Robbins ice cream parlors found a strong reception as investors pushed shares to $27.85, up from the $19 initial price.

Such a strong welcome for Dunkin' Brands' initial public offering sets the tone for the rest of the week, a robust one for deals. Nine companies plan to go public this week, making it the busiest week since Dec. 13,"

Wednesday, July 20, 2011

What does the CDS market say about the so-called debt crisis?

A collegue mentioned yesterday that with all the talk of a US default, what is the market saying?  Looking at CDS spreads, it does not appear that the US will default.  Yes it is up significantly in last year, but still lower than in 2009 and much lower than that of other soverign debt. 

Saturday, July 16, 2011

Icahn, a Deal-Maker With a Spotty Record -

SAN FRANCISCO, CA - FEBRUARY 11:  Bottles of C...Image by Getty Images via @daylifeIcahn, a Deal-Maker With a Spotty Record -

We talk about Ichan in class a great deal. He is an interesting character. Probably most famous for launching many takeover (or supposed takeover attempts) and being rumored for greenmail, in my opinion his bigger role is monitoring firms' management and helping disseminate information on both managerial practices and apparent undervaluation. (indeed looking at a study of Q values of firms he owns ala Rene Stulz)

From the NY Times:

"Mr. Icahn’s own record as a deal-maker — either as a bidder or as a catalyst for a takeover — is spotty at best.....

Investors in Clorox appeared hopeful that Mr. Icahn will succeed this time, pushing shares in the company up 7.3 percent by midday to $73.51. Still, the price remains below Friday’s offer price, indicating some apparent skepticism"

and later:
"The unsolicited offer is a strategy Mr. Icahn has turned to time and again: 15 times since 1997, according to the data provider FactSet Shark Repellent. He most recently bid $1.9 billion for Mentor Graphics, with the aim of flushing out a potential bidder."
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Thursday, July 14, 2011

How will the world integrate emerging economies

‪AtGoogleTalks's Channel‬‏ - YouTube:

Fascinating stuff! Looks at rates of growth historically and how current rates of growth in emerging economies and developed markets are differ. More economics than finance, but well worth your time!

"Michael Spence, winner of the Nobel Prize in Economic Sciences, explains what happened to cause this dramatic shift in the prospects of the five billion people who live in developing countries. The growth rates are extraordinary, and continuing them presents unprecedented challenges in governance, international coordination, and ecological sustainability. The implications for those living in the advanced countries are great but little understood.

Spence clearly and boldly describes what's at stake for all of us as he looks ahead to how the global economy will develop over the next fifty years. The Next Convergence is certain to spark a heated debate how best to move forward in the post-crisis period and reset the balance between national and international economic interests, and short-term fixes and long-term sustainability."

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Interesting case: Skype: The inside story of the boffo $8.5 billion deal - Fortune Tech

Skype: The inside story of the boffo $8.5 billion deal - Fortune Tech:

An interesting case for classes. From Fortune:
"In September 2009, Silver Lake Partners and venture firm Andreessen-Horowitz bought Skype from eBay, where it had become the Kurt Cobain of technology companies (wildly popular, deeply troubled). The value of that deal: $2.75 billion.

In May 2011 the new owners announced that they were selling the company to Microsoft for $8.5 billion.

VoilĂ ! Six billion bucks in less than two years."

Wednesday, July 13, 2011

YouTube - ‪Leading@Google: Joseph Grenny‬‏

YouTube - ‪Leading@Google: Joseph Grenny‬‏:

Maybe the best argument for taking a behavioral finance class is to know what things people are prone to fall prey to and thus be ready with defenses to beat the issues. Which in a nutshell is the view that Joseph Grenny takes in his book. Here he speaks at Google about how to not fall into the same old traps.

"Why is it that 95% of all diet attempts fail? Why do New Year's Resolutions last no more than a few days? Why can't people with good intentions seem to make consistent and positive strides in the way they want to improve their careers, financial fitness, physical fitness, and so on?

Based upon the latest research in a number of psychological and medical fields, the authors of Change Anything will show that traditional will-power is not necessarily the answer to these strivings, that people are affected in their behaviors by far more subtle influences. Change Anything shows how individuals can come to understand these powerful and influential forces, and how to put these forces to work in a positive manner that brings real and meaningful results."

When Did The U.S. Last Default On Treasury Bonds? : NPR

When Did The U.S. Last Default On Treasury Bonds? : NPR:

NPR interviewed Ball State finance professor Terry Zivney, who's now a professor of finance at Ball State University in Indiana, co-authored a journal article called "The Day the United States Defaulted on Treasury Bills about a technical default on $120 Million in 1979:

""Prof. ZIVNEY: ....They said there were technical errors, word-processing errors. But I'm sure the thousands of people that did not receive their $120 million were not, you know, mollified by hearing it was just a technical difficulty.

SIEGEL: A hundred-twenty million dollars was the amount of federal debt that was at issue. You apply the dictionary definition of default, and this was a default on the debt they held. But $120 million was a tiny sliver of the Treasury's debt.

Prof. ZIVNEY: Yes, it was. The Treasury had around $800 billion outstanding at that time, so it was a very small proportion. However, professor Richard Marcus of the University of Wisconsin, Milwaukee, and I did some research. And we concluded that the defaults of 1979 raised the interest rates that the government had to pay on their securities by about six-tenths of 1 percent.

SIEGEL: Six-tenths of 1 percent - not on $120 million, but you're saying on the 800 billion, almost a trillion dollars.

Prof. ZIVNEY: Yes. And so six-tenths of 1 percent of a trillion dollars is around $6 billion a year on a $120 million mistake."

Tuesday, July 12, 2011

One of best finance books in a while

I really wish I were teaching a derivatives class this semester as I would definitely use Essays in Derivatives by Don Chance in some fashion.  I am reading it now and it is VERY good.  It presents the material in a very usable format appropriate for MBA or upper level undergraduate students (if you want to read that as "easy" you can, but it is very well done)

Socioeconomic status as child dictates response to stress as adult

From ScienceDaily: Socioeconomic status as child dictates response to stress as adult:

This one is not surprising but it is important and does not fit in the view of traditional economics. Traditional economics often assumes that people will look decisions similarly and that the past does not matter. Behavioral economists would suggest that past events do influence decisions. This paper by a Griskevicius supports the behavioral school:

"Published in the Journal of Personality and Social Psychology, "The Influence of Mortality and Socioeconomic Status on Risk and Delayed Rewards: A Life History Approach" by Carlson School assistant professor of marketing Vladas Griskevicius found that people respond to feeling threatened differently depending on whether people grew up in relatively resource-scarce or resource-plentiful environments.found those who grew up resource deprived or felt poor were more likely to take risks for immediate rewards when they felt threatened. Subjects who were raised in a more predictable world never worrying about their needs responded to the same stressors by becoming more cautious.....

According to Griskevicius, a prototypical example of the findings is a kid who grows up in a bad neighborhood. "If he hears gunshots down the street, this triggers a 'live fast and die young' psychology. He will feel the urge to get what he can while he can because the future is uncertain." This response is likely related to why poorer individuals purchase more lottery tickets.

The research also suggests that efforts using a "you never know what's going to happen tomorrow" approach to persuade at-risk kids to stay in school or avoid risky behaviors might be ineffective.

"Why should I go to school if I might not be around to see the benefits of my education?"
From ScienceDaily.

Which I think most would agree with. However, if we leave the world of homo sapiens, I have a bit of trouble reconciling this behavior with that in felines. Cats that had spent time "on the street" tend to get fat when they are brought inside. Many veterinarians suggest this is because they are saving as they fear their next meal. To fit the model presented by Griskevicius, the cats must enjoy eating more and thus over eat to their harm. Not sure. But I totally believe that past stressors influence current decisions which was the initial premise.

Monday, July 11, 2011

Dunkin' Donuts' parent announces IPO price range

NEW YORK - JULY 11: A pedestrian walks by a Du...Image by Getty Images via @daylifeDunkin' Donuts' parent announces IPO price range:

I know some local patrons who if they could use their frequent coffee points to accumulate shares who would make a million! ;)

More seriously, this will be a good case to watch for classes as students are aware of the firms, relatively easy to value, and will be in the news.
"The parent of Dunkin' Donuts plans to raise as much as $461 million when it takes the company public, up from the $400 million it originally estimated.

Dunkin' Brands Group Inc., which runs Dunkin' Donuts and Baskin-Robbins, disclosed the estimated pricing in a regulatory filing on Monday. It didn't say when the stock might start trading."

I know some local patrons who if they could use their frequent coffee points to accumulate shares who would make a million! ;)

More seriously, this will be a good case to watch for classes as students are aware of the firms, relatively easy to value, and will be in the news.
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Thursday, July 07, 2011

A Neuroeconomics Argument For Gender Equality In Finance - Young Men Are Idiots

More on the gender and finance debate: Seems like the women win again:

A Neuroeconomics Argument For Gender Equality In Finance - Young Men Are Idiots:
"Writing in The Guardian, Tim Adams cites a study showing that in a survey of 2.7 million investors which found in 2008-2009, men were much more likely than women to sell stocks at price lows. Men were confident they could make accurate assessments about the future based on short-term financial news. Women, the study surmises, were more likely to acknowledge when they didn't know something and lost less money than men did."

I definitely recommend you read the article. It is better than the excerpt above. :)

Executive Pay at Big Companies Rose 23% Last Year -

Executive Pay at Big Companies Rose 23% Last Year -
"The final figures show that the median pay for top executives at 200 big companies last year was $10.8 million. That works out to a 23 percent gain from 2009. The earlier study had put the median pay at a none-too-shabby $9.6 million, up 12 percent."

Well at least they outpaced inflation ;).

Friday, July 01, 2011

Southwest Hedging

Virtually every semester a focus of attention is hedging in the airline industry and no firm is studied more than Southwest, so it was surprising when I heard new numbers in this piece.  Staggering numbers in fact:

"While its point to point service and low-cost, low-fare contributed to the company’s past success, its intensive fuel hedging programs is also largely responsible for these past profits. In fact hedging alone saved Southwest Airlines over $3.5 billion and made up almost 83% of the company’s total profits between 1998-2008. [1] [2] "
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