Our latest contenthttp://www.moneyscience.com/Fri, 30 Jul 2010 11:27:04 +0100Jim O’Neill, Head of Global Economic Research at Goldman Sachs said that half of the world was not affected by the financial crisis, in this week’s Cass Talks interview. He said the presumption that what has happened in the UK and in other Western economies has also been experienced everywhere is wrong. Cass Profile at MoneyScience. The Cass Talks interviews are an opportunity to hear Cass faculty and guest lecturers give their perspective on current business and finance news stories, global issues affecting the business world and new research coming out of the School. Mr O’Neill was speaking at the Cass Alumni World Forum and he said a remarkable increase in prosperity and growth has been observed in emerging economies and, as a result, the world is doing better than many think. The Alumni World Forum was held on Friday 16 July and was designed to bring together the 27,000 Cass alumni spread over 130 countries to share ideas, network and hear from world-leading business thinkers.  Throughout the day Cass academics and business practitioners presented masterclasses on a wide range of areas from soft skills to ethics, strategy and finance. More than 400 guests at the London event heard talks from key business figures such as Alderman Nick Anstee, Lord Mayor of the City of London; Sir David Brewer, Chairman of the China-Britain Business Council; Peter Cullum, Executive Chairman of the Towergate Partnership; and H.E Sheikha Aisha bint Faleh Al-Thani, member of the Qatar Supreme Education Council. The international events ranged from informal drinks receptions to lectures and included a talk from BNY Mellon CEO and Cass alumnus Robert Kelly at Mellon’s New York headquarters, One Wall Street. Alumni around the world were able to contribute during the day via social media platforms such as Twitter, Facebook and LinkedIn. The London panel sessions were streamed live, via Cass’s website, attracting over 650 unique viewers from around the world. The day culminated with a gala dinner at the newly refurbished Museum of London, attended by more than 200 alumni and staff. The dinner also marked the launch of the Alumni World Forum Scholarship which will allow alumni, from all over the world, to personally recommend high calibre executives who they think will benefit from studying the full-time MBA at Cass. Listen, watch and download Mr O’Neill’s Cass Talks interview and see other Cass academics share their opinions at www.cass.city.ac.uk/casstalks [Externalrss-cassnews-titles-rssl-6-30][Externalrss-cass2-titles-rssr-5-30] [RandomProduct-219] http://www.moneyscience.com/Finance_Focus/Video_-_Head_of_Global_Economic_Research_at_Goldman_Sachs_explains_why_the_Financial_Crisis_wasn't_all_bad.htmlhttp://www.moneyscience.com/Finance_Focus/Video_-_Head_of_Global_Economic_Research_at_Goldman_Sachs_explains_why_the_Financial_Crisis_wasn't_all_bad.htmlTue, 27 Jul 2010 14:39:09 +0100 Here at MoneyScience I've tended to steer clear of Technical Analysis related articles and approaches for the simple reason that such a high proportion of our users are academics or financial market practitioners who I'm convinced remain deeply skeptical about it - and as with all things I like to take the path of least resistance. However David Waggoner, who runs TheMarketDetective.com (and tweets over @MarketDetective), recently sent me this article, Efficient Market Hypothesis' False Reign Over Financial Markets and I figure it's time to take the bull (or should that be the bear?) by the horns and see if I can solicit some opinions on the debate from you, our illustrious user base. To put the article in context, here are a few papers which may or may not have a bearing: - Chris Neely's presentation 'An Academic Perspective on Technical Analysis' (pdf) - On the Analogy between Scientific Study of Technical Analysis and Ethnopharmacology - Waldemar Stronka (2006) - How to reconcile Market Efficiency and Technical Analysis - Alexandra Ilinskaia and Kirill Ilinski (1999) - Technical Analysis by Martin Sewell (pdf, 2008) - The Technical Analysis Challenge by Patrick Burns (pdf, 2003) - The Profitability of Technical Analysis: A Review by Cheol-Ho Park and Scott H. Irwin (2004) - Technical Analysis in Financial Markets - Gerwin A. W. Griffioen (2003) - Market Timing with Candlestick Technical Analysis - Ben R. Marshall, Lawrence C. Rose and Martin R. Young (2007) - Technical Analysis Around the World - Ben R. Marshall, Rochester H. Cahan and Jared Cahan (2010) - Price Trends and Patterns in Technical Analysis: A Theoretical and Empirical Examination by Paul A. Weller, Geoffrey C. Friesen and Lee M. Dunham (2007) - Market Efficiency, Long-Term Returns, and Behavioral Finance by Eugene F. Fama (1997) - Fundamental and Technical Analysis: Substitutes or Compliments? By Jenni L. Bettman, Stephen Sault and Emma Welch (2006) Let us know what you think! var skin = {}; skin['BORDER_COLOR'] = '#cccccc'; skin['ENDCAP_BG_COLOR'] = '#e0ecff'; skin['ENDCAP_TEXT_COLOR'] = '#333333'; skin['ENDCAP_LINK_COLOR'] = '#0000cc'; skin['ALTERNATE_BG_COLOR'] = '#ffffff'; skin['CONTENT_BG_COLOR'] = '#ffffff'; skin['CONTENT_LINK_COLOR'] = '#0000cc'; skin['CONTENT_TEXT_COLOR'] = '#333333'; skin['CONTENT_SECONDARY_LINK_COLOR'] = '#7777cc'; skin['CONTENT_SECONDARY_TEXT_COLOR'] = '#666666'; skin['CONTENT_HEADLINE_COLOR'] = '#333333'; skin['DEFAULT_COMMENT_TEXT'] = '- add your comment here -'; skin['HEADER_TEXT'] = 'Comments'; skin['POSTS_PER_PAGE'] = '15'; google.friendconnect.container.setParentUrl('/' /* location of rpc_relay.html and canvas.html */); google.friendconnect.container.renderWallGadget( { id: 'div-8039941403696097593', site: '16193895887062730248', 'view-params':{"disableMinMax":"true","scope":"PAGE","allowAnonymousPost":"true","startMaximized":"true"} }, skin); [Externalrss-FinanceFocus-titles-rssl-6-30][Externalrss-mstwitter-titles-rssl-6-30] [RandomProduct-228] http://www.moneyscience.com/Finance_Focus/Open_Thread_-_The_Technical_Analysis_Debate.htmlhttp://www.moneyscience.com/Finance_Focus/Open_Thread_-_The_Technical_Analysis_Debate.htmlTue, 27 Jul 2010 12:41:45 +0100Behavioural finance has moved into the mainstream. In a guest post over at Monevator, Tim from The Psy-Fi Blog gets us up to speed. Noble Prize winning committees aren’t renowned for consistency. Giving Barack Obama the Peace Prize for not being George W. Bush is a triumph of hope, but hardly based on rational analysis. We might also wonder if the selection panel got its wires crossed when it awarded the Economics prize to a psychologist. But it wasn’t just any old shrink who got the bauble. It was Daniel Kahneman, half of the dynamic duo that invented the whole topic of behavioural finance. The other half, Amos Tversky, died in 1996. Between them, Tversky and Kahneman pump primed a change in the way we expect stocks to behave. Outside credit rating agencies, it’s no longer enough to assume we can predict market movements on the basis of number crunching on a grand scale. Now we need to take our own mental confusion into account... More.. [Externalrss-psyfi-titles-rssl-6-30][Externalrss-FinanceFocus-titles-rssr-6-30] [RandomProduct-228] [RandomCompany-126] http://www.moneyscience.com/Finance_Focus/A_brief_history_of_behavioural_finance.htmlhttp://www.moneyscience.com/Finance_Focus/A_brief_history_of_behavioural_finance.htmlTue, 27 Jul 2010 12:34:34 +0100 [Externalrss-mstwitter-titles-rssl-6-30] [RandomProduct-228] [RandomCompany-55] http://www.moneyscience.com/Finance_Focus/James_Montier_-_Is_Austerity_the_Road_to_Ruin.htmlhttp://www.moneyscience.com/Finance_Focus/James_Montier_-_Is_Austerity_the_Road_to_Ruin.htmlThu, 22 Jul 2010 15:07:06 +0100 Richard Olsen writes over at Olsenblog: We are publishing a small booklet on how to trade. The content is based on previous posts on the subject. I have expanded the material and hope that you will find the text helpful. The booklet is also a non-technical description of how the trading models powering the Olsen investment programs operate. We program our trading models to be good traders; our algorithm spots imbalances of supply and demand and takes positions when price overshoots occur. If the price rebounds, then the model takes profit but if the price continues to move in the adverse direction, the model trades the coastline to improve its price average and eventually gets out of its position at a profit. As explained in the booklet, there are more decision rules that make a good trader. Have fun. Download here. [Externalrss-olsen-titles-rssl-8-30] [RandomCompany-55] http://www.moneyscience.com/Finance_Focus/Richard_Olsen_-_How_to_Trade.htmlhttp://www.moneyscience.com/Finance_Focus/Richard_Olsen_-_How_to_Trade.htmlThu, 22 Jul 2010 09:18:19 +0100 By J. N. Leaw, S. A. Cheong Abstract: In this paper, we perform a minimalistic quantization of the classical game of tic-tac-toe, by allowing superpositions of classical moves. In order for the quantum game to reduce properly to the classical game, we require legal quantum moves to be orthogonal to all previous moves. We also admit interference effects, by squaring the sum of amplitudes over all moves by a player to compute his or her occupation level of a given site. A player wins when the sums of occupations along any of the eight straight lines we can draw in the $3 \times 3$ grid is greater than three. We play the quantum tic-tac-toe first randomly, and then deterministically, to explore the impact different opening moves, end games, and different combinations of offensive and defensive strategies have on the outcome of the game. In contrast to the classical tic-tac-toe, the deterministic quantum game does not always end in a draw. In contrast also to most classical two-player games of no chance, it is possible for Player 2 to win. More interestingly, we find that Player 1 enjoys an overwhelming quantum advantage when he opens with a quantum move, but loses this advantage when he opens with a classical move. We also find the quantum blocking move, which consists of a weighted superposition of moves that the opponent could use to win the game, to be very effective in denying the opponent his or her victory. We then speculate what implications these results might have on quantum information transfer and portfolio optimization. Get the paper from arXiv [RandomProduct-5] [Externalrss-FinanceFocus-titles-rssl-8-30][Externalrss-mstwitter-titles-rssl-6-30] http://www.moneyscience.com/Finance_Focus/Portfolio_Optimisation_-_Strategic_Insights_From_Playing_the_Quantum_Tic-Tac-Toe.htmlhttp://www.moneyscience.com/Finance_Focus/Portfolio_Optimisation_-_Strategic_Insights_From_Playing_the_Quantum_Tic-Tac-Toe.htmlTue, 20 Jul 2010 14:35:58 +0100Eckhard Platen and Leunglung Chan       Abstract This cautious note aims to point at the potential risks for the financial system caused by various increasingly popular volatility derivatives including variance swaps on futures of equity indices. It investigates the pricing of variance swaps under the 3/2 volatility model. Carr with Itkin and Sun have discussed the pricing of variance swaps under this type of model. This paper studies a special case of this model and observes an explosion of prices for squared volatility and variance swaps. It argues that such a price explosion may have deeper economic reasons, which should be taken into account when designing volatility derivatives. Download the Paper from arXiv. [Externalrss-FinanceFocus-titles-rssl-8-30] [RandomCompany-126] http://www.moneyscience.com/Finance_Focus/A_Cautious_Note_on_the_Design_of_Volatility_Derivatives.htmlhttp://www.moneyscience.com/Finance_Focus/A_Cautious_Note_on_the_Design_of_Volatility_Derivatives.htmlTue, 20 Jul 2010 12:53:20 +0100A one-day conference on financial networks will be held at the Geneva Finance Research Institute (GFRI), University of Geneva, Switzerland, on Friday, June 10, 2011. Interested researchers are invited to submit completed paper proposals of both theoretical and empirical nature. Topics include but are not limited to: - Local interaction games on financial networks - Risk-sharing and contagion within financial networks - Analysis of banking networks - Implications of network theory for financial markets and banking regulation - Strategic financial network formation - Social networks in finance Proposals should be submitted electronically to miret.padovani@unige.ch by Friday, October 29, 2010, and should include full contact information (postal and email addresses; telephone number) and academic or institutional associations. Notification of accepted papers will be sent out by Friday, January 21, 2011. Travel expenses and accommodation for participants with accepted papers will be covered. More details and updates will be made available at http://www.gfri.ch. Scientific committee: - Ana Babus, University of Cambridge; - Rama Cont, Columbia University; - Giorgio Fagiolo, Scuola Superiore Sant’Anna; - Rajna Gibson Brandon, University of Geneva; - Markus Möbius, Harvard University; - Didier Sornette, Swiss Federal Institute of Technology; - Paolo Vanini, University of Zurich; - Fernando Vega-Redondo, European University Institute. Sponsors: The organizers of the conference gratefully acknowledge financial support from the Geneva Finance Research Institute, the National Centre of Competence in Research “Financial Valuation and Risk Management”, and the Swiss Finance Institute. Further Information [Externalrss-FinanceFocus-titles-rssl-8-30] [RandomCompany-5] http://www.moneyscience.com/Finance_Focus/Call_for_Papers_-_Geneva_Finance_Research_Institute_-_Research_Conference_on_Financial_Networks.htmlhttp://www.moneyscience.com/Finance_Focus/Call_for_Papers_-_Geneva_Finance_Research_Institute_-_Research_Conference_on_Financial_Networks.htmlMon, 19 Jul 2010 12:42:43 +0100The Engle Prize is awarded every two or three years to the scholar who has published the best article in the Journal of Financial Econometrics over the preceding period. The selection committee for the Prize comprises the Journal's editors and external members. This year's award has been given to Fulvio Corsi for his paper 'A Simple Approximate Long-Memory Model of Realized Volatility'. Abstract The paper proposes an additive cascade model of volatility components defined over different time periods. This volatility cascade leads to a simple AR-type model in the realized volatility with the feature of considering different volatility components realized over different time horizons and thus termed Heterogeneous Autoregressive model of Realized Volatility (HAR-RV). In spite of the simplicity of its structure and the absence of true long-memory properties, simulation results show that the HAR-RV model successfully achieves the purpose of reproducing the main empirical features of financial returns (long memory, fat tails, and self-similarity) in a very tractable and parsimonious way. Moreover, empirical results show remarkably good forecasting performance. You can get the paper here. [Externalrss-jofe-titles-rssr-7-30][Externalrss-FinanceFocus-titles-rssl-6-30] [RandomProduct-127] http://www.moneyscience.com/Finance_Focus/Journal_of_Financial_Econometrics_awards_Engle_Prize_for_2010.htmlhttp://www.moneyscience.com/Finance_Focus/Journal_of_Financial_Econometrics_awards_Engle_Prize_for_2010.htmlMon, 19 Jul 2010 10:36:15 +0100 Why did the world economy plunge into the worst recession since the Great Depression? This column argues that economic fundamentals do not explain the global crisis. But they did play a role. Events such as the fall of Lehman Brothers can become focal points for investors’ risk perceptions, changing the way the fundamentals are interpreted. This can lead to “risk panics” – self-fulfilling spikes in risk and a collapse in asset prices. The economy’s performance in recent years raises questions. - Why did the world economy plunge into the worst recession since the Great Depression in the wake of the Lehman Brothers failure? - Why did fiscal problems in a small open economy such as Greece trigger a sharp drop in global stock markets? Changes in economic fundamentals do not offer a satisfactory explanation. This is not to say that the crises entailed no fundamental elements. For instance, the fall of Lehman Brothers revealed the true depth of the subprime problems – even though a full year had then elapsed since the beginning of the crisis. Yet it is hard to attribute the massive reaction in global markets to fundamentals, even if we allow for the types of feedback loops stressed by Brunnermeier and Pedersen (2009). In addition, the international transmission of the crisis does not square well with countries’ exposure to losses on US mortgage securities (Kamin and Pounder 2010)... In recent research, we offer an explanation for such movements that focuses on shifts in risk perceptions (Bacchetta et al. 2010). Risk clearly plays a central role, as illustrated in Figure 1 which shows US stock prices and the VIX index measuring risk. We clearly see that large declines in asset prices are associated with surges in risk. In addition, the risk measure itself becomes more volatile at times of crisis. Time-varying risk is clearly a major feature of the crisis.. Philippe Bacchetta, Cédric Tille and Eric van Wincoop discuss their recent paper, "Self-Fullfilling Risk Panics" over at VoxEU.org. Download the Paper here. [Externalrss-FinanceFocus-titles-rssl-6-30][Externalrss-voxeu-titles-rssr-6-30] [RandomProduct-225] http://www.moneyscience.com/Finance_Focus/Risk_panics_-_When_markets_crash_for_no_apparent_reason.htmlhttp://www.moneyscience.com/Finance_Focus/Risk_panics_-_When_markets_crash_for_no_apparent_reason.htmlThu, 15 Jul 2010 16:54:22 +0100 Analysts Get SAD Too: The Effect of Seasonal Affective Disorder on Stock Analysts’ Earnings Estimates Steven D. Dolvin, Mark K. Pyles and Qun Wu Journal of Behavioral Finance, Volume 10, Issue 4, 2009 Changing investors’ risk appetite: Reality or fiction? Miroslav Misina The European Journal of Finance, Volume 14, Issue 6, 2008 Comparing the Traits of Stock Market Investors and Gamblers Janice W. Jadlow and John C. Mowen Journal of Behavioral Finance, Volume 11 Issue 2, 2010 Consumption, money and excess returns Maik Schmeling Applied Economics, First published on 28 May 2010, iFirst Does training on behavioural finance influence fund managers’ perception and behaviour? Marina Nikiforow Applied Financial Economics, Volume 20, Issue 7, 2010 Highs and lows: a behavioural and technical analysis Bruce Mizrach; Susan Weerts Applied Financial Economics, Volume 19, Issue 10, 2009 Intentions in invisible-hand accounts Aki Lehtinen Journal of Economic Methodology, Volume 16, Issue 4, 2009 Investing in the Unknown and the Unknowable - Behavioral Finance in Frontier Markets Lawrence S. Speidell Journal of Behavioral Finance, Volume 10, Issue 1, 2009 Novelty and the bounds of unknowledge in economics Ulrich Witt Journal of Economic Methodology, Volume 16, Issue 4, 2009 Orderings and Probability Functionals Consistent with Preferences Sergio Ortobelli; Svetlozar T. Rachev; Haim Shalit; Frank J. Fabozzi Applied Mathematical Finance, Volume 16, Issue 1, 2009 The Epps effect revisited Bence Tóth; János Kertész Quantitative Finance, Volume 9, Issue 7, 2009 [RandomProduct-229] http://www.moneyscience.com/Finance_Focus/Taylor___and___Francis_-_Free__Virtual_Special_Issue_on_Behavioural_Finance.htmlhttp://www.moneyscience.com/Finance_Focus/Taylor___and___Francis_-_Free__Virtual_Special_Issue_on_Behavioural_Finance.htmlThu, 15 Jul 2010 09:57:50 +0100By Venkat Venkatasubramanian Laboratory for Intelligent Process Systems, School of Chemical Engineering, Purdue University Abstract: The excessive compensation packages of CEOs of U.S. corporations in recent years have brought to the foreground the issue of fairness in economics. The conventional wisdom is that the free market for labor, which determines the pay packages, cares only about efficiency and not fairness. We present an alternative theory that shows that an ideal free market environment also promotes fairness, as an emergent property resulting from the self-organizing market dynamics. Even though an individual employee may care only about his or her salary and no one else's, the collective actions of all the employees, combined with the profit maximizing actions of all the companies, in a free market environment under budgetary constraints, lead towards a more fair allocation of wages, guided by Adam Smith's invisible hand of self-organization. By exploring deep connections with statistical thermodynamics, we show that entropy is the appropriate measure of fairness in a free market environment which is maximized at equilibrium to yield the lognormal distribution of salaries as the fairest inequality of pay in an organization under ideal conditions. Download the Paper from Entropy. You might also be interested in this ScienceDaily article about the Paper Extract: A Purdue University researcher has used "econophysics" to show that under ideal circumstances free markets promote fair salaries for workers and do not support CEO compensation practices common today. The research presents a new perspective on 18th century economist Adam Smith's concept that an "invisible hand" drives a free market economy to a collective good. "It is generally believed that the free market cares only about efficiency and not fairness. However, my theory shows that even though companies focus primarily on making profits and individuals are only looking out for themselves, the collective self-organizing free market dynamics, under ideal conditions, leads to fairness as an emergent property," said Venkat Venkatasubramanian, a professor of chemical engineering. "In reality, the self-correcting free market mechanisms have broken down for CEOs and other top executives in the market, but they seem to be working fine for the remaining 95 percent of employees."... [Externalrss-mstwitter-titles-rssl-6-30][Externalrss-FinanceFocus-titles-rssr-6-30] [RandomProduct-126] http://www.moneyscience.com/Finance_Focus/Fairness_Is_an_Emergent_Self-Organized_Property_of_the_Free_Market_for_Labor.htmlhttp://www.moneyscience.com/Finance_Focus/Fairness_Is_an_Emergent_Self-Organized_Property_of_the_Free_Market_for_Labor.htmlWed, 14 Jul 2010 09:44:52 +0100Hoje Jo Santa Clara University Tamanna Saha New York University Roopali Sharma Santa Clara University Sylvie Wright Santa Clara University Abstract We examine the performance of socially responsible investing (SRI) vs. vice investing through sin funds. Our research shows while the annualized return of SRI through Domini Social Index (DS 400 Index) from 1990 to 2009 has been higher than that of S&P 500, the relative 5 and 10-year returns are more favorable in S&P 500. We also find that while SRI through Domini Social Equity Mutual Fund (DSEFX) outperformed vice investing through vice fund (VICEX) over the most recent one year, VICEX has outperformed DSEFX over the long term. Presumably, U.S. investors sacrifice returns by investing in social responsibility. Extract: There has been ongoing debate about the performance of socially responsible investing (SRI) during the last twenty years. Previous studies suggest that the findings on SRI reveal insignificantly different results from conventional funds (Hamilton, Jo, ans Statman, 1993; Statman, 2000). A growing number of academic studies have demonstrated that SRI mutual funds perform competitively with non-SRI conventional funds over time. The recent growth of SRI indicates that investment communities prefer to combine SRI’s comparable return with their concerns on social responsibility. SRI investing has become part of the mainstream, and as a result, a number of conventional companies now offer SRI products to their clients. More investors adopt and use SRI strategies not only because such investment approach focuses on companies with socially responsible principle and avoids “sinful” businesses, but also because return are comparable to those of more conventional investments.... Download the Paper (pdf) [Externalrss-FinanceFocus-titles-rssl-8-30][Externalrss-mstwitter-titles-rssl-6-30] [RandomProduct-5] http://www.moneyscience.com/Finance_Focus/Socially_Responsible_Investing_vs_Vice_Investing.htmlhttp://www.moneyscience.com/Finance_Focus/Socially_Responsible_Investing_vs_Vice_Investing.htmlTue, 13 Jul 2010 14:56:17 +0100 Issue 6 The Subprime Credit Crisis and Contagion in Financial Markets Francis A. Longstaff The Performance of Emerging Hedge Funds and Managers Rajesh K. Aggarwal and Philippe Jorion Executive Compensation: A New View from a Long-Term Perspective, 1936-2005 Carola Frydman and Raven E. Saks Capital Structure as a Strategic Variable: Evidence from Collective Bargaining David A. Matsa The Economics of Private Equity Funds Andrew Metrick and Ayako Yasuda The Determinants of Stock and Bond Return Comovements Lieven Baele, Geert Bekaert, Koen Inghelbrecht When Are Outside Directors Effective? Ran Duchin, John G. Matsusaka, Oguzhan Ozbas CFOs and CEOs: Who Have the Most Influence on Earnings Management? John (Xuefeng) Jiang, Kathy R. Petroni, Isabel Yanyan Wang CEOs versus CFOs: Incentives and Corporate Policies Sudheer Chava and Amiyatosh Purnanandam Financing under Extreme Risk: Contract Terms and Returns to Private Investments in Public Equity Susan Chaplinsky and David Haushalter World War II Events and the Dow Jones Industrial Index Taufiq Choudhry Too Negative to Take Risks? The Effect of the CEO’s Emotional Traits on Firm Risk Juan Bautista Delgado-García, Juan Manuel de la Fuente-Sabate´ , and Esther de Quevedo-Puente Download the report (pdf) Issue 1 Issue 2 Issue 3 Issue 4 Issue 5 Visit the Risk Management Research Report Homepage Risk Management Research Report is published quarterly to serve the professional and academic risk management communities by presenting extended summaries of recently published academic articles of particular interest. RMRR seeks to select the best and most important articles in risk management and corporate governance and to communicate the essential ideas of that research to risk managers and risk management scholars in a timely manner and a convenient format. The editor of RMRR, Robert W. Kolb, selects the articles for inclusion, writes the summary of each article, and bears sole responsibility for the content of RMRR. [Externalrss-mstwitter-titles-rssr-6-30] [RandomProduct-39] http://www.moneyscience.com/Finance_Focus/Risk_Management_Research_Report_-_Issue_6_-_Summer_2010.htmlhttp://www.moneyscience.com/Finance_Focus/Risk_Management_Research_Report_-_Issue_6_-_Summer_2010.htmlTue, 13 Jul 2010 10:17:11 +0100Michael J. Alderson Saint Louis University - John Cook School of Business Andrew Saporoschenko Chapman University - The George L. Argyros School of Business & Economics Alireza Nasseh Saint Louis University - Department of Finance   Advances in Financial Education, 2009   Abstract: We rank finance journals based on citations between 2003 and 2008 and compare those rankings with how they existed approximately 20 years earlier. Outside of the top four finance journals (Journal of Finance, Journal of Financial Economics, Review of Financial Studies, and Journal of Financial and Quantitative Analysis), Financial Management stands out as the highest ranked among journals with a broad editorial mission, while the Journal of Financial Markets, the Journal of Financial Intermediation and the Financial Analysts Journal generated the highest citation impact among finance journals that focus on a narrower set of topics. We also identify the authors and articles cited most frequently and find that approximately one third of the top-ranked authors and articles from twenty years ago still hold that distinction today. Download the Paper from SSRN. [Externalrss-FinanceFocus-titles-rssl-7-30][Externalrss-mstwitter-titles-rssr-6-30] [RandomProduct-48] http://www.moneyscience.com/Finance_Focus/The_Relative_Significance_of_Finance_Journals,_Authors_and_Articles_-_An_Update.htmlhttp://www.moneyscience.com/Finance_Focus/The_Relative_Significance_of_Finance_Journals,_Authors_and_Articles_-_An_Update.htmlTue, 13 Jul 2010 10:12:09 +0100 Robert J. Bloomfield Cornell University - Samuel Curtis Johnson Graduate School of Management Johnson School Research Paper Series No. 22-2010     Abstract: The traditional finance researcher sees financial settings populated not by the error-prone and emotional Homo sapiens, but by the awesome Homo economicus. The latter makes perfectly rational decisions, applies unlimited processing power to any available information, and holds preferences well-described by standard expected utility theory. Anyone with a spouse, child, boss, or modicum of self-insight knows that the assumption of Homo economicus is false. Behavioralists in finance seek to replace Homo economicus with a more-realistic model of the financial actor. Richard Thaler, a founding father of behavioral finance, captured the conflict in a memorable National Bureau of Economic Research (NBER) conference remark to traditionalist Robert Barro: “The difference between us is that you assume people are as smart as you are, while I assume people are as dumb as I am.” Thaler’s tongue-in-cheek comparison aptly illustrates how the modest substantive differences in traditionalist and behavioralist viewpoints can be exaggerated by larger differences in framing and emphasis, bringing to mind the old quip about Britain and America being “two nations divided by a common tongue.” (For what it is worth, when confirming this account of the exchange, Thaler reports that Barro agreed with his statement.) The purpose of this article is to guide readers through this debate over fundamental assumptions about human behavior and indicate some directions behavioralists might pursue. The article provides general map of research in finance and describes in greater detail the similarities and differences between behavioral and traditional finance. I then the disagreements between the two camps in the context of the philosophy of science: Behavioralists argue, à la Thomas Kuhn, that behavioral theories are necessary to explain anomalies that cannot be accommodated by traditional theory. In return, traditionalists use a philosophy of instrumental positivism to argue that the competitive institutions in finance make deviations from Homo economicus unimportant, as long as simplifying assumption is sufficient to predict how observable variables are related to one another. A brief history of behavioral research in financial reporting then shows that while these two philosophical perspectives are powerful, they are incomplete. The success of behavioral financial reporting also depends heavily on sociological factors, particularly the commingling of behavioral and traditional researchers within similar departments. Because most finance departments lack this form of informal interaction, behavioralists must redouble their efforts to pursue a research agenda that will persuade traditionalists. The last section proposes a research agenda that behavioralists can use to address both their substantive and sociological challenges: developing and testing models explaining how the influence of behavioral factors is mediated by the ability of institutions (like competitive markets) to scrub aggregate results of human idiosyncrasies. Such research should establish common ground between traditionalists and behavioralists, while also identifying settings in which behavioral research is likely to have the most predictive power. Download the Paper from SSRN. [Externalrss-FinanceFocus-titles-rssl-7-30][Externalrss-mstwitter-titles-rssr-6-30] [RandomProduct-49] http://www.moneyscience.com/Finance_Focus/Traditional_vs_Behavioral_Finance_.htmlhttp://www.moneyscience.com/Finance_Focus/Traditional_vs_Behavioral_Finance_.htmlMon, 12 Jul 2010 09:29:21 +0100The major economies' financial reforms come up short on one crucial aspect – the resolution of systematically important cross-border financial institutions. This column introduces the latest Geneva Report on the World Economy, which advocates a two-tier solution to this problem – a universal approach for closely integrated countries such as EU members and a modified universal approach for other countries. It explicitly rejects the territorial or go-it-alone approach. Financial reform legislation is finally being put in place in the US and EU in response to the 2007-2009 global financial crisis. Much is riding on these reforms: fostering more robust yet profitable financial systems, preventing a repeat of the biggest crisis since the Great Depression, and supporting efficient financial intermediation that helps economies grow. A crucial dimension of the reforms is how to deal with large cross-border financial institutions when they run into trouble. This has been a long-standing but much neglected issue. After 26 years of negotiations aimed at harmonising international bank supervision and regulation, the Basel Committee on Banking Supervision has only recently turned its attention to harmonisation of the resolution of cross-border banks (Basel Committee, 2010). And even then it has been a slow haul. While taken up by the G20 at their London and Pittsburgh summits, the recent Toronto communiqué accorded the topic low priority. So far only the UK and, quite recently, the US (with the not-yet-passed Dodd-Frank bill) have taken the issue seriously. The twelfth Geneva Report argues that, rather than being an afterthought, resolution of cross-border systemically important (i.e., "too big to fail") financial institutions should be the centrepiece of any serious reform of the international financial system. It shows how essential it is to integrate capital regulation, supervision, and resolution policies to minimise failures and reduce international spillovers should they, nonetheless, occur... Stijn Claessens, Richard J. Herring and Dirk Schoenmaker write at Voxeu.org. [Externalrss-FinanceFocus-titles-rssl-8-30] [RandomCompany-5] http://www.moneyscience.com/Finance_Focus/A_safer_world_financial_system_-_Improving_the_resolution_of_systemic_institutions.htmlhttp://www.moneyscience.com/Finance_Focus/A_safer_world_financial_system_-_Improving_the_resolution_of_systemic_institutions.htmlWed, 07 Jul 2010 17:35:36 +0100REPORTS TO: The Boards of Directors of The Southern Finance Association and The Southwestern Finance Association. POSITION DESCRIPTION: This high-visibility position oversees the content and publication of one of the top journals in the field of finance & economics. The editor, or co-editors, of The Journal of Financial Research, has responsibility for managing the manuscript review and publication processes. Published by Wiley-Blackwell, the journal has demonstrated significant gains in readership, subscriptions, and manuscript quality. The editor(s) is encouraged by the Boards and members of the Associations to further enhance the journal's reputation in the academic and professional communities. ESSENTIAL DUTIES AND RESPONSIBILITIES: (1) Direct all submitted manuscripts to Associate Editors or to reviewers; (2) Manage the relationship with Wiley-Blackwell for the publication of each journal issue; (3) Oversee office staff who routinely manage the electronic flow of manuscripts, responses, queries, and telephone calls, as well as handling the storage & archiving of both journal issues and documents from the manuscript-review process; and (4) Serve as an ad hoc member of the Board of Directors of both the SFA and SWFA. QUALIFICATION REQUIREMENTS: The requirements listed here are representative of the knowledge, skills, and/or abilities required. (a) Superior academic and/or professional research record; (b) Desire to enhance the journal's reputation by keeping high academic research standards for all journal content; (c) Ability to handle communications with all authors, both domestic and international, of submitted manuscripts in an efficient and courteous manner; (d) Ability to effectively present information in one-on-one and small group situations to Boards of Directors, publishing partners, authors, Associate Editors and other constituents of the SFA and SWFA; and (e) Consummate organizational skills and a high ability to multi-task. EDUCATION and/or EXPERIENCE: The desired individual(s) holds a doctorate in Financial Economics, Finance or Economics from a well-regarded institution of higher learning and is presently a tenured, senior member of a university faculty in Finance or Economics. WORK ENVIRONMENT: Since the editor(s) houses the journal, they control the choice of work environment and work process. The Associations require a statement regarding the proposed workflow as it relates to manuscript reviews and a statement of purpose as it relates to future direction of the journal. Include in this statement proposed philosophy, innovations and promotional plans for the journal. Finally, each candidate for editor, or editorial team, is required to submit a working budget for the maintenance of the journal at his/her/their campus, including specific resources committed by the host Institution(s) to support the journal's operations. Please include an executed letter of support from the Dean of the college or President of the university. HONORARIUM: An annual honorarium of $5,000 will be paid to the editor (or if co-editors to be split among same). TIMING: Applications will be accepted through September 15, 2010, and a decision is likely no later than October 31, 2010. The transition period from the existing editors and staff will occur in the last six (6) months of 2011, with full duties assigned to the new editor or co-editors on January 1, 2012. Please send all materials to: Ronnie Clayton Executive Director, SFA Professor of Finance & Eminent Scholar 700 Pelham Rd. N. Jacksonville State University Jacksonville, AL 36265 USA Telephone: US 1-256-782-5715 1-256-782-5715 FAX: 1-256-782-5312 E-mail: rclayton@jsu.edu A current co-editor, Gerald "Gerry" Gay, at Georgia State University is available to assist editor candidates by providing current information about the Journal. Professor Gay's contact information is: Gerald D. Gay, Ph.D. Editor, The Journal of Financial Research J. Mack Robinson College of Business Georgia State University Atlanta, GA 30302 USA Telephone: US 1-404-413-7321 1-404-413-7321 E-mail: ggay@gsu.edu [Externalrss-mstwitter-titles-rssl-6-30][Externalrss-riskmantwitter-titles-rssr-6-30] http://www.moneyscience.com/Finance_Focus/Journal_of_Financial_Research_seeks_Editor_or_Co-Editors.htmlhttp://www.moneyscience.com/Finance_Focus/Journal_of_Financial_Research_seeks_Editor_or_Co-Editors.htmlWed, 07 Jul 2010 09:05:25 +0100With fear and loathing returning to world markets, risk managers are facing their biggest test since the financial crisis. In the run up to the 2008 financial crisis, risk managers' warning were largely ignored. Since 2009, many banks have been working overtime to get their house in order and better manage trading operations. Lawmakers and regulators are goading banks to keep at it. U.S. Democrats are trying to get a sweeping new law through Congress that targets some of the industry's risky practices. Worldwide, regulators see an improvement in banks' own risk management as a key piece of the puzzle, as noted in the final statement from the recent G-20 meeting in Toronto. But while banks and governments have been focused on improving the situation and have made some limited progress, there are still numerous problems with risk management on Wall Street. That starts with a lack of tools to quantify their risks, or even to identify all of the details about the positions on their books. "There's still a long way to go to make up for some of these gaps," said Sid Sankaran, a risk management consultant who works with major banks at Oliver Wyman. "It could be a multiyear effort."... More from Dan Wilchins writing at Reuters. [Externalrss-FinanceFocus-titles-rssl-6-30][Externalrss-mstwitter-titles-rssr-5-30] [RandomProduct-10] http://www.moneyscience.com/Finance_Focus/Wall_Street_Risk_Management_-_better,_but_hardly_fixed.htmlhttp://www.moneyscience.com/Finance_Focus/Wall_Street_Risk_Management_-_better,_but_hardly_fixed.htmlTue, 06 Jul 2010 09:26:12 +0100 In the wake of the most significant financial crisis since the Great Depression President Obama signed into law on May 20, 2009, the Fraud Enforcement and Recovery Act of 2009, creating the Financial Crisis Inquiry Commission. The Commission was established to "examine the causes, domestic and global, of the current financial and economic crisis in the United States." The 10 members of the bi-partisan Commission, prominent private citizens with significant experience in banking, market regulation, taxation, finance, economics, housing, and consumer protection, were appointed by Congress on July 15, 2009. The Chair, Phil Angelides, and Vice Chair, Bill Thomas, were selected jointly by the House and Senate Majority and Minority Leadership. The FCIC is charged with conducting a comprehensive examination of 22 specific and substantive areas of inquiry related to the financial crisis. Further Information First Public Hearing of the FCIC - January 13-14, 2010 Forum to Explore the Causes of the Financial Crisis - February 26-27, 2010 Subprime Lending and Securitization and Government-Sponsored Enterprises - April 7-9, 2010 First Public Hearing of the FCIC January 13-14, 2010 Opening Remarks Phil Angelides - Chairman, Financial Crisis Inquiry Commission - Opening Remarks (PDF) Bill Thomas - Vice Chairman, Financial Crisis Inquiry Commission - Opening Remarks (PDF) Day 1: Panel 1: Financial Institution Representatives Mr. Lloyd C. Blankfein - Chairman of the Board and Chief Executive Office, Goldman Sachs Group, Inc. Testimony (PDF) | Video Mr. James Dimon - Chairman of the Board and Chief Executive Officer, JPMorgan Chase & Company Testimony (PDF) | Video Mr. John J. Mack - Chairman of the Board, Morgan Stanley Testimony (PDF) | Video Mr. Brian T. Moynihan - Chief Executive Officer and President, Bank of America Corporation Testimony (PDF) | Video Day 1: Panel 2: Financial Market Participants Mr. Michael Mayo - Managing Director and Financial Services Analyst, Calyon Securities (USA) Inc. Testimony (PDF) | Video Mr. J. Kyle Bass - Managing Partner, Hayman Advisors, L.P. Testimony (PDF) | Video Mr. Peter J. Solomon - Founder and Chairman, Peter J. Solomon Company Testimony (PDF) | Video Day 1: Panel 3: Financial Crisis Impacts on the Economy Dr. Mark Zandi - Chief Economist and Co-founder, Moody's Economy.com Testimony (PDF) | Video Dr. Kenneth T. Rosen - Chair, Fisher Center for Real Estate and Urban Economics, University of California, Berkeley Testimony (PDF) | Video Ms. Julia Gordon - Senior Policy Counsel, Center for Responsible Lending Testimony (PDF) | Video C.R. "Rusty" Cloutier - President and Chief Executive Officer, MidSouth Bank, N.A., Past Chairman, Independent Community Bankers Association Testimony (PDF) | Video Day 2: Panel 1: Current Investigations into the Financial Crisis — Federal Officials Honorable Eric H. Holder, Jr. - Attorney General, U.S. Department of Justice Testimony (PDF) | Video Honorable Lanny A. Breuer - Assistant Attorney General, Criminal Division, U.S. Department of Justice Testimony (PDF) | Video Honorable Sheila C. Bair - Chairman, U.S. Federal Deposit Insurance Corporation Testimony (PDF) | Video Honorable Mary L. Schapiro - Chairman, U.S. Securities and Exchange Commission Testimony (PDF) | Video Day 2: Panel 2: Current Investigations into the Financial Crisis — State and Local Officials Honorable Lisa Madigan - Attorney General, State of Illinois Testimony (PDF) | Video Honorable John W. Suthers - Attorney General, State of Colorado Testimony (PDF) | Video Ms. Denise Voigt Crawford - Commissioner, Texas Securities Board and President, North American Securities Administrators Association, Inc. Testimony (PDF) | Video Mr. Glenn Theobald - Chief Counsel, Miami-Dade County Police Department;, Chairman, Mayor Carlos Alvarez Mortgage Fraud Task Force Testimony (PDF) | Video Forum to Explore the Causes of the Financial Crisis, Day 1 February 26-27, 2010 Session 1: Interconnectedness of Financial Institutions; “Too Big to Fail” Randal Kroszner - Norman R. Bobins Professor of Economics, University of Chicago Bio | Testimony (PDF) | Presentation (PDF) | Video Session 2: Macroeconomic Factors and U.S. Monetary Policy Pierre-Olivier Gourinchas - Associate Professor of Economics, University of California, Berkeley Bio | Testimony (PDF) | Presentation (PDF) | Video Session 3: Risk Taking and Leverage John Geanakoplos - James Tobin Professor of Economics, Yale University Bio | Testimony (PDF) | Presentation (PDF) | Video Session 4: Household Finances and Financial Literacy Annamaria Lusardi - Joel Z. and Susan Hyatt Professor of Economics, Dartmouth University; Research Associate at the National Bureau of Economic Research Bio | Testimony (PDF) | Presentation (PDF) | Video Session 5: Mortgage Lending Practices and Securitization Chris Mayer - Paul Milstein Professor of Real Estate, Columbia University; Visiting Scholar at the Federal Reserve Bank of New York and Research Associate at the National Bureau of Economic Research Bio | Testimony (PDF) | Presentation (PDF) | Video Session 6: Government-Sponsored Enterprises and Housing Policy Dwight Jaffee - Willis Booth Professor of Banking, Finance, and Real Estate; Co-Chair, Fisher Center for Real Estate and Urban Economics, University of California, Berkeley Bio | Testimony (PDF) | Presentation (PDF) | Video Session 7: Derivatives and Other Complex Financial Instruments Markus Brunnermeier - Edwards S. Sanford Professor of Economics, Princeton University Bio | Testimony (PDF) | Presentation (PDF) | Video Session 8: Firm Structure and Risk Management Anil Kashyap - Edward Eagle Brown Professor of Economics and Finance and Richard N. Rosett Faculty Fellow, University of Chicago Bio | Testimony (PDF) | Video Session 9: Shadow Banking Gary Gorton - Professor of Finance, School of Management, Yale University Bio | Testimony (PDF) | Video Subprime Lending and Securitization and Government-Sponsored Enterprises (GSEs) April 7-9, 2010 The Federal Reserve Mr. Alan Greenspan - Former Chairman, Board of Governors of the Federal Reserve System Testimony (PDF) | Video Subprime Origination and Securitization Mr. Richard Bitner - Managing Director of Housingwire.com, Author, "Confessions of a Subprime Lender: An Insider's Tale of Greed, Fraud & Ignorance" Testimony (PDF) | Video Mr. Richard Bowen - Former Senior Vice President and Business Chief Underwriter, CitiMortgage Inc. Testimony (PDF) | Video Ms. Patricia Lindsay - Former Vice President, Corporate Risk, New Century Financial Corporation Testimony (PDF) | Video Ms. Susan Mills - Managing Director of Mortgage Finance, Citi Markets & Banking, Global Securitized Markets Testimony (PDF) | Video Citigroup Subprime-Related Structured Products and Risk Management Mr. Murray C. Barnes - Former Managing Director, Independent Risk, Citigroup, Inc. Testimony (PDF) | Video Mr. David C. Bushnell - Former Chief Risk Officer, Citigroup, Inc. Testimony (PDF) | Video Mr. Nestor Dominguez - Former Co-Head, Global Collateralized Debt Obligations, Citi Markets & Banking, Global Structured Credit Products Testimony (PDF) | Video Mr. Thomas G. Maheras - Former Co-Chief Executive Officer, Citi Markets & Banking Testimony (PDF) | Video Citigroup Senior Management Mr. Chuck Prince - Former Chairman of the Board and Chief Executive Officer, Citigroup, Inc. Testimony (PDF) | Video Mr. Robert Rubin - Former Chairman of the Executive Committee of the Board of Directors, Citigroup, Inc. Testimony (PDF) | Video Office of the Comptroller of the Currency Mr. John C. Dugan - Comptroller, Office of the Comptroller of the Currency Testimony (PDF) | Video Mr. John D. Hawke Jr. - Former Comptroller, Office of the Comptroller of the Currency Testimony (PDF) | Video Fannie Mae Mr. Robert J. Levin - Former Executive Vice President and Chief Business Officer, Fannie Mae Testimony (PDF) | Video Mr. Daniel H. Mudd - Former President and Chief Executive Officer, Fannie Mae Testimony (PDF) | Video Office of Federal Housing Enterprise Oversight Mr. Armando Falcon Jr. - Former Director, Office of Federal Housing Enterprise Oversight Testimony (PDF) | Video Mr. James Lockhart - Former Director, Office of Federal Housing Enterprise Oversight Testimony (PDF) | Video [Externalrss-mstwitter-titles-rssl-5-30][Externalrss-FinanceFocus-titles-rssr-6-30] [RandomProduct-220] http://www.moneyscience.com/Finance_Focus/US_Financial_Crisis_Inquiry_Commission_-_Hearings_and_Testimony_-_Part_1_of__2.htmlhttp://www.moneyscience.com/Finance_Focus/US_Financial_Crisis_Inquiry_Commission_-_Hearings_and_Testimony_-_Part_1_of__2.htmlMon, 05 Jul 2010 13:53:49 +0100 Visit the Quantitative Finance Home Page Free access to the most popular papers in 2009   Volume 10 Issue 6 Measuring investment performance consistency Michael Villaverde Can expected shortfall and Value-at-Risk be used to statically hedge options? Jonathan J. Wylie; Qiang Zhang; Tak Kuen Siu Explicit expressions for moments of Pareto order statistics Saralees Nadarajah Research Papers Robustness and sensitivity analysis of risk measurement procedures Rama Cont; Romain Deguest; Giacomo Scandolo Pricing and hedging basket options to prespecified levels of acceptability Dilip B. Madan Portfolio sensitivity to changes in the maximum and the maximum drawdown Libor Pospisil; Jan Vecer A transform approach to compute prices and Greeks of barrier options driven by a class of Lévy processes Marc Jeannin; Martijn Pistorius Applications of Gram–Charlier expansion and bond moments for pricing of interest rates and credit risk Keiichi Tanaka; Takeshi Yamada; Toshiaki Watanabe Generalized uncorrelated SABR models with a high degree of symmetry Tai-Ho Wang; Peter Laurence; Sheng-Li Wang The frontiers of finance are shifting rapidly, driven in part by the increasing use of quantitative methods in the field. Quantitative Finance welcomes original research articles that reflect the dynamism of this area. The journal provides an interdisciplinary forum for presenting both theoretical and empirical approaches and offers rapid publication of original new work with high standards of quality. The readership is broad, embracing researchers and practitioners across a range of specialisms and within a variety of organizations. All articles should aim to be of interest to this broad readership. [Externalrss-qfin-titles-rss100-50-30] http://www.moneyscience.com/Finance_Focus/Quantitative_Finance_Volume_10_Issue_6.htmlhttp://www.moneyscience.com/Finance_Focus/Quantitative_Finance_Volume_10_Issue_6.htmlFri, 02 Jul 2010 07:56:51 +0100Via Simoleon Sense: Kartik Athreya from the Research Department of the Federal Reserve Bank of Richmond writes: In this essay, I argue that neither non-economist bloggers, nor economists who portray economics - especially macroeconomic policy - as a simple enterprise with clear conclusions, are likely to contibute any insight to discussion of economics and, as a result, should be ignored by an open-minded lay public. [Externalrss-HedgeFundNews-titles-rssl-6-30][Externalrss-FinanceFocus-titles-rssr-6-30] [RandomProduct-67] http://www.moneyscience.com/Finance_Focus/_Economics_is_Hard_-_Don’t_Let_Bloggers_Tell_You_Otherwise_.htmlhttp://www.moneyscience.com/Finance_Focus/_Economics_is_Hard_-_Don’t_Let_Bloggers_Tell_You_Otherwise_.htmlFri, 02 Jul 2010 06:25:29 +0100Erik Snowberg California Institute of Technology - Division of the Humanities and Social Sciences Justin Wolfers University of Pennsylvania - Business & Public Policy Department; National Bureau of Economic Research (NBER); Institute for the Study of Labor (IZA); Centre for Economic Policy Research (CEPR); Federal Reserve Bank of San Francisco; CESifo (Center for Economic Studies and Ifo Institute for Economic Research); Kiel Institute for the World Economy   Abstract The favorite-longshot bias describes the longstanding empirical regularity that betting odds provide biased estimates of the probability of a horse winning - longshots are overbet, while favorites are underbet. Neoclassical explanations of this phenomenon focus on rational gamblers who overbet longshots due to risk-love. The competing behavioral explanations emphasize the role of misperceptions of probabilities. We provide novel empirical tests that can discriminate between these competing theories by assessing whether the models that explain gamblers’ choices in one part of their choice set (betting to win) can also rationalize decisions over a wider choice set, including compound bets in the exacta, quinella or trifecta pools. Using a new, large-scale dataset ideally suited to implement these tests we find evidence in favour of the view that misperceptions of probability drive the favorite-longshot bias, as suggested by Prospect Theory. Download the Paper from SSRN [RandomProduct-220] [Externalrss-FinanceFocus-titles-rssl-6-30][Externalrss-mstwitter-titles-rssr-5-30] http://www.moneyscience.com/Finance_Focus/Explaining_the_Favorite-Longshot_Bias_Is_it_Risk-Love_or_Misperceptions.htmlhttp://www.moneyscience.com/Finance_Focus/Explaining_the_Favorite-Longshot_Bias_Is_it_Risk-Love_or_Misperceptions.htmlFri, 02 Jul 2010 06:19:48 +0100Steven L. Heston University of Maryland - Department of Finance Robert A. Korajczyk Northwestern University - Kellogg School of Management Ronnie Sadka Boston College - Carroll School of Management Lewis D. Thorson University of Washington - Foster School of Business Abstract Over the post-decimalization period, we find a predictable pattern of return continuation in equities. Stocks whose relative returns are high in a given half-hour interval today tend to exhibit similar outperformance in the same half-hour period on subsequent days. The effect is stronger at the beginning and end of the trading day, but exists throughout the day. Percentage changes in trading volume exhibit a similar pattern, but do not explain the return pattern. These results suggest that strategically shifting the timing of trades can significantly reduce execution costs for institutional traders. Download the Paper from SSRN [RandomProduct-126] [Externalrss-FinanceFocus-titles-rssl-6-30][Externalrss-mstwitter-titles-rssr-5-30] http://www.moneyscience.com/Finance_Focus/A_Predictable_Pattern_of_Return_Continuation_in_Equities.htmlhttp://www.moneyscience.com/Finance_Focus/A_Predictable_Pattern_of_Return_Continuation_in_Equities.htmlTue, 29 Jun 2010 13:15:21 +0100Jim Gatheral spent 17 years at Merrill Lynch as global head of equity derivatives trading before joining the Baruch MFE program faculty full-time in 2010. He is the best-selling author of "The Volatility Surface: A Practitioner’s Guide". As someone who hired quants at Merrill Lynch and has been teaching in the NYU Math Finance program since its inception, Gatheral talks to quantnet.com about his career, the challenges facing aspiring quant students and the fast changing landscape of global financial market. Read this Interview over at QuantNet. [Externalrss-FinanceFocus-titles-rssl-6-30][Externalrss-mstwitter-titles-rssr-5-30] [RandomProduct-126] http://www.moneyscience.com/Finance_Focus/Interview_with_Jim_Gatheral_of_Baruch_MFE.htmlhttp://www.moneyscience.com/Finance_Focus/Interview_with_Jim_Gatheral_of_Baruch_MFE.htmlSat, 26 Jun 2010 17:59:57 +0100 The Psy-Fi Blog RSS Feed The idea that economics should be modelled on the concepts of physics has been prevalent for the best part of a century. It’s a deliciously engaging idea, that the steadfast and unbending rules of science should be the template for the queen of the social sciences. The only trouble is that in economics human beings are part of the system and don’t tend to behave as economists would wish them to. On the other hand the ideas generated by analogies between physics and economics have generated a whole bunch of truly great economic ideas and are the basis of the whole of microeconomics. Although it’s tempting to argue that these ideas don’t truly make sense it’s actually quite hard to make this accusation stick. Economics and physics are connected - only just not quite the way economists like to imagine... .More from Tim Richards over at the Psi-Fi Blog [Externalrss-psyfi-titles-rssl-6-30][Externalrss-FinanceFocus-titles-rssr-6-30] [RandomProduct-135] http://www.moneyscience.com/Finance_Focus/Physics_Risk_Isn't_Market_Uncertainty.htmlhttp://www.moneyscience.com/Finance_Focus/Physics_Risk_Isn't_Market_Uncertainty.htmlWed, 23 Jun 2010 11:08:16 +0100 By J.B. Glattfelder, A. Dupuis, R.B. Olsen         Abstract: We have discovered 12 independent new empirical scaling laws in foreign exchange data-series that hold for close to three orders of magnitude and across 13 currency exchange rates. Our statistical analysis crucially depends on an event-based approach that measures the relationship between different types of events. The scaling laws give an accurate estimation of the length of the price-curve coastline, which turns out to be surprisingly long. The new laws substantially extend the catalogue of stylised facts and sharply constrain the space of possible theoretical explanations of the market mechanisms. Download the paper from arXiv. [Externalrss-FinanceFocus-titles-rssl-6-30][Externalrss-mstwitter-titles-rssr-5-30] [RandomCompany-6] http://www.moneyscience.com/Finance_Focus/Patterns_in_high-frequency_FX_data_-_Discovery_of_12_empirical_scaling_laws.htmlhttp://www.moneyscience.com/Finance_Focus/Patterns_in_high-frequency_FX_data_-_Discovery_of_12_empirical_scaling_laws.htmlTue, 22 Jun 2010 11:05:39 +0100         One of the least understood aspects of the financial crisis is how it spread from the financial sector to the general economy, where it nearly caused a global financial meltdown. "We could look at the onset of the crisis as a shock to the liquidity of one market sector -- asset-backed securities" says INSEAD PhD candidate Alberto Manconi. "In August 2007, all of a sudden we realised that we didn’t really know how to price these securities. For this reason, very few investors were willing to trade them." How the financial crisis moved from this one specialised sector to the general economy is addressed by Manconi in his paper The Behaviour of Intoxicated Investors: the Role of Institutional Investors in Propagating the Financial Crisis of 2007-2008, which he researched with Massimo Massa, Professor of Finance at INSEAD, and Ayako Yasuda, Assistant Professor of Management at the Graduate School of Management UC Davis. Manconi’s PhD dissertation research looks at the role of institutional investors in the market and their impact on firm policies. In The Behaviour of Intoxicated Investors, Manconi, Massa and Yasuda investigate the role of institutional bond investors (in particular, mutual funds and insurance companies) in propagating financial market instability. ‘Intoxicated’ investors are investors who buy into the market mainly because everyone else is doing it, in effect following the herd. These institutional bond investors are thought to hold significant amounts of asset-backed securities, including collateralised debt obligations (CDOs), collateralised loan obligations (CLOs) and collateralised mortgage obligations (CMOs), as part of their debt portfolios. By some estimates, their collective exposure in mid-2007 exceeded even that of banks. "This suggests that studying the determinants of their actions, both in the pre-crisis period where they made initial purchase decisions, and in the crisis period where they faced decisions whether - and when - to dispose of these securitised debt instruments, could shed light on the causes and effects of the credit crisis that we are in today," the authors say in the abstract on their research. So how did the crisis break out of the confines of the financial sector and infect the general economy? "We suggest the following mechanism," Manconi explains. "Suppose that an institutional investor, such as a mutual fund, simultaneously holds one part of its portfolio in structured products, mortgage-backed securities for instance, and holds another part in corporate bonds." Corporate bonds are an essential source of financing for companies and account for almost half of the overall outstanding US corporate debt. Companies use the funds they raise by issuing these bonds to build new factories, expand existing ones, conduct product research and development, and so on. So when the crisis moved from mortgage-backed securities in the financial sector to corporate bonds, this negatively affected the ability of firms to finance their operations. This in turn would have an impact on the economy. In other words, the corporate bond market was one channel through which the financial crisis could reach the real economy. The authors suggest the financial crisis made the jump to the corporate bond market, and thus to the general economy, as follows. As the crisis unfolded, more and more institutional investors in need of cash (for example, mutual funds needing to meet redemptions) faced a liquidation problem. That is to say, they needed to liquidate part of their portfolio. However, they could not sell the asset-backed securities in their portfolios due to the low liquidity levels in the market. As a result, they turned to their more liquid holdings: corporate bonds. But with several mutual funds and other institutional bond investors also trying to liquidate their corporate bond holdings, the market for these, too, was flooded and so prices plunged. As a result, the cost to companies of obtaining financing by issuing corporate bonds increased. And, as a result of that, their ability to finance their operations was crippled, thus spreading the financial crisis to the real economy. "The particular form of financing we are looking at in this paper is corporate bonds. We don’t directly look at other forms of financing, such as equity and bank loans, which may offer additional explanations of how the crisis moved from the financial sector of the economy to the real sector," Manconi acknowledges. "But this is one explanation that has been overlooked so far." But if correct, his analysis could point to a way of keeping future financial crises contained. "Our results indicate that this transmission channel is created primarily by institutional investors with a short horizon," argues Manconi. "These are the ones facing a more urgent liquidation problem, whereas the ones with a longer horizon could potentially wait until the market turmoil has subsided." This points to an immediate policy implication. Lock-up clauses, or indeed any form of regulation that has the effect of lengthening the horizon of institutional investors, could limit, or even completely shut down, this form of transmission of financial shock to the corporate bond market. "We are highlighting the channel through which the crisis could spread and we are saying this is an important channel that we should address if we want to avoid another crisis," Manconi says. "As the part of the economy that is made up of institutional investors such as mutual funds is becoming more relevant, this channel will be even more relevant in the future." This Article is Reproduced with the kind permission of INSEAD. Read the Original Piece Here. [Externalrss-insead-titles-rssl-6-30][Externalrss-FinanceFocus-titles-rssr-6-30] [RandomProduct-123] http://www.moneyscience.com/Finance_Focus/'Intoxicated'_institutional_investors_-_how_the_financial_crisis_infected_the_real_economy.htmlhttp://www.moneyscience.com/Finance_Focus/'Intoxicated'_institutional_investors_-_how_the_financial_crisis_infected_the_real_economy.htmlTue, 22 Jun 2010 10:23:13 +0100 Visit the Quantitative Finance Home Page Optimal time to sell a stock in the Black-Scholes model Satya N. Majumdar; Jean-Philippe Bouchaud. Volume 8, Issue 8. Thou shalt buy and hold Albert Shiryaev; Zuoquan Xu; Xun Yu Zhou. Volume 8, Issue 8. A two-part fractional regression model for the financial leverage decisions of micro, small, medium Joaquim J.S. Ramalho; Jacinto Vidigal da Silva. Volume 9, Issue 5. A preliminary enquiry into the causes of the Credit Crunch Murphy, David. Volume 8, Issue 5. The causes of the credit crunch - a backwards look Murphy, David. Volume 9, Issue 7. Liquidity risk theory and coherent measures of risk Carlo Acerbi ; Giacomo Scandolo. Volume 8, Issue 7. What good is a volatility model? R. F. Engle; A. J. Patton. Volume 1, Issue 2. Pairs trading Elliot, Robert; John Van Der Hoek; William P. Malcolm. Volume 5, Issue 3. Bankruptcy in long-term investments Minjie Yu; Qiang Zhang; Dennis Yang. Volume 8, Issue 8. Improved lower and upper bound algorithms for pricing American options by simulation Mark Broadie; Menghui Cao. Volume 8, Issue 8. The frontiers of finance are shifting rapidly, driven in part by the increasing use of quantitative methods in the field. Quantitative Finance welcomes original research articles that reflect the dynamism of this area. The journal provides an interdisciplinary forum for presenting both theoretical and empirical approaches and offers rapid publication of original new work with high standards of quality. The readership is broad, embracing researchers and practitioners across a range of specialisms and within a variety of organizations. All articles should aim to be of interest to this broad readership. [Externalrss-qfin-titles-rss100-50-30] http://www.moneyscience.com/Finance_Focus/Quantitative_Finance_-_Free_access_to_the_most_popular_papers_in_2009.htmlhttp://www.moneyscience.com/Finance_Focus/Quantitative_Finance_-_Free_access_to_the_most_popular_papers_in_2009.htmlMon, 21 Jun 2010 12:59:26 +0100 Further Information about this Special Issue (pdf)   Introduction to Applied Financial Economics Volume 20, 2010 Mark P. Taylor Editorial The global financial crisis: introduction and overview Mark P. Taylor Original Articles What were they thinking? Reports from interviews with senior finance executives in the lead-up to the GFC Les Coleman; Sean Pinder How did the Fed do? An empirical assessment of the Fed's new initiatives in the financial crisis Abdullah Mamun; M. Kabir Hassan; Mark Johnson The put problem with buying toxic assets Linus Wilson Global financial crisis and US interest rate swap spreads Takayasu Ito Were there warning signals from banking sectors for the 2008/2009 global financial crisis? John L. Simpson Extreme value modelling for forecasting market crisis impacts Xin Zhao; Carl Scarrott; Les Oxley; Marco Reale The correlation structure of FX option markets before and since the financial crisis Georgios Chalamandaris; Andrianos E. Tsekrekos Global capital market interdependence and spillover effect of credit risk: evidence from the 2007–2009 global financial crisis William Cheung; Scott Fung; Shih-Chuan Tsai A simple model of trading and pricing risky assets under ambiguity: any lessons for policy-makers? Massimo Guidolin; Francesca Rinaldi Comparing the performance of relative stock return differential and real exchange rate in two financial crises Douglas K. T. Wong; Kui-Wai Li Permanent and transitory dynamics in house prices and consumption: some implications for the real effects of the financial crisis Fabio C. Bagliano; Claudio Morana Another consequence of the economic crisis: a decrease in migrants’ remittances Isabel Ruiz; Carlos Vargas-Silva Applied Financial Economics is Published by Routledge, part of the Taylor & Francis Group. ISSN: 1466-4305 (electronic) 0960-3107 (paper) Publication Frequency: 24 issues per year Journal Home Page. [Externalrss-appliedfe-titles-rss100-30-30] http://www.moneyscience.com/Finance_Focus/Applied_Financial_Economics_-_Free_to_View_Special_Issue_on_the_Global_Financial_Crisis.htmlhttp://www.moneyscience.com/Finance_Focus/Applied_Financial_Economics_-_Free_to_View_Special_Issue_on_the_Global_Financial_Crisis.htmlFri, 18 Jun 2010 11:25:44 +0100By Domenico Delli Gatti, Mauro Gallegati, Bruce Greenwald, Alberto Russo, Joseph E. Stiglitz       Abstract We model a network economy with three sectors: downstream firms, upstream firms, and banks. Agents are linked by productive and credit relationships so that the behavior of one agent influences the behavior of the others through network connections. Credit interlinkages among agents are a source of bankruptcy diffusion: in fact, failure of fulfilling debt commitments would lead to bankruptcy chains. All in all, the bankruptcy in one sector can diffuse to other sectors through linkages creating a vicious cycle and bankruptcy avalanches in the network economy. Our analysis show how the choices of credit supply by both banks and firms are interrelated. While the initial impact of monetary policy is on bank behaviour, we show the interactive play between the choices made by banks, the choices made by firms in their role as providers of credit, and the choices made by firms in their role as producers. Get the Paper from arXiv [Externalrss-mstwitter-titles-rss100-20-30] [RandomProduct-220] http://www.moneyscience.com/Finance_Focus/Business_fluctuations_in_a_credit-network_economy.htmlhttp://www.moneyscience.com/Finance_Focus/Business_fluctuations_in_a_credit-network_economy.htmlFri, 18 Jun 2010 11:18:32 +0100 By Andrey Sokolov, Tien Kieu, Andrew Melatos       Abstract The gauge theory of arbitrage was introduced by Ilinski in [arXiv:hep-th/9710148] and applied to fast money flows in [arXiv:cond-mat/9902044]. The theory of fast money flow dynamics attempts to model the evolution of currency exchange rates and stock prices on short, e.g.\ intra-day, time scales. It has been used to explain some of the heuristic trading rules, known as technical analysis, that are used by professional traders in the equity and foreign exchange markets. A critique of some of the underlying assumptions of the gauge theory of arbitrage was presented by Sornette in [arXiv:cond-mat/9804045]. In this paper, we present a critique of the theory of fast money flow dynamics, which was not examined by Sornette. We demonstrate that the choice of the input parameters used in [arXiv:cond-mat/9902044] results in sinusoidal oscillations of the exchange rate, in conflict with the results presented in [arXiv:cond-mat/9902044]. We also find that the dynamics predicted by the theory are generally unstable in most realistic situations, with the exchange rate tending to zero or infinity exponentially. Get the Paper from arXiv [Externalrss-FinanceFocus-titles-rssl-6-30][Externalrss-mstwitter-titles-rssr-5-30] [RandomProduct-6] http://www.moneyscience.com/Finance_Focus/A_note_on_the_theory_of_fast_money_flow_dynamics.htmlhttp://www.moneyscience.com/Finance_Focus/A_note_on_the_theory_of_fast_money_flow_dynamics.htmlFri, 18 Jun 2010 11:11:47 +0100By Dorje C. Brody, Lane P. Hughston, Andrea Macrina       Abstract: We propose a model for the credit markets in which the random default times of bonds are assumed to be given as functions of one or more independent "market factors". Market participants are assumed to have partial information about each of the market factors, represented by the values of a set of market factor information processes. The market filtration is taken to be generated jointly by the various information processes and by the default indicator processes of the various bonds. The value of a discount bond is obtained by taking the discounted expectation of the value of the default indicator function at the maturity of the bond, conditional on the information provided by the market filtration. Explicit expressions are derived for the bond price processes and the associated default hazard rates. The latter are not given a priori as part of the model but rather are deduced and shown to be functions of the values of the information processes. Thus the "perceived" hazard rates, based on the available information, determine bond prices, and as perceptions change so do the prices. In conclusion, explicit expressions are derived for options on discount bonds, the values of which also fluctuate in line with the vicissitudes of market sentiment. Get the Paper from arXiv [Externalrss-FinanceFocus-titles-rssl-6-30][Externalrss-mstwitter-titles-rssr-5-30] [RandomProduct-10] http://www.moneyscience.com/Finance_Focus/Credit_Risk,_Market_Sentiment_and_Randomly-Timed_Default.htmlhttp://www.moneyscience.com/Finance_Focus/Credit_Risk,_Market_Sentiment_and_Randomly-Timed_Default.htmlTue, 15 Jun 2010 10:01:08 +0100 Zacharias Sautner University of Amsterdam Finance Group & Duisenberg School of Finance Belén Villalonga Harvard Business School     Abstract We exploit an exogenous shock to corporate ownership structures created by a recent tax reform in Germany to explore the link between corporate governance and internal capital markets. We find that firms with more concentrated ownership are less diversified and have more efficient internal capital markets. Our findings provide direct evidence in support of Scharfstein and Stein’s (2000) model, which suggests that internal capital misallocations are partly a result of poor corporate governance. We also provide evidence of a channel through which the benefits of ownership concentration outweigh its costs. Download the Paper from Harvard Business School [Externalrss-FinanceFocus-titles-rssl-6-30][Externalrss-mstwitter-titles-rssr-6-30] [Externalrss-educationtwitters-titles-rssl-6-30][Externalrss-RecentLinks-titles-rssr-6-30] [RandomCompany-48] http://www.moneyscience.com/Finance_Focus/Corporate_Governance_and_Internal_Capital_Markets.htmlhttp://www.moneyscience.com/Finance_Focus/Corporate_Governance_and_Internal_Capital_Markets.htmlMon, 14 Jun 2010 11:38:00 +0100 By Ernst Eberlein, Zorana Grbac, Thorsten Schmidt       Abstract This paper considers a top-down approach for CDO valuation and proposes a market model. We extend previous research on this topic in two directions: on the one side, we use as driving process for the interest rate dynamics a time-inhomogeneous Levy process, and on the other side, we do not assume that all maturities are available in the market. Only a discrete tenor structure is considered, which is in the spirit of the classical Libor market model. We create a general framework for market models based on multidimensional semimartingales. This framework is able to capture dependence between the default-free and the defaultable dynamics, as well as contagion effects. Conditions for absence of arbitrage and valuation formulas for tranches of CDOs are given. Get the Paper from arXiv [Externalrss-mstwitter-titles-rssl-6-30][Externalrss-FinanceFocus-titles-rssr-6-30] [RandomProduct-126] http://www.moneyscience.com/Finance_Focus/Market_models_for_CDOs_driven_by_time-inhomogeneous_Levy_processes.htmlhttp://www.moneyscience.com/Finance_Focus/Market_models_for_CDOs_driven_by_time-inhomogeneous_Levy_processes.htmlMon, 14 Jun 2010 10:37:28 +0100The global crisis ruthlessly exposed the weakness of the market for liquidity. This column suggests that banks should issue securities with a “Roll-Over Option Facility” that would allows banks to keep funds if there is turmoil in liquidity markets. It adds that these facilities would help reallocate liquidity risk outside the banking sector, thus reducing the probability and severity of a crisis. The financial crisis that started in 2007 unveiled the fragility of the market for liquidity and how this was underestimated by market participants and regulators alike. Liquidity risk is particularly deceitful because it carries an externality with potentially large systemic implications. From the individual investor’s perspective, while it may be rational to gain exposure to liquidity risk with a large mismatch in asset-liability maturities, many individual investors do not take into account that, when there is a liquidity crunch, the need to unload assets has adverse effects on others and forces them to sell their positions as well, causing a loss spiral of the kind that exacerbated the recent financial crisis (Brunnermeier 2009). The problem may become even more acute in the future. The extraordinary measures taken by public authorities to prevent the collapse in the markets for liquidity are likely to amplify moral hazard and reduce banks’ incentives to hedge against liquidity risks. There is a clear need for regulation that addresses the externality created by liquidity risk and reduces the need for public intervention... Sergio Nicoletti-Altimari and Carmelo Salleo write at VoxEU.org [Externalrss-bookstaber-titles-rssl-6-30][Externalrss-FinanceFocus-titles-rssr-6-30] [RandomProduct-220] http://www.moneyscience.com/Finance_Focus/Contingent_liquidity_-_A_proposal_to_reduce_liquidity_risk.htmlhttp://www.moneyscience.com/Finance_Focus/Contingent_liquidity_-_A_proposal_to_reduce_liquidity_risk.htmlThu, 10 Jun 2010 08:30:43 +0100By Alexander M. Petersen, Fengzhong Wang, Shlomo Havlin, H. Eugene Stanley       Abstract We study the cascading dynamics immediately before and immediately after 219 market shocks. We define the time of a market shock T_{c} to be the time for which the market volatility V(T_{c}) has a peak that exceeds a predetermined threshold. The cascade of high volatility "aftershocks" triggered by the "main shock" is quantitatively similar to earthquakes and solar flares, which have been described by three empirical laws --- the Omori law, the productivity law, and the Bath law. We analyze the most traded 531 stocks in U.S. markets during the two-year period 2001-2002 at the 1-minute time resolution. We find quantitative relations between (i) the "main shock" magnitude M \equiv \log V(T_{c}) occurring at the time T_{c} of each of the 219 "volatility quakes" analyzed, and (ii) the parameters quantifying the decay of volatility aftershocks as well as the volatility preshocks. We also find that stocks with larger trading activity react more strongly and more quickly to market shocks than stocks with smaller trading activity. Our findings characterize the typical volatility response conditional on M, both at the market and the individual stock scale. We argue that there is potential utility in these three statistical quantitative relations with applications in option pricing and volatility trading. Download the Paper from arXiv. Econophysics News, Links and Resources from MoneyScience Subscribe by Email Econophysics Hub Econophysics Papers at arXiv Econophysics Library [Externalrss-mstwitter-titles-rss100-20-30] http://www.moneyscience.com/Finance_Focus/Market_dynamics_immediately_before_and_after_financial_shocks_-_quantifying_the_Omori,_productivity_and_Bath_laws.htmlhttp://www.moneyscience.com/Finance_Focus/Market_dynamics_immediately_before_and_after_financial_shocks_-_quantifying_the_Omori,_productivity_and_Bath_laws.htmlWed, 09 Jun 2010 13:48:24 +0100Credit Suisse present a framework for comparing the sustainability of government liabilities across developed market countries (pdf). Their a system goes beyond debt and deficit ratios and adds a plethora of equally important but less obvious factors: Such an approach is sorely needed, in our opinion. Past sovereign debt crises had more to do with structural rigidities (fixed exchange rates, etc.), bad politics (an inability to make tough decisions, etc.), and severe shocks (wars, etc.) than with headline debt and deficits. Indeed, war is by far the most common cause of past sovereign defaults in our developed world sample. Our attempt at scoring yields the following conclusions about relative debt sustainability: - The first tier of sovereign debt includes the liabilities of China, Germany, Switzerland, Australia and Canada. More controversially it also includes the US, Italy and Japan. In our view these countries have negligible credit risk. These countries may (and probably do) have some unsustainable liabilities, but for most this implies much longer-term risks of inflation (indirect default) if action is not taken to cap or reduce long-term entitlement commitments. - The second tier includes the UK and arguably France. Credit risk remains very low for these two, but structural factors suggest slightly greater risks of debt sustainability issues. For the UK these are most likely to show up in higher inflation risks; for France the main concern is public sector rigidities and entitlements. - The third tier includes Greece, Portugal, Spain and Ireland. For these four the risks of actual default are significantly greater, unless and until rules for a more explicit fiscal and political union within the euro zone are worked out. This process has now begun in a classic process of crisis-led reform. - Note that the euro zone GDP-weighted average score is similar to the UK score. Moreover, all countries in our sample – no matter what their debt level would be perfectly creditworthy if primary budget surpluses were the norm. Naturally, our conclusions rely on many subjective judgements. The framework is available in spreadsheet form on request, allowing readers to put in their own country scores and category weightings. Read the Full Report. (pdf) [Externalrss-FinanceFocus-titles-rssl-6-30][Externalrss-SocialNetworks-titles-rssr-6-30] [RandomProduct-48] http://www.moneyscience.com/Finance_Focus/Sovereign_Risk_-_Beyond_The_Numbers.htmlhttp://www.moneyscience.com/Finance_Focus/Sovereign_Risk_-_Beyond_The_Numbers.htmlTue, 08 Jun 2010 16:24:16 +0100Paul Wilmott answers questions over at QFINANCE: - The press has recently vilified derivatives and Warren Buffett famously called them “weapons of financial mass destruction.” What’s your feeling? - What’s the solution, then, as derivatives seem here to stay, be it for hedging and portfolio efficiency, or for unique different trading strategies? Is the answer greater transparency as some people have called for? - What about the regulators, then? Increasingly, there have been calls for greater regulation to solve the problems within the system, such as the nature of compensation. - Let’s talk about the instrument that’s been most in the press, credit default swaps (CDS), where the size of the market has become ridiculously large compared to the companies whose defaults they’re underwriting. What do you see as their future? - One thing that seems certain is that leverage is not going to be the same going forward. What’s the bank of the future going to look like? - Hedge funds have been particularly blamed for their role in the credit crunch. Were they culpable or just one of the culprits, along with banks and those investors who drove the demand for securitization? - The problem has now moved on from the financial sphere into the real economy. How do you wean people off this easy credit? - Quants have also had a rough ride recently thanks to CDOs and the like. What are your thoughts and what is the future for them? - People often don’t realize that any theory is only as good as its axioms. So what can be done about this? - Let’s end with the question that resonates most in the minds of financial leaders these days. What lessons, if any, can we take from the credit crunch? Read the interview here. QFINANCE Financial Search Widget To use QFINANCE search, visit http://www.qfinance.com. To add the QFINANCE search widget to your site, go to http://www.qfinance.com/search-widgets/type1 [Externalrss-FinanceFocus-titles-rssr-6-30] http://www.moneyscience.com/Finance_Focus/Paul_Wilmott_-_The_Problem_with_Derivatives,_Quants,_and_Risk_Management_Today.htmlhttp://www.moneyscience.com/Finance_Focus/Paul_Wilmott_-_The_Problem_with_Derivatives,_Quants,_and_Risk_Management_Today.htmlTue, 08 Jun 2010 16:16:35 +0100 Welcome to the June QFINANCE Executive Briefing, which highlights new and relevant content on QFINANCE and essential reading tied to what's happening in the world of finance right now. In this issue, we cover a variety of hot topics including the US Senate Financial Services Bill, issues causing unstable markets, analysis of derivatives, and the German short selling ban: Senate passes finance bill Korean tensions and Spanish bank failures wobble the markets Derivatives under scrutiny German short selling ban creates waves Senate passes finance bill Showdown time for the big US banks and their armies of lobbyists came a large step closer with the successful passage of the Senate Financial Services Bill. Could a return to Glass-Steagall be on the cards? Bill Hambrecht considers the options for the Obama administration in "Bringing Trust Back to Wall Street," while Viral Acharya and Julian Franks ponder "Regulation after the Crash." Ian Fraser bemoans the lack of ethics that killed Wall Street in his blog and also considers Nouriel Roubini's "10 part prescription for a more stable future." Korean tensions and Spanish bank failures wobble the markets The unlikely combination of Spanish banking woes and heightened tensions between the two Koreas sent global markets tumbling and pushed market volatility to levels last seen at the height of the 2008 crash. Could things be worse? Yes indeed, says investment guru Jim Rogers in his viewpoint article "Asia: Future Perspectives." Moorad Choudhry charts a course through the money markets in "Investing in Structured Finance Products in the Debt Money Markets," and Anthony Harrington considers what might happen if euroland started to fracture in his blog pos "A strategic look at the euro problem-What if Greece stayed and Germany left?" Derivatives under scrutiny While they did not cause the crash, derivatives were certainly dancing at stage center as financial markets came unglued through 2008. The regulatory drive to force more benign behavior on OTC derivatives is now gathering pace. David Shimko warns of the "Dangers of Corporate Derivative Transactions" while Eric Dinallo looks at the origins of the derivatives problem. Paul Wilmot considers "The Problem with Derivatives, Quants, and Risk Management Today," and Ian Fraser looks at former President Clinton's admission that he got it wrong on derivatives. German short selling ban creates waves A surprise short selling ban imposed unilaterally by Germany in mid-May infuriated Germany's euro partners who had not been informed, but now looks likely to be adopted more widely, despite its lack of logic, out of a desire for "uniformity" among regulators. A similar sentiment on the part of the US SEC about short selling is analyzed by Anthony Harrington in his blog post "SEC on dangerous ground with short selling rule," while Raj Gupta expounds on "The Role of Short Sellers in the Marketplace" and Kevin Burrows looks at the challenges facing hedge funds, often castigated for so called "speculative" short selling in his Best Practice article, "Hedge Fund Challenges Extend Beyond Regulation." New on QFINANCE this month Best Practice - WACC versus APV Valuation: Financial Policy and the Discount Rate, by Antoine Hyafil Thinkers - Herman Daly Checklists - Managing External Stakeholders - Understanding Root Cause Analysis A powerful combination of finance information and expertise at your fingertips, QFINANCE: The Ultimate Resource, the only finance reference book of its kind. - Buy from Amazon.com - Buy from Amazon.co.uk - Buy direct from Bloomsbury Special Offer for a Limited Period! Pay just £37.50 + FREE UK Delivery (Normally £150) - Over 2,000 pages of authoritative and practical finance information - Best practice, thought leadership and viewpoint articles - "Checklists" and "Calculations & Ratios" sections - Comprehensive coverage from accounting to wealth management - Profiles of 102 countries & 26 sectors - Compiled by 300+ leading finance experts including Frank Fabozzi, Paul Wilmott, Aswath Damodaran - The only finance reference book of its kind All in one book - for just £37.50 To order click here and please quote QFSPE at checkout to qualify for the discount or email qfinance1@bloomsbury.com QFINANCE Financial Search Widget To use QFINANCE search, visit http://www.qfinance.com. To add the QFINANCE search widget to your site, go to http://www.qfinance.com/search-widgets/type1 QFINANCE is a partnership of Bloomsbury Publishing Plc and the Qatar Financial Centre (QFC). http://www.moneyscience.com/Finance_Focus/QFINANCE_Executive_Briefing_-_June_2010.htmlhttp://www.moneyscience.com/Finance_Focus/QFINANCE_Executive_Briefing_-_June_2010.htmlTue, 08 Jun 2010 14:59:57 +0100 [Externalrss-FinanceFocus-titles-rssl-6-30] You might also be interested in: World Cup Forecasting Challenge For Quants Football Research - Finance, Economics and the FIFA World Cup JP Morgan Quants Predict England World Cup Win [RandomProduct-135] http://www.moneyscience.com/Finance_Focus/Goldman_Sachs_-_The_World_Cup_and_Economics_2010.htmlhttp://www.moneyscience.com/Finance_Focus/Goldman_Sachs_-_The_World_Cup_and_Economics_2010.htmlMon, 07 Jun 2010 15:03:35 +0100Databuff at Slashdot writes: "As a break from projecting the strength of subprime mortgages, credit default swaps, and other obscure financial instruments, quantitative analysts at Goldman Sachs, JP Morgan, UBS, and Danske Bank have modeled the 2010 FIFA World Cup. Now Kaggle has set up a forecasting competition, allowing statisticians to go head-to-head with these corporate giants. The challenge is to predict how far each country will progress in the tournament." The challenge is to correctly predict how far each country will progress in the tournament. There is a small dataset and some links to variables of interest on the data page. There are links to the investment banks' predictions and other World Cup modeling efforts on the hints page. We are running two challenges side-by-side - a Take on the Quants Challenge and a Confidence Challenge. The Take on the Quants Challenge simply requires competitors to pick how far teams will progress in the tournament. Competitors' entries will be ranked against the predictions made by the investment banks. The Confidence Challenge requires competitors to assign a level of confidence to each prediction - a competitor's score is weighted by their level of confidence. Competitors enter both challenges with a single submission. There are more details on the submission instructions page and the evaluation page. The competition closes just before the first game kicks off on June 11th. [Externalrss-mstechnews-titles-rssl-6-30][Externalrss-FinanceFocus-titles-rssr-6-30] [RandomProduct-39] http://www.moneyscience.com/Finance_Focus/World_Cup_Forecasting_Challenge_For_Quants.htmlhttp://www.moneyscience.com/Finance_Focus/World_Cup_Forecasting_Challenge_For_Quants.htmlMon, 07 Jun 2010 14:04:20 +0100This paper won the $10k National Association of Active Investment Managers (NAIM) award for Best Paper. H/T Mebane Faber over at World Beta. Tell us what you think of this paper. By Tony Cooper Double-Digit Numerics Abstract It is difficult to predict stock market returns but relatively easy to predict market volatility. But volatility predictions don't easily translate into return predictions since the two are largely uncorrelated. We put forward a framework that produces a formula in which returns become a function of volatility and therefore become somewhat more predictable. We show that this strategy produces excess returns giving us the upside of leverage without the downside. As a side-effect the strategy also smoothes out volatility variation over time and gives us a dynamic timing signal for tilting asset allocations between conservative and aggressive assets. Keywords: volatility timing, volatility of volatility, extreme volatility, volatility drag, managed volatility, continuously dynamic leverage, leveraged exchange traded funds, alpha generation. [Externalrss-mstwitter-titles-rssl-4-30][Externalrss-FinanceFocus-titles-rssr-6-30] var skin = {}; skin['BORDER_COLOR'] = '#cccccc'; skin['ENDCAP_BG_COLOR'] = '#e0ecff'; skin['ENDCAP_TEXT_COLOR'] = '#333333'; skin['ENDCAP_LINK_COLOR'] = '#0000cc'; skin['ALTERNATE_BG_COLOR'] = '#ffffff'; skin['CONTENT_BG_COLOR'] = '#ffffff'; skin['CONTENT_LINK_COLOR'] = '#0000cc'; skin['CONTENT_TEXT_COLOR'] = '#333333'; skin['CONTENT_SECONDARY_LINK_COLOR'] = '#7777cc'; skin['CONTENT_SECONDARY_TEXT_COLOR'] = '#666666'; skin['CONTENT_HEADLINE_COLOR'] = '#333333'; skin['ALIGNMENT'] = 'left'; google.friendconnect.container.setParentUrl('/' /* location of rpc_relay.html and canvas.html */); google.friendconnect.container.renderSignInGadget( { id: 'div-8075657666965305249', site: '16193895887062730248' }, skin); http://www.moneyscience.com/Finance_Focus/NAAIM_Best_Paper_Award_-_Alpha_Generation_and_Risk_Smoothing_using_Volatility_of_Volatility.htmlhttp://www.moneyscience.com/Finance_Focus/NAAIM_Best_Paper_Award_-_Alpha_Generation_and_Risk_Smoothing_using_Volatility_of_Volatility.htmlMon, 07 Jun 2010 13:52:48 +0100Great spot from the indefatigable Miguel over at Simoleon Sense: As an MIT Museum audience peppers him with queries ranging from the barter system to development, trade relations, and the role of intuition in economics, Nobel Prize-winner Robert Merton pushes back against any assumptions that he might be a “renaissance man.” He carefully steers listeners to his areas of expertise -- financial engineering and innovation, and risk management. Merton starts with the breakthrough work that earned him his laurels, and which has recently stirred up controversy: derivatives. There are “no mysteries” to these financial instruments, insists Merton. They are neither complex nor threatening. Derivatives are “nothing more than insurance,” coming into play when people exercise the right to buy or sell an asset or stock at a guaranteed price. Merton developed formulas for valuing such guarantees. These “tools of analysis” are now central to many areas of big finance, such as pricing corporate liabilities, student loan guarantee programs, and federal deposit insurance, and pop up in ordinary life as mortgages with the right to prepay, and car leases with a purchase option... More from MIT World. [Externalrss-ssense-titles-rssl-6-30][Externalrss-FinanceFocus-titles-rssr-6-30] [RandomProduct-220] http://www.moneyscience.com/Finance_Focus/Video_-_MIT_Lunch_with_a_Laureate_-_Robert_Merton.htmlhttp://www.moneyscience.com/Finance_Focus/Video_-_MIT_Lunch_with_a_Laureate_-_Robert_Merton.htmlMon, 07 Jun 2010 13:39:08 +0100The search giant is hiring Wall Street vets to manage a $26.5 billion pile of cash. Last fall, some unusual job listings began cropping up on Google's (GOOG) website. Amid the requests for programmers and engineers were postings for bond traders and portfolio analysts. By spring, tech blogs were speculating about what was going on at Google. The answer was very un-Silicon Valley. Google, it turns out, has launched a trading floor to manage its $26.5 billion in cash and short-term investments. The hoard is the third-biggest cash pile among U.S. tech companies, after Microsoft (MSFT) and Cisco's (CSCO). One of the company's goals is to improve the returns on its money, which until now has been managed conservatively. Google doesn't disclose its rate of return on investments or the targets it has set, but analyst Aaron Kessler of ThinkEquity estimates the company's 2010 return (including interest income and realized and unrealized gains before tax) at around 2.5 percent. That's a higher return than some other large Internet outfits, such as Yahoo! and Amazon, he says... Douglas MacMillan writes at BusinessWeek [Externalrss-mstechnews-titles-rssl-6-30][Externalrss-FinanceFocus-titles-rssr-6-30] [RandomProduct-103] http://www.moneyscience.com/Finance_Focus/Google's_Latest_Launch_-_Its_Own_Trading_Floor.htmlhttp://www.moneyscience.com/Finance_Focus/Google's_Latest_Launch_-_Its_Own_Trading_Floor.htmlFri, 04 Jun 2010 16:10:38 +0100Something a bit different for MoneyScience on a Friday afternoon. This is a paper authored by Greta R. Krippner, a sociologist from UCLA, in 2005. With banks at the forefront of an apparently increasingly omnipresent financial sector, their growing presence has been named "financialisation". There have been many attempts to give quantitative substance to this impression and in this paper Krippner offers one of the more systematic and rigorous. Download the paper here (pdf) Abstract This paper presents systematic empirical evidence for the financialization of the US economy in the post-1970s period. While numerous researchers have noted the increasing saleince of finance, there have been few systematic attempts to consider what this shift means for the nature of the economy, considered broadly. In large part, this ommission reflects the considerable methodological difficulties associated with using national economic data to assess the rise of finance as a macro level phenomenon shaping patterns of accumulation in the US economy. This paper develops two discrete measure of financialization and applies these measures to postwar US economic data in order to determine if, and to what extent, the US ecomomy is being financialized. The paper concludes by considering some of the implications of financialization for two areas of ongoing debate in the social sciences: (1) the question of who controls the modern corporation; and (2) the controversy surrounding the extent to which globalization has eroded the autonomy of the state. From Greta's Home Page: The objective of my current research is to assess the significance of the growing salience of finance in the U.S. economy in the post-1970s period for debates on the nature of contemporary economic change. I seek to answer several questions about financialization: First, to what extent does the empirical evidence support the claim that we are living in a period in which we can reasonably describe the U.S. economy as having been “financialized”? In a related vein, if there is evidence for financialization, what do the data tell us about the particular timing and magnitude of this phenomenon? Second, what role has the state played in creating the conditions that have promoted and sustained financialization? Which state actors were involved in creating policies favorable to the turn to finance, and where did these policies produce lines of fissure, either within the state or between the state and relevant social actors? Third, how has the terrain upon which the state intervenes in the economy been reconfigured by processes associated with the financialization of the U.S. economy? Has the line between state and market effectively been redrawn in a world in which financial markets dominate the economy? I use each of these questions to critically interrogate one of three standard ways of thinking about the salient shifts that characterize recent historical experience: postindustrialism, globalization, and neoliberalism. In all three cases, I argue that an analysis of financialization can help us make sense of the proliferation of apparently new social forms that have been reshaping capitalist social relations since the 1970s—as well as the social and political limits associated with living in a time of such fervent experimentation. [Externalrss-FinanceFocus-titles-rssl-6-30][Externalrss-mstwitter-titles-rssr-4-30] [RandomProduct-126] http://www.moneyscience.com/Finance_Focus/The_Financialisation_of_the_American_Economy.htmlhttp://www.moneyscience.com/Finance_Focus/The_Financialisation_of_the_American_Economy.htmlFri, 04 Jun 2010 15:32:39 +0100There are good reasons to think that stock markets are fundamentally unpredictable. Many econophysicists believe for example, that the data from these markets bear a startling resemblance to other data from seemingly unconnected phenomena, such as the size of earthquakes, forest fires and avalanches, which defy all efforts of prediction. Some go as far as to say that these phenomena are governed by the same fundamental laws so that if one is unpredictable, then they all are. And yet financial markets may be different. Last year, this blog covered an extraordinary forecasts made by Didier Sornette at the Swiss Federal Institute of Technology in Zurich, who declared that the Shanghia Composite Index was a bubble market and that it would collapse within a certain specific period of time... Much to arXiv blog's surprise, his prediction turned out to be uncannily correct. [Externalrss-FinanceFocus-titles-rssl-6-30][Externalrss-RecentLinks-titles-rssr-6-30] Econophysics News, Links and Resources from MoneyScience Subscribe by Email Econophysics Hub Econophysics Papers at arXiv Econophysics Library Research by Didier Sornette at arXiv http://www.moneyscience.com/Finance_Focus/Financial_Bubble_Experiment_Accurately_Forecasts_Gold_Price_Collapse.htmlhttp://www.moneyscience.com/Finance_Focus/Financial_Bubble_Experiment_Accurately_Forecasts_Gold_Price_Collapse.htmlFri, 04 Jun 2010 13:45:03 +0100 Sovereign Wealth Funds, the large investment funds supported by governments, are mostly a positive economic force that can provide a shot in the arm to the companies -- and countries -- they invest in. They are also a stabilizing force for the nation where the investment originates. Those are some of the main takeaways from a new study, "The Brave New World of Sovereign Wealth Funds," conducted by Wharton MBA students and sponsored by the Wharton Leadership Center and the Joseph H. Lauder Institute of Management & International Studies. The research suggests there is little reason to worry about these funds acting from political rather than economic motives. In an interview with Knowledge@Wharton, Wharton management professor Mauro F. Guillén, who helped to oversee the research, and two Wharton MBA candidates present some of the study's key findings. Read the interview here Download the Study here (pdf) [Externalrss-FinanceFocus-titles-rssl-6-30][Externalrss-wharton1-titles-rssr-6-30] [RandomProduct-122] http://www.moneyscience.com/Finance_Focus/The_Brave_New_World_of_Sovereign_Wealth_Funds.htmlhttp://www.moneyscience.com/Finance_Focus/The_Brave_New_World_of_Sovereign_Wealth_Funds.htmlSun, 30 May 2010 11:44:21 +0100Emanuel shares his insights about financial models and the crisis with John Brockman over at Edge: H/T Abnormal Returns ...One of the things I've been thinking about a lot, both in relation to the financial crisis and in relation to the way people understand the world in general, is the role of models in the world. There are a variety of different approaches to trying to understand the world, in all its facets, from the physical sciences to the social sciences and even one's personal life. I've categorized them in two ways: I like to distinguish what are called "theories" from "models". Theories, in my view, really try to capture the essence of the world, as in physics in one short equation, or in other fields, in one short schema. It seems to me you can't really act in the world without having some kind of model or theory of how the world is going to behave in the future. Models are simpler to describe in that they are similar to metaphors or analogies: you try to understand something that is difficult to comprehend in terms of something else you already comprehend. You try to understand the brain, for example, and you say, well, the brain is a lot like a computer. Or you try to understand a computer, and you assume people understand the brain and then say a computer is a lot like a brain. In the same way in finance one says stock prices behave a lot like smoke diffusing off the tip of a cigarette . These are models or metaphorical ways of describing the world that add insight but you can't really rely on them very substantially in the long run... Emanuel Derman's Edge Bio page. Emanuel's Home Page You might also be interested to hear Emanuel speaking at NYU Stern in 2007 below. [Externalrss-FinanceFocus-titles-rssl-6-30][Externalrss-mstwitter-titles-rssr-5-30] [RandomProduct-48] http://www.moneyscience.com/Finance_Focus/Breaking_the_Cycle_-_A_Conversation_with_Emanuel_Derman.htmlhttp://www.moneyscience.com/Finance_Focus/Breaking_the_Cycle_-_A_Conversation_with_Emanuel_Derman.htmlSun, 30 May 2010 11:14:44 +0100 By Attilio Meucci Bloomberg ALPHA, Portfolio Analytics and Risk       Abstract We introduce a unified, modular framework to build a risk platform that properly estimates, represents, hedges and manages risk. To do so, we analyze and fix common misconceptions on linear factor modeling that translate into incorrect risk numbers and flawed optimized portfolios. We explore applications stemming from this modular approach: the joint use of random matrix theory for risk estimation and of fundamental factor models for risk interpretation to optimally cater to both risk- and portfolio-managers; the correct implementation of linear factor models and optimal hedging for options not based on Greeks; a global equity model that is fully consistent with more granular regional equity models; a consistent approach to performance and risk attribution; point-in-time style analysis, instead of the standard trailing regression approach; portfolio-based risk attribution, to best express a portfolio in terms of a series of trades; dynamic factor pools, to extract the best few explanatory factors at each point in time. Keywords: Regression, Estimation, Interpretation, Copula, Marginal Distribution, Random Matrix Theory, Style Analysis, Optimal Hedging, Selection Heuristics, GICS Industry Classification, Monte Carlo Download the Paper from SSRN Fully commented code supporting the above case studies is available at MATLAB Central File Exchange. [Externalrss-FinanceFocus-titles-rssl-6-30][Externalrss-mstwitter-titles-rssr-5-30] [RandomProduct-48] http://www.moneyscience.com/Finance_Focus/Factors_on_Demand_-_Building_a_Risk_Platform_for_Portfolio_Managers,_Risk_Managers_and_Traders.htmlhttp://www.moneyscience.com/Finance_Focus/Factors_on_Demand_-_Building_a_Risk_Platform_for_Portfolio_Managers,_Risk_Managers_and_Traders.htmlWed, 26 May 2010 10:47:39 +0100A thought-provoking article by Sylvain Raines over at Quantnet: All over the world, it has become fashionable for Universities and Colleges to offer Masters degree programs in quantitative finance or financial engineering (FE), a code word meaning the solution of the Black-Scholes option pricing differential equation in as many ways as possible. To do so, students are taught to use basic techniques in numerical analysis whenever the equation is either non-linear or does not lend itself to the standard analytical solution. As a precursor to this main task, the program usually includes a course in stochastic calculus during which Ito’s celebrated lemma is discussed, proved and used. In general, the cost and length of such programs are remarkably similar despite the variability in the quality of the teachers and the brand name of the institution. In many cases the FE program is one of the biggest money makers at the University, if not the biggest, enabling schools to charge somewhere between $25,000 and $35,000 for eighteen months of night classes taught by top professionals in the field. Many such people are in fact refugees from bulge-bracket Wall Street firms looking for something to do before heading out to pasture in Florida and Arizona. In addition to being crassly commercial in their approach to knowledge transfer, often resorting to advertising their own former firm in the classroom, they are willing to accept much less in compensation than full-time professors and never become management headaches to the institution. Even Ivy League schools like Princeton University, who swore up and down they would never play this game, are now happily teaching finance and deriving significant incremental income from a fully depreciated curriculum... More [Externalrss-FinanceFocus-titles-rssl-6-30][Externalrss-mstwitter-titles-rssr-5-30] [RandomProduct-48] http://www.moneyscience.com/Finance_Focus/The_State_of_Financial_Engineering.htmlhttp://www.moneyscience.com/Finance_Focus/The_State_of_Financial_Engineering.htmlWed, 26 May 2010 10:04:52 +0100Sports Sentiment and Stock Returns - Alex Edmans, Diego Garcia, Oyvind Norli Exploitable Predictable Irrationality: The FIFA World Cup Effect on the U.S. Stock Market - Guy Kaplanski and Haim Levy Economic Impacts of the FIFA Soccer World Cups in France 1998, Germany 2006, and Outlook for South Africa 2010 - Swantje Allmers and Wolfgang Maennig Football Most Foul - William A. Birdthistle The Feel-Good Effect at Mega Sport Events - Recommendations for Public and Private Administration Informed by the Experience of the FIFA World Cup 2006 - Marcel Porsche and Wolfgang Maennig Legal Determinants of World Cup Success - Mark D. West Impact of Overwhelming Joy on Consumer Demand: The Case of a Soccer World-Cup Victory - Jean-Marc Falter, Christophe Perignon, Olivier Vercruysse Globalization and Goals: Does Soccer Show the Way? - Branko Milanovic Financial Instruments with Sports Betting Components: Marketing Gimmick or a Domain for Behavioral Finance? - Wolfgang Breuer, Guido Hauten and Claudia Kreuz Seemingly Irrelevant Events Affect Economic Perceptions and Expectations: The FIFA World Cup 2006 as a Natural Experiment - Thomas J. Dohmen, Armin Falk, David Huffman and Uwe Sunde Ten Do It Better, Do They? An Empirical Analysis of an Old Football Myth - Marco Caliendo and Dubravko Radic South Africa 2010: Economic Scope and Limits - Swantje Allmers and Wolfgang Maennig One Year Later: A Re-Appraisal of the Economics of the 2006 Soccer World Cup - Wolfgang Maennig Do Crowds Learn Wisdom? Theory and Evidence from Trading During the World Cup - Christopher Adams Labour Market Effects of the 2006 Soccer World Cup in Germany - Florian Hagn and Wolfgang Maennig The Penalty-Duel and Institutional Design: Is There a Neeskens-Effect? - Wolfgang Leininger, Axel Ockenfels Mega-Sporting Events as Experience Goods - Malte Heyne, Bernd Suessmuth and Wolfgang Maennig The Flexibility of the Workweek in the United States: Evidence from the FIFA World Cup - Fernando A. Lozano Economic and Fiscal Effects of the 2006 FIFA World Cup in Germany - The Case of the World Cup Games in Munich - Alina M. Popescu and Peter Friedrich Large Sport Events and Unemployment: The Case of the 2006 Soccer World Cup in Germany - Florian Hagn and Wolfgang Maennig [Externalrss-FinanceFocus-titles-rssl-8-30] [RandomCompany-5] http://www.moneyscience.com/Finance_Focus/Football_Research_-_Finance,_Economics_and_the_FIFA_World_Cup.htmlhttp://www.moneyscience.com/Finance_Focus/Football_Research_-_Finance,_Economics_and_the_FIFA_World_Cup.htmlTue, 25 May 2010 16:07:33 +0100Speaking at the inaugural conference of the Institute for New Economic Thinking at Kings College, Cambridge. J. Doyne Farmer is a professor at the Santa Fe Institute. He has broad interests in complex systems, and has done research in dynamical systems theory, time series analysis and theoretical biology. At present his main interest is in developing quantitative theories for social evolution, in particular for financial markets (which provide an accurate record of decision making in a complex environment) and the evolution of technologies (whose performance through time provides a quantitative record of one component of progress). More from Doyne Farmer's Homepage. Papers in Economics by Doyne Farmer. [Externalrss-FinanceFocus-titles-rssl-6-30][Externalrss-mstechnews-titles-rssr-6-30] [RandomCompany-48] http://www.moneyscience.com/Finance_Focus/Video_-_J_Doyne_Farmer_on_Networks_and_Systemic_Risks.htmlhttp://www.moneyscience.com/Finance_Focus/Video_-_J_Doyne_Farmer_on_Networks_and_Systemic_Risks.htmlTue, 25 May 2010 15:45:51 +0100By Jon Gregory      Abstract: Counterparty risk has been at the heart of the recent crisis driven by the toxicity of over-the-counter (OTC) derivatives and failure of high profile financial institutions. This has led policymakers to propose laws that would require most standard OTC derivatives to be centrally cleared. Central clearing involves a central counterparty (CCP) intermediating a transaction and acting as an insurer of counterparty risk. This has advantages, potentially leading to enhanced transparency and liquidity in markets and smoothing major systemic problems. The idea is also popular since it represents a single and intuitively simple solution to the severe problem of counterparty risk. However, whilst CCPs may have a role to play in reducing counterparty risk, they can also be counterproductive to the stability of financial markets. In this paper, we argue that the introduction of CCPs should be carefully considered and that, far from reducing counterparty risk, they may actually allow it to breed and contribute to the next crisis. Download the Paper from DefaultRisk. H/T Credit Risk Chronicles. [Externalrss-FinanceFocus-titles-rssl-6-30][Externalrss-crchronicles-titles-rssr-6-30] [RandomProduct-126] http://www.moneyscience.com/Finance_Focus/Are_We_Building_the_Foundations_for_the_Next_Crisis_Already_-_The_Case_of_Central_Clearing.htmlhttp://www.moneyscience.com/Finance_Focus/Are_We_Building_the_Foundations_for_the_Next_Crisis_Already_-_The_Case_of_Central_Clearing.htmlTue, 25 May 2010 10:36:53 +0100 Visit the Quantitative Finance Home Page Volume 10 Issue 5 Event risk - Parametrization and estimation in a generalized Pareto model with time-varying thresholds Melanie Frick, Annabelle Kehl Stochastic resonance and the trade arrival rate of stocks A. Christian Silva, Ju-Yi J. Yen Portfolio selection with higher moments Campbell R. Harvey, John C. Liechty, Merrill W. Liechty, Peter Müller No-transaction bounds and estimation risk Vasyl Golosnoy Exact properties of measures of optimal investment for benchmarked portfolios J. Knight, S. E. Satchell Optimization of N-risky asset portfolios with stochastic variance and transaction costs C. Atkinson, P. Ingpochai Financial literacy and portfolio diversification Margarida Abreu, Victor Mendes Risk and predictability of Singapore's private residential market Qin Xiao, Weihong Huang Changes in volatility of credit spread and market efficiency during rapid growth of credit-related securities Christopher Hessel, Jun Wang An efficient algorithm for pricing barrier options in arbitrage-free binomial models with calibrated drift terms Christoph Wöster The frontiers of finance are shifting rapidly, driven in part by the increasing use of quantitative methods in the field. Quantitative Finance welcomes original research articles that reflect the dynamism of this area. The journal provides an interdisciplinary forum for presenting both theoretical and empirical approaches and offers rapid publication of original new work with high standards of quality. The readership is broad, embracing researchers and practitioners across a range of specialisms and within a variety of organizations. All articles should aim to be of interest to this broad readership. [Externalrss-qfin-titles-rss100-50-30] http://www.moneyscience.com/Finance_Focus/Quantitative_Finance_-_Volume_10_Issue_5.htmlhttp://www.moneyscience.com/Finance_Focus/Quantitative_Finance_-_Volume_10_Issue_5.htmlTue, 25 May 2010 09:46:05 +0100As the credit crisis blame game continues, most everyone agrees that credit ratings were as essential to the collapse as fraudulent mortgages - specifically the inflated credit ratings that relied on bad assumptions about home prices and risk. Even so, no one has come up with an adequate fix to the ratings quagmire. Now a company that makes financial data terminals may have given the market a road map for minimizing conflicts of interest and changing the way that investors use ratings. When Bloomberg introduced a credit rating function to its terminals May 10, some wondered whether the company that revolutionized technology for traders was trying to steal market share from Moody's, Standard & Poor's, and Fitch, the world's three largest rating agencies. An internal Bloomberg memo obtained by the Daily Mail reportedly says that the company wants to offer a "robust gauge" of a debt issuer's creditworthiness... Katie Benner writes at Fortune. [Externalrss-FinanceFocus-titles-rssl-6-30][Externalrss-bookreviews-titles-rssr-6-30] [RandomProduct-220] http://www.moneyscience.com/Finance_Focus/What_Bloomberg_brings_to_the_credit_ratings_game.htmlhttp://www.moneyscience.com/Finance_Focus/What_Bloomberg_brings_to_the_credit_ratings_game.htmlFri, 21 May 2010 12:41:33 +0100      The Great Recession has given a black eye to the tools of financial innovation. Collateralized debt obligations, synthetic derivatives and other once-arcane investment vehicles are now the poster boys of what went wrong -- toxic players in the boom-and-doom scenario of the housing implosion and market rout. But these highly opaque and complex instruments are not representative of real financial innovation, which stresses transparency and responsible management of risk, argues Wharton finance professor Franklin Allen in his new book, Financing the Future: Market-Based Innovations for Growth, co-written with Glenn Yago, executive director of financial research at the Milken Institute. Financial innovation, properly used, has been the engine of growth through the centuries, Allen says, and is especially needed now to get the world economy on track again. Allen met recently with Knowledge@Wharton to discuss his book. Jump to Financial Intelligence Bookshop: UK Financial Intelligence Bookshop: US Publishing Focus Financial Publishers Directory More Publications and Papers Buy this book from: US UK http://www.moneyscience.com/Finance_Focus/Bruised_but_Not_Out_-_A_Bullish_View_on_the_Future_of_Financial_Innovation.htmlhttp://www.moneyscience.com/Finance_Focus/Bruised_but_Not_Out_-_A_Bullish_View_on_the_Future_of_Financial_Innovation.htmlFri, 21 May 2010 10:47:41 +0100By Steven L. Heston, Robert A. Korajczyk, Ronnie Sadka       Abstract Motivated by the literature on investment flows and optimal trading, we examine intraday predictability in the cross-section of stock returns. We find a striking pattern of return continuation at half-hour intervals that are exact multiples of a trading day, and this effect lasts for at least 40 trading days. Volume, order imbalance, volatility, and bid-ask spreads exhibit similar patterns, but do not explain the return patterns. We also show that short-term return reversal is driven by temporary liquidity imbalances lasting less than an hour and bid-ask bounce. Timing trades can reduce execution costs by the equivalent of the effective spread. Get the paper from arXiv. [Externalrss-FinanceFocus-titles-rssl-6-30][Externalrss-RecentLinks-titles-rssl-6-30] [RandomProduct-220] http://www.moneyscience.com/Finance_Focus/Intraday_Patterns_in_the_Cross-section_of_Stock_Returns.htmlhttp://www.moneyscience.com/Finance_Focus/Intraday_Patterns_in_the_Cross-section_of_Stock_Returns.htmlThu, 20 May 2010 09:17:34 +0100Register now for a 15% Reduction on the Course Fee! Quote code MS001 on Registration Form. Brochure and Registration Form here (pdf). What have previous delegates said? - "Great Interactivity" - "Relevant and timely coverage of recent developments" - "Very Practical" - "Relaxed, Broad coverage" This three-day course will be led by an international expert who played a large role in the coding of the LIBOR market model in the QuantLib C++ open-source project. He will examine the practical problems that arise when implementing the LIBOR market model to price exotic interest rate derivatives. Each issue will be discussed at theoretical, practical and coding levels. The solution of these using QuantLib classes will be the focus of the course. We will see how QuantLib provides a free easily-extendible implementation that achieves rapid pricing and sensitivity computation, and stable calibration to the market; whilst being able to cope with path-dependence, discontinuous pay-offs and early exercise features. Further information here. Course Tutor Mark Joshi obtained a B.A. in mathematics from the University of Oxford in 1990, and a Ph.D. in pure mathematics from the Massachusetts Institute of Technology in 1994. He was an Assistant Lecturer in the department of pure mathematics and mathematical statistics at Cambridge University from 1994 to 1999. Following which he worked for the Royal Bank of Scotland from 1999 to 2005 as a quantitative analyst at a variety of levels, finishing as the Head of Quantitative Research for Group Risk Management. He joined Melbourne University in November 2005 as an Associate Professor. Mark’s book "The Concepts and Practice of Mathematical Finance," CUP 2003 has become a standard introductory text in the area, and his other book "C++ Design Patterns and Derivatives Pricing," CUP 2004, has also proved popular. He has published twenty pure mathematics papers, as well as writing over twenty papers on financial mathematics, many of which deal with the practical aspects of implementing market models. http://www.moneyscience.com/Finance_Focus/Special_Offer_and_last_chance_to_Register_-_Pricing_exotic_interest_rate_derivatives_-_The_LIBOR_Market_Model_in_QuantLib.htmlhttp://www.moneyscience.com/Finance_Focus/Special_Offer_and_last_chance_to_Register_-_Pricing_exotic_interest_rate_derivatives_-_The_LIBOR_Market_Model_in_QuantLib.htmlWed, 19 May 2010 15:11:57 +0100 QFINANCE Profile at MoneyScience QFINANCE - The Ultimate Resource is a dynamic and comprehensive financial knowledge base and reference source containing contributions from some 300 of the world's leading financial practitioners, visionaries, writers and educators. Created by Bloomsbury Information Ltd in association with the Qatar Financial Centre (QFC) Authority, QFINANCE will provide finance professionals, academics, students, journalists and writers worldwide with access to the huge breadth and depth of content both in print and online. QFINANCE is available as a reference book and is the only finance reference book of its kind. It provides readers with an authoritative, easy-to-use, practical finance reference tool. It covers a huge range of finance-related topics, with over 300 best-practice, thought-leadership and viewpoint essays that distil and summarise the most important aspects of finance. It includes the thoughts of finance leaders and experts on the crucial issues and challenges facing finance managers, entrepreneurs and business executives. Special Offer for a Limited Period! Pay just £37.50 + FREE UK Delivery (Normally £150) - Over 2,000 pages of authoritative and practical finance information - Best practice, thought leadership and viewpoint articles - “Checklists” and “Calculations & Ratios” sections - Comprehensive coverage from accounting to wealth management - Profiles of 102 countries & 26 sectors - Compiled by 300+ leading finance experts including Frank Fabozzi, Paul Wilmott, Aswath Damodaran - The only finance reference book of its kind All in one book – for just £37.50 To order click here and please quote QFSPE at checkout to qualify for the discount or email qfinance1@bloomsbury.com QFINANCE Financial Search Widget To use QFINANCE search, visit http://www.qfinance.com. To add the QFINANCE search widget to your site, go to http://www.qfinance.com/search-widgets/type1 [Externalrss-FinanceFocus-titles-rssr-4-30] [RandomProduct-220] http://www.moneyscience.com/Finance_Focus/Special_Offer_-_QFINANCE,_the_ultimate_resource,_for_less_than_GBP_40.htmlhttp://www.moneyscience.com/Finance_Focus/Special_Offer_-_QFINANCE,_the_ultimate_resource,_for_less_than_GBP_40.htmlTue, 18 May 2010 14:27:29 +0100With the 2010 World Cup kicking off in less than four weeks, financial analysts at JP Morgan have crunched the numbers and come up with a bold conclusion – England will win football's biggest prize for the first time in 44 years. Matthew Burgess and Marco Dion made the claim this morning, as an illustration of how 'Quant methodology' (the use of mathematical data to evaluate investment opportunities) can be applied to the real world. Burgess and Dion took mathematical models created to assess stocks, and instead plugged in data on Fifa rankings, historical football results, and the latest bookmakers' odds. And despite concern over the state of Wayne Rooney's groin, Ledley King's knee and Gareth Barry's ankle, the pair predicted in a note to City investors that the Three Lions would maul Spain in the final on 11 July, with Holland coming third... More from The Guardian. You can read the report below. [Externalrss-FinanceFocus-titles-rssl-6-30][Externalrss-mstechnews-titles-rssr-6-30] [RandomProduct-174] http://www.moneyscience.com/Finance_Focus/JP_Morgan_Quants_Predict_England_World_Cup_Win.htmlhttp://www.moneyscience.com/Finance_Focus/JP_Morgan_Quants_Predict_England_World_Cup_Win.htmlTue, 18 May 2010 11:05:02 +0100A new breed of Wall Street recruit gets ahead not through connections or business experience, but through demonstrating a head for numbers, quick thinking and risk-taking – skills from the card table... Chris Fargis thought his big job interview was over. But when the partners at Wall Street upstart Toro Trading finished with their questions, they broke out a deck of cards and a green-felt card table. Mind playing a few hands of poker? It was a final test, and Fargis was relieved. The 30-year-old never went to business school or even took a finance class. But he knew poker. He had made a living playing the game online for six years from his Manhattan apartment, betting on up to eight hands at a time. Within a few days, Fargis - with no Wall Street experience - was offered a position trading stock options, a job that entails making multimillion-dollar gambles. His poker skills sealed the deal... Nathaniel Popper writes at the LA Times - h/t Abnormal Returns [Externalrss-FinanceFocus-titles-rssl-6-30][Externalrss-abnormalreturns1-titles-rssr-6-30] [RandomProduct-174] http://www.moneyscience.com/Finance_Focus/Trading_firms_put_their_money_on_poker_experts.htmlhttp://www.moneyscience.com/Finance_Focus/Trading_firms_put_their_money_on_poker_experts.htmlTue, 18 May 2010 10:11:15 +0100By Jonathan M. Karpoff and Xiaoxia Lou       Abstract: We examine whether short sellers detect firms that misrepresent their financial statements, and whether their trading conveys external costs or benefits to other investors. Abnormal short interest increases steadily in the 19 months before the misrepresentation is publicly revealed, particularly when the misconduct is severe. Short selling is associated with a faster time-to-discovery, and it dampens the share price inflation that occurs when firms misstate their earnings. These results indicate that short sellers anticipate the eventual discovery and severity of financial misconduct. They also convey external benefits, helping to uncover misconduct and keeping prices closer to fundamental values when firms provide incorrect financial information. Forthcoming in The Journal of Finance. [Externalrss-FinanceFocus-titles-rssl-6-30][Externalrss-educationnews-titles-rssr-6-30] [RandomProduct-174] http://www.moneyscience.com/Finance_Focus/Short_Sellers_and_Financial_Misconduct.htmlhttp://www.moneyscience.com/Finance_Focus/Short_Sellers_and_Financial_Misconduct.htmlTue, 18 May 2010 09:57:16 +0100By Dion Bongaerts, Frank de Jong and Joost Driessen       Abstract: We derive an equilibrium asset pricing model incorporating liquidity risk, derivatives, and short-selling due to hedging of non-traded risk. We show that illiquid assets can have lower expected returns if the short-sellers have more wealth, lower risk aversion or shorter horizon. The pricing of liquidity risk is different for derivatives than for positive-net-supply assets, and depends on the investors’ net non-traded risk exposure. We estimate this model for the credit default swap market using GMM. We find strong evidence for an expected liquidity premium earned by the credit protection seller. The effect of liquidity risk is significant but economically small. Forthcoming in The Journal of Finance. [Externalrss-FinanceFocus-titles-rssl-6-30][Externalrss-mstwitter-titles-rssr-4-30] [RandomProduct-174] http://www.moneyscience.com/Finance_Focus/Derivative_Pricing_with_Liquidity_Risk_-_Theory_and_Evidence_from_the_Credit_Default_Swap_Market.htmlhttp://www.moneyscience.com/Finance_Focus/Derivative_Pricing_with_Liquidity_Risk_-_Theory_and_Evidence_from_the_Credit_Default_Swap_Market.htmlFri, 14 May 2010 10:46:37 +0100Our new Prime Minister, David Cameron met with Nassim Taleb at the Royal Society in August of last year. Here is their conversation. [Externalrss-FinanceFocus-titles-rssl-8-30][Externalrss-mstwitter-titles-rssr-5-30] [RandomProduct-5] http://www.moneyscience.com/Finance_Focus/Video_-_David_Cameron_in_conversation_with_Nassim_Taleb.htmlhttp://www.moneyscience.com/Finance_Focus/Video_-_David_Cameron_in_conversation_with_Nassim_Taleb.htmlFri, 14 May 2010 10:34:35 +0100Nassim Taleb, a professor at New York University and author of "The Black Swan: The Impact of the Highly Improbable," talks with Bloomberg's Erik Schatzker about the May 6 stock market selloff and his investment strategy. Taleb also discusses the drivers for the financial crisis, the U.S. economy and the performance of Treasury Secretary Timothy Geithner and Federal Reserve Chairman Ben S. Bernanke. H/T The Big Picture [Externalrss-FinanceFocus-titles-rssl-6-30] [Externalrss-bigpicture-titles-rssr-6-30] [RandomProduct-126] http://www.moneyscience.com/Finance_Focus/Video_-_Nassim_Taleb_on_the_'flash-crash'_and_why_the_Financial_Crisis_wasn't_a_Black_Swan.htmlhttp://www.moneyscience.com/Finance_Focus/Video_-_Nassim_Taleb_on_the_'flash-crash'_and_why_the_Financial_Crisis_wasn't_a_Black_Swan.htmlTue, 11 May 2010 13:42:45 +0100 Welcome to the May issue of QFINANCE Executive Briefing, which highlights new and relevant content on QFINANCE and essential reading tied to what's happening in the world of finance right now. In this issue, we cover a variety of hot topics including credit rating agencies, company exposure to pension liabilities, plans for international banking taxes, and Goldman Sachs getting sued by the SEC: Ratings agencies downgraded Shedding pension risk Taxing time for bankers Bad for Goldman, good for America Ratings agencies downgraded When Standard & Poor's downgraded Greek government bonds to junk status at the end of April and followed this up with downgrades for Spain and Portugal, it moved the markets. But QFINANCE blogger Anthony Harrington wonders why ratings agencies are still so influential, particularly in the light of their role in stoking up the credit crisis by giving an unduly positive veneer to hundreds of toxic CDOs. He suggests that investors should pay more heed to credit default swap prices, but also make sure you read our exclusive article by Standard and Poor's chief economist David Wyss on credit ratings, and read our checklist on how to use credit rating agencies. Shedding pension risk How should corporates limit their exposure to the unquantifiable liabilities associated with their defined-benefit pension schemes? Deloitte partner Tony Clare suggests a number of strategies in his new viewpoint article, including switching employees out of DB schemes and into defined-contribution schemes, and pursuing "buyouts," which mean offloading liabilities onto an insurance or third-party company. He also predicts that CFOs will be increasingly wary of serving as trustees of their own organizations' DB schemes, largely for fear of conflicts of interest. Also read what Steven Lowe and Amarendra Swarup separately have to say on pension fund liabilities on the balance sheet, and Pension Corporation founder Edmund Truell about how to manage pension costs. Taxing time for bankers The IMF has responded to a request by the G20 to deliver proposals for constructive ways of taxing the finance sector. The fund is recommending two taxes, a financial stability contribution (FSC) and a financial activities tax, or FAT tax. The measures are to be debated at the Toronto G20 Summit in June. For a reaction to the IMF's ideas, see Anthony Harrington's blog post "IMF FAT tax, fat chance..." Angela Knight, chief executive of the British Bankers' Association in the UK argues for an alternative approach to the banking sector in her QFINANCE article, "The Crash and the Banking Sector-The Road to Recovery." Bad for Goldman, good for America The SEC's decision to prosecute Goldman Sachs for defrauding investors in its Abacus 2007-AC1 synthetic collateralized debt obligation has sparked divergent views from our bloggers. Anthony Harrington suggests the SEC's action was politically motivated, timed to wrongfoot Goldman Sachs and designed to mask the regulator's poor handling of the allegedly fraudulent Stanford International Bank. In another blog post, Ian Fraser suggested the SEC's charges against Goldman Sachs signal a change of mood in Washington, DC, and a new determination to prevent over-mighty investment banks from rigging the global capital markets in their favor. Fraser writes: "Gone are the days when what was good for Goldman Sachs was deemed to be good for America." New on QFINANCE this month Best Practice - Using Financial Analysis to Evaluate Strategy, by David Sadtler Viewpoints - Target Practice - Acquisitions, by Sir John Stuttard - Yet Another Nail in the Final Salary Scheme Coffin, by Tony Clare Checklists - Preparing and Executing an Internal Audit Review - Understanding Activity-Based Costing A powerful combination of finance information and expertise at your fingertips, QFINANCE: The Ultimate Resource, the only finance reference book of its kind. - Buy from Amazon.com - Buy from Amazon.co.uk - Buy direct from Bloomsbury QFINANCE is a partnership of Bloomsbury Publishing Plc and the Qatar Financial Centre (QFC). http://www.moneyscience.com/Finance_Focus/QFINANCE_Executive_Briefing_-_May_2010.htmlhttp://www.moneyscience.com/Finance_Focus/QFINANCE_Executive_Briefing_-_May_2010.htmlMon, 10 May 2010 16:58:07 +0100By Hersh Shefrin Santa Clara University - Leavey School of Business; National Bureau of Economic Research (NBER)     Abstract Finance is in the midst of a paradigm shift, from a neoclassical based framework to a psychologically based framework. Behavioral finance is the application of psychology to financial decision making and financial markets. Behavioralizing finance is the process of replacing neoclassical assumptions with behavioral counterparts. This monograph surveys the literature in behavioral finance, and identifies both its strengths and weaknesses. In doing so, it identifies possible directions for behavioralizing the frameworks used to study beliefs, preferences, portfolio selection, asset pricing, corporate finance, and financial market regulation. The intent is to provide a structured approach to behavioral finance in respect to underlying psychological concepts, formal framework, testable hypotheses, and empirical findings. A key theme of this monograph is that the future of finance will combine realistic assumptions from behavioral finance and rigorous analysis from neoclassical finance. Download the paper from SSRN. A great spot from Finance Professor. Thanks Jim. More Behavioural finance at MoneyScience. [Externalrss-FinanceProf-titles-rssl-6-30][Externalrss-BehaviouralFinance-titles-rssr-6-30] [RandomProduct-220] http://www.moneyscience.com/Finance_Focus/Behavioralizing_Finance_-_a_survey_of_the_literature.htmlhttp://www.moneyscience.com/Finance_Focus/Behavioralizing_Finance_-_a_survey_of_the_literature.htmlMon, 10 May 2010 16:48:51 +0100Earlier this year we pointed up our old friend Didier Sornette's Financial Bubble Experiment, in which he identified four developing bubbles and forecast when they would peak, locking away his predictions in encrypted files which were, to be revealed only when the forecasted bubble peaks passed, on May 1. Well the date has come and gone and last week Professor Sornette presented the results of the experiment at a press conference: Professor Didier Sornette from the Department of Management, Technology and Economics (D-MTEC) at ETH Zurich is convinced that financial markets are not just random. Consequently, his Financial Crisis Observatory conducted a daring experiment to prove that you can forecast financial bubbles. Today, Professor Sornette presented the results of the experiment at a press conference. Didier Sornette, Professor of Entrepreneurial Risks at ETH Zurich, has two hypotheses: firstly, bubbles can be diagnosed in real time before they end; secondly, the termination of these bubbles can be bracketed using probabilistic forecasts with a reliability better than chance. As a controversial debate surrounds the two hypotheses and proof was needed, Professor Sornette and his team from the Financial Crisis Observatory (FCO) launched an extraordinary experiment: they forecast that four selected assets would form a bubble in the following six months, and when this would happen. To guarantee the seriousness and integrity of the experiment, the forecasts were announced and encoded. As yet, nobody has any reliable quantitative methods to ascertain whether the market or a particular asset is in a bubble state. One problem here is that none of the various economic theories and models provides a universal and quantifiable definition of a bubble. New, multidisciplinary approaches are therefore needed in the face of the complexity of the financial market. Consequently, Didier Sornette works with a portfolio of methods from very different fields, such as economics, physics and mathematics.... More from PhysOrg. You might also be interested in: - Didier's Webpage at ETH - The Financial Crisis Laboratory at ETH [Externalrss-PhysOrg-titles-rssl-6-30][Externalrss-FinanceFocus-titles-rssr-6-30] [RandomProduct-49] http://www.moneyscience.com/Finance_Focus/Didier_Sornette_and_the_Financial_Bubble_Experiment_-_Results.htmlhttp://www.moneyscience.com/Finance_Focus/Didier_Sornette_and_the_Financial_Bubble_Experiment_-_Results.htmlTue, 04 May 2010 11:35:59 +0100Fantastically exciting news from here at MoneyScience Central! After several months of discussions and negotiations, MoneyScience has been partly acquired by Thematic Capital Partners LLC, a venture firm operating at the intersection of finance and social web technology. As many users will know, MoneyScience has gone through several iterations since the original launch in 2004. Our upgrade from the tikiwiki platform in 2007, brought with it a host of new opportunities and a brand new look, but by 2009 it became clear that in order to grow and compete in the social web environment, we were going to need to significantly upgrade our technology and offering. Cut to 2010 and Thematic Capital brings with them all the technical and sector expertise we need to take the company forward and vastly improve our offering for friends, users, advertisers, bloggers and other content providers. Over the next 6 months we will be migrating MoneyScience on to Thematic Capital's Hedgehogs social platform, and simultaneously engaging in a development program that will make full use of Hedgehogs innovative technology for content licensing, data management and eCommerce. To quote Thematic Capital's Ken Yeadon: "Traditionally, online publishing titles have been funded by advertising, sponsorship and events-based revenue. However, as specialist collaborative communities gain wider traction within professional niches, and the "real-time web" changes the boundaries of what can be delivered over the internet, site owners and their users are looking for alternative ways in which to add value and license and monetize content. We see established niche communities as powerful tools for the ingestion, distribution and commercial exchange of interactive user-contributed applications, services and content. "The ability to leverage the natural synergies between Hedgehogs.net and MoneyScience unites two intersecting specialist financial services communities and provides clear mutual benefits for both parties - in terms of both content and publishing and technological expertise." Further information: Hedgehogs Curls up with MoneyScience - Jean-Paul Carbonnier at Inside Market Data Follow MoneyScience on Facebook! Full Press Release below. THEMATIC CAPITAL ACQUIRES MAJORITY STAKE IN QUANT FINANCE PORTAL, MONEYSCIENCE Investment in MoneyScience provides fresh opportunities for innovation and revenue growth 4th May 2010, London - Thematic Capital Partners LLP has acquired a majority stake in MoneyScience, the niche finance portal, for an undisclosed sum. Complementing Thematic's development of Hedgehogs.net, the online platform for the investment management community, this initiative extends the reach of the technology, leverages the content development and publishing expertise of MoneyScience, and provides a raft of new development and revenue opportunities for both parties. The deal provides MoneyScience with the ability to tap into the wealth of technological experience and expertise that sits behind the Hedgehogs.net platform and heralds a novel approach to the monetization of niche online publishing in finance. With a highly targeted demographic amongst the Quantitative Finance community that includes prominent academics, market practitioners, service providers and vendors, MoneyScience provides targeted content to an established and diverse digital community. The current publishing platform attracts over 40,000 visits every month and is constantly updated through an established network of blogging affiliates and content partners. "Since its launch in 2004, MoneyScience has developed a solid reputation for publishing timely, relevant content, attracting a loyal following in the financial practitioner and academic spheres" said Jacob Bettany, Managing Director, MoneyScience. "However, as site numbers continue to grow, it has become increasingly apparent that in order to meet the needs of our community we needed to further develop the technological infrastructure underpinning the site, add more collaborative features, and expand our existing commercial proposition. With a rapidly growing reputation for commercial and technological innovation and expertise in financial publishing, Hedgehogs.net stands out as an industry participant that is doing something very different, and Thematic has demonstrated consistent thought-leadership around social media technologies and their application to Finance. We look forward to working closely with the team." Ken Yeadon, Managing Partner of Thematic Capital, and CEO of Hedgehogs.net, added, "Traditionally, online publishing titles have been funded by advertising, sponsorship and events-based revenue. However, as specialist collaborative communities gain wider traction within professional niches, and the "real-time web" changes the boundaries of what can be delivered over the internet, site owners and their users are looking for alternative ways in which to add value and license and monetize content. We see established niche communities as powerful tools for the ingestion, distribution and commercial exchange of interactive user-contributed applications, services and content. "The ability to leverage the natural synergies between Hedgehogs.net and MoneyScience unites two intersecting specialist financial services communities and provides clear mutual benefits for both parties - in terms of both content and publishing and technological expertise." - Ends - For further information, please contact: Adam Barber / Roland Godfrey-Davies adam@hellochalk.com / roland@hellochalk.com 020 7440 9831 / 020 7440 9832 About MoneyScience MoneyScience, the niche finance portal, brings together news, events, articles, weblinks, research, companies and products across key channels in financial services including Software and Technology, Hedge Fund Services, Financial Education, Training and Recruitment. Now with nearly 2000 companies listed, the MoneyScience Financial Services Directory is one of web's leading international finance directories, consistently ranking highly in Google Searches and offering a range of listing types with varying levels of coverage. www.moneyscience.com About Hedgehogs.net Powered by Elgg, the leading open source social engine technology, Hedgehogs.net provides a online collaboration framework for the investment community, including a "social marketplace" where participants can use, build, commission and trade content, analytics and applications built for market participants by market participants. The platform democratizes access to investment resources, supports the provision of niche solutions for any specialization, and empowers the investment community to address their own needs. Join the array. Register for free at www.hedgehogs.net. About Thematic Capital Thematic Capital is an investment partnership focused on bridging the gap between financial markets, social media technologies and trading infrastructure. A private equity and venture capital fund, Thematic Capital invests selectively in new and emerging enterprises that apply themselves to the development of the financial markets. http://thematiccapital.com/ [Externalrss-mstwitter-titles-rss100-30-30] http://www.moneyscience.com/Finance_Focus/MoneyScience_attracts_Venture_Investment_from_Thematic_Capital_Partners.htmlhttp://www.moneyscience.com/Finance_Focus/MoneyScience_attracts_Venture_Investment_from_Thematic_Capital_Partners.htmlFri, 30 Apr 2010 15:36:52 +0100 Wow! Thanks to Quantitative Finance Theory and Applications Blog for pointing up this amazing collection of slides and audio from the Fields Institute Thematic Program on Quantitative Finance which has been taking place since January 2010 and is due to conclude in June. The organizing committee which includes Y. Ait-Sahalia (Princeton), M. Grasselli (McMaster), V. Henderson (Oxford Man Institute), T. Hurd (McMaster), M. Rindisbacher (Toronto) and Dan Rosen (R2 Financial Technologies), have done a remarkable job bringing together a veritable 'who's who' of some of the leading lights from the academic and practitioner communities. (Audio requires Real Player) PRMIA Risk Management Seminars Seminar Series on Quantitative Finance Course on Foundations of Mathematical Finance Workshop on Financial Econometrics (April 2010) Distinguished Lecture Series (Apri 2010) - Darrell Duffie Coxeter Lectures (April 2010) Industrial-Academic Forum on Credit-Hybrid Risk (April 2010) Industrial-Academic Forum on Commodities, Energy Markets, and Emissions Trading (April 2010) Workshop on Computational Methods in Finance (March 2010) Industrial-Academic Forum on Operational Risk (March 2010) Workshop on Foundations of Mathematical Finance (January 2010) IFID Conference on Retirement Income Analytics (November 2009) PRMIA Risk Management Seminars September 17, 2009: David Koenig, CEO, The Governance Fund: Risk Management, Governance and Value Creation September 15, 2009: William Shadwick: Going to Extremes to Control Risk December 15, 2009: Pierre G. Noel, Worldwide Executive, Risk Management & Information Security, IBM Corp: Bringing Operational Risk Management to the Boardroom Table February 16, 2010: Andrew Kalotay, Andrew Kalotay Associates Inc.: Exposing MBS Model Risk: Look Outside the Black Box April 14, 2010: Rick Nason, RSD Solutions & Dalhousie University: Have We Lost The Plot? (And If So How Do We Get it Back?) Seminar Series on Quantitative Finance October 28, 2009: Tomasz R Bielecki, Illinois Institute of Technology: Counterparty Credit Risk: CVA computation under netting and collateralization September 30, 2009: Jeremy Graveline, University of Minnesota: G10 Swap and Exchange Rates September 30, 2009: Ulrich Horst, Humboldt University Berlin: Hidden Liquidity and the Optimal Placement of Iceberg Orders October 28, 2009: Tom Hurd, McMaster University: Credit Risk via First Passage for Time Changed Brownian Motions November 25, 2009: Frank Milne, Queen's University: Approaches for Modeling Liquidity and Systemic Risks November 25, 2009: Traian Pirvu, McMaster University: Time Consistency in Portfolio Management January 20, 2010: Eckhard Platen, University of Technology , Sydney: Real World Pricing of Long Term Contracts February 24, 2010: Raphael Douady, Riskdata: The StressVaR: a New Risk Concept for Superior Fund Allocation March 31, 2010: Dilip Madan, University of Maryland: Capital Requirements, Acceptable Risks and the Value of the Taxpayer Put March 31, 2010: Stan Uryasev, University of Florida: Value-at-Risk vs. Conditional Value-at-Risk in Risk Management and Optimization Course on Foundations of Mathematical Finance January 19, 2010: Eckhard Platen, University of Technology, Sydney: The Benchmark Approach I January 20, 2010: Eckhard Platen, University of Technology, Sydney: The Benchmark Approach II Workshop on Financial Econometrics (April 23-24, 2010) Yacine Ait-Sahalia, Princeton: Modeling Financial Contagion using Mutually Exciting Jump Processes Marco Bonomo, Getulio Vargas Foundation: Generalized Disappointment Aversion, Volatility Long-run Risk and Asset Prices Robert Engle, New York: Long Term Skewness and Systemic Risk Kaddour Hadri, Queen's, Belfast Management School: Modelling Multivariate Interest Rates using Time-varying Copulas and Reducible Non-linear Stochastic Differential Equations Lars Hansen, Chicago: Nonlinear Filtering and Learning Dynamics Stan Hurn, QUT Business: Quasi-maximum Likelihood Estimation of the Parameters of Multivariate Diffusion Robert Kimmel, Ohio State: On Estimation of Risk Premia in Linear Factor Models Suzanne Lee, Georgia Tech: Jumps and Information Flow in Financial Markets Haitao Li, Michigan: Exploring Statistical Arbitrage Opportunities in the Term Structure of CDS Spreads Yingying Li, Science & Technology, HK: Studying the Leverage Effect Based on High-frequency Data Gael Martin, Monash: Optimal Probabilistic Forecasts for Counts Eric Renault, North Carolina, Chapel Hill: A Structural Autoregressive Conditional Duration Model Joon Park, Indiana: Asymptotic Theory of Maximum Likelihood Estimator for Diffusion Model Eckhard Platen, Univ. of Technology Sydney: Empirical Properties of a Well Diversified Global Stock Index Roberto Reno, Siena: Nonparametric Leverage Effects Paul Schneider, Warwick: Transition Density Approximations for Multivariate Affine Jump Diffusion Processes Osnat Stramer, Iowa: Bayesian Inference of Discretely Sampled Markov Processes with Closed-form Likelihood Expansions Allan Timmerman, UC San Diego: What is the Shape of the Risk-return Relation? Giovanni Urga, Cass Business School, London: Identifying Jumps in Financial Assets with a Comparison between Nonparametric Jump Tests Rossen Valkanov, UC San Diego: Robust Measure of Time-Varying Skewness at Short and Long Horizons Liuren Wu, Baruch College, New York: A Multifrequency Theory of the Interest Rate Term Structure Jialin Yu, Columbia: Option Value of Cash Distinguished Lecture Series (April 21-23, 2010) Darrell Duffie, The Graduate School of Business, Stanford University: Dark Markets Darrell Duffie, The Graduate School of Business, Stanford University: Dark Markets Part 2 Darrell Duffie, The Graduate School of Business, Stanford University: Dark Markets Part 3 Coxeter Lectures (April 6-8, 2010) Nicole El Karoui, Center for Applied Mathematics, Ecole Polytechnique: Backward Stochastic Differential Equations: Are you really looking back? Answers in Finance, Stochastic control and PDE's Nicole El Karoui, Center for Applied Mathematics, Ecole Polytechnique: Backward Stochastic Differential Equations: Are you really looking back? Answers in Finance, Stochastic control and PDE's Nicole El Karoui, Center for Applied Mathematics, Ecole Polytechnique: Backward Stochastic Differential Equations: Are you really looking back? Answers in Finance, Stochastic control and PDE's Industrial-Academic Forum on Credit-Hybrid Risk (April 15-16, 2010) Claudio Albanese, King's College, London: Credit-equity models and High-Throughput Computing Agostino Capponi, California Institute of Technology: Bilateral counterparty risk valuation with stochastic dynamical models and application to Credit Default Swaps Giovanni Cesari, UBS: Modelling, Pricing, and Hedging Counterparty Credit Exposure Jean-Francois Chassagneux, Université d'Evry: Pricing Game Option using Reflected BSDEs Stephane Crepey, Evry University: CVA computation for counterparty risk assessment in credit portfolios Tom Hurd, McMaster: Two factor models of equity and credit derivatives Jan Kallsen, University of Kiel: On the pricing of game options and convertible bonds Yuri Kifer, Institute of Mathematics Hebrew University of Jerusalem: Perfect and Partial Hedging for Multiple Exercise (Swing) Game Options in Discrete And Continuous Time Rafael Mendoza-Arriaga, UTexas: Time Changed Markov Processes in United Credit-equity Modeling Abdallah Rahal, Bank AUDI: Pricing Game Option using Reflected BSDEs: Part II – Application to Pricing Convertible Bonds with call protection Dan Rosen, R2 Technologies: Pricing Counterparty Risk at the Trade Level and CVA Allocations Julien Turc, Société Générale Corporate & Investment Banking: Joint modelling of credit spreads, share prices and volatility Industrial-Academic Forum on Commodities, Energy Markets, and Emissions Trading (April 9-10, 2010) Rene Aid, European Energy Producer EDF: A structural risk-neutral model for electricity prices Alvaro Cartea, Universidad Carlos III & Madrid): Mean reversion, measure changes and stochastic risk premia in commodity markets Michael Coulon, Princeton: The Electricity Bid Stack: Linking the dynamics of fuel, power and carbon prices Gilles Edouard Espinosa, Ecole Polytechnique: A model of emissions and the price of carbon (joint with R. Carmona and N. Touzi) Alex Eydeland, Morgan Stanley: Commodity Modeling: View from the trenches Max Fehr, London School of Economics: Option Pricing in the European Unions Emission Trading Scheme Helyette Geman, Birbeck and ESCP Europ: Inventory, Commodity Forward Curve and Spot price Volatility: The case of Crude Oil and Natural Gas Georg Gruell, Duisburg-Essen: Pricing CO2 permits using approximation approaches Walid Mnif, Western Ontario: Pricing and Hedging Strategies for Contingent Claims in an Incomplete Hybrid Emissions Market Ehud Ronn, Morgan Stanley & Co.: The Valuation and Information Content of Options on Crude-Oil Futures Contracts Marliese Uhrig-Homburg, Universität Karlsruhe: Understanding the Price Dynamics of Emission Permits: A Model for Multiple Trading Periods Workshop on Computational Methods in Finance (March 22-24, 2010) John Chadam, University of Pittsburgh: Numerical Simulation of Free Boundary via Integral Equations Liming Feng, Illinois: Hilbert transform approach to options valuation Peter Forsyth, Waterloo: Analysis of A Penalty Method for Pricing a Guaranteed Minimum Withdrawal Benefit (GMWB) Lorenzo Garlappi, UBC: Solving Consumption and Portfolio Choice Problems: The State Variable Decomposition Method Jim Gatheral, Merrill Lynch: Optimal order execution Mike Giles, Oxford: Afternoon discussion Mike Giles, Oxford: Progress with multilevel Monte Carlo methods Kay Giesecke, Stanford: Asymptotically Optimal Importance Sampling For Dynamic Portfolio Credit Risk Ralf Korn, TU Kaiserslautern: Recent advances in option pricing via binomial trees Ciamac Moallemi, Columbia: A multiclass queueing model of limit order book dynamics Kumar Muthuraman, UT Austin: Moving boundary approaches for solving free-boundary problems Philip Protter, Cornell: Absolutely Continuous Compensators Chris Rogers, Cambridge: Convex regression and optimal stopping Birgit Rudloff, Princeton: Hedging and Risk Measurement under Transaction Costs Jeremy Staum, Northwestern: Déjà Vu All Over Again: Efficiency when Financial Simulations are Repeated Nizar Touzi, Ecole Polytechnique: A Probabilistic Numerical Method for Fully Nonlinear Parabolic PDEs [RandomProduct-225] Industrial-Academic Forum on Operational Risk (March 26-27, 2010) Emre Balta, Office of the Comptroller of the Currency, OCC: The Known, the Unknown, and the Unknowable: Challenges in Validating AMA Models Eric Cope, IBM Research, Zurich: Penalized Likelihood Estimators for Truncated Data Matthias Degen, Cornell University: Diversification benefits: a second-order approximation Kabir Dutta, Charles River Associates: On Using Scenario Analysis in The Measurement of Operational Risk: A Systematic Approach for Data Integration Elise Gourier, Swiss Banking Institute, University of Zurich: Operational risk quantification using extreme value theory and copulas: from theory to practice Giulio Mignola, Intesa Sanpaolo: Challenges in measuring operational risks from loss data Martin Neil, Queen Mary University, London: Using Hybrid Dynamic Bayesian Networks to model Operational Risk in Finance Tony Peccia, Citi group: Rethinking Basel II for Operational Risk Anupam Sahay, Key corp: Analytic Approximations for Operational Risk Capital Alberto Suarez, Universidad Autónoma de Madrid: Robust quantification of the exposure to operational risk: Bringing economic sense to economic capital Beatriz Santa Cruz Blanco, BBVA: Issues in Modelling Tails in Operational Risk John Walter, Bank of America: Operational Risk Quantification at Bank of America Workshop on Foundations of Mathematical Finance (January 11-15, 2010) Peter Bank, Technische Universität Berlin: Market Indifference Prices Bruno Bouchard, University Paris-Dauphine: Optimal Control under Stochastic Target Constraints - Application to portfolio optimization under risk constraints Luciano Campi, Université Paris-Dauphine: Markov bridges and Kyle-Back equilibrium models of insider trading Rene Carmona, Princeton University: Levy Market Models (joint with S. Nadtochiy) Patrick Cheridito, Princeton University: Equilibrium pricing in incomplete markets under translation invariant preferences Jaksa Cvitanik, California Institute of Technology: Complete Market Equilibrium with Heterogeneous Agents Emanuela Rosazza Gianin, Università di Milano-Bicocca: g-expectations and the representation of the penalty term of dynamic convex risk measures Nicole El Karoui, Ecole Polytechnique: Talk on recent work Damir Filipovic, Vienna Institute of Finance: Pricing and Hedging of CDOs: A Top Down Approach Marco Frittelli, University of Milan: Robust representation of dynamic quasiconvex maps Paolo Guasoni, Scuola Normale Superiore: The Incentives of Hedge Fund Fees and High-Water Marks Kostas Kardaras, Boston University: Financial equilibria in incomplete markets where heterogeneous agents with numeraire-invariant preferences act Dmitri Kramkov, Carnegie Mellon University: Talk on recent work Kasper Larsen, Carnegie Mellon University: Continuous equilibria with heterogeneous preferences and unspanned endowments Semyon Malamud, ETH-Zentrum: Information Percolation in Segmented Markets Michael Monoyios, University of Oxford: Optimal exercise of an executive stock option by an insider Miklós Rásonyi, University of Edinburgh: Fragility of arbitrage and bubbles in diffusion models Martin Schwiezer, ETH Zurich: How do optimal portfolios depend on the time horizon? Mihai Sirbu, University of Texas at Austin: Optimal investment on finite horizon with random discrete order flow in illiquid markets Josef Teichmann, University of Technology Vienna: Matrix-valued affine processes -- theory and applications Nizar Touzi, Ecole Polytechnique: Wellposedness of Second Order BSDEs Thaleia Zariphoupoulou, University of Texas at Austin: Investment performance measurement under time-monotone criteria XunYu Zhou, University of Oxford: Finding Quantiles Gordan Zitkovic, University of Texas at Austin: Incomplete-market equilibria with exponential utilities IFID Conference on Retirement Income Analytics (November 25, 2009) Luis Goncalves-Pinto, USC Marshall School of Business: How Does Illiquidity Affect Delegated Portfolio Choice? Kim Peijnenburg, Tilburg University: Optimal Annuitization with Background Risk and Equity Exposure During Retirement Michael Sheris, University of New South Wales: Securitization, Structuring and Pricing of Longevity Risk Eytan Sheshinski, Hebrew University & Princeton University: Recent Innovations in Annuities Nabil Tahani, York University: Targeting Retirement Odds: Better Approximations with Higher Sustainability [Externalrss-qffoundations-titles-rssl-6-30][Externalrss-FinanceFocus-titles-rssr-6-30] http://www.moneyscience.com/Finance_Focus/Audio_and_Slides_from_The_Fields_Institute_Thematic_Program_on_Quantitative_Finance.htmlhttp://www.moneyscience.com/Finance_Focus/Audio_and_Slides_from_The_Fields_Institute_Thematic_Program_on_Quantitative_Finance.htmlFri, 30 Apr 2010 11:39:21 +0100 Cass Business School Profile at MoneyScience A hung parliament may not be as detrimental to the UK economy as many fear, according to Professor Philip Booth. Professor Booth believes that none of the parties have a credible plan for reducing borrowing in the medium term so there is bound to be uncertainty whatever the result is on May 6. In fact, he believes that a hung parliament might create a consensus on certain issues that could be beneficial, such as reform of the NHS, but reconciling differences on approaches to taxation will be a more of a challenge. Professor Booth continues by criticising the tax plans of the Liberal Democrats as being clear but ‘incoherent’ and those of the Conservatives and Labour as being non-existent. He concludes by saying electorate should examine which party they think is being the most truthful about the level of spending cuts that are going to be needed in the next parliament before the cast their vote. The Cass Talks interviews are an opportunity to hear Cass faculty give their perspective on current business and finance news stories, global issues affecting the business world and new research coming out of the School. Philip Booth is Professor of Insurance and Risk Management at Cass and is also Editorial and Programme Director at the Institute of Economic Affairs Listen. Source: Cass Business School [Externalrss-cassnews-titles-rssl-6-30][Externalrss-cass2-titles-rssr-6-30] [RandomProduct-219] http://www.moneyscience.com/Finance_Focus/How_the_UK_economy_might_react_in_the_result_of_a_hung_parliament.htmlhttp://www.moneyscience.com/Finance_Focus/How_the_UK_economy_might_react_in_the_result_of_a_hung_parliament.htmlThu, 29 Apr 2010 11:58:46 +0100 We spotted this a while back, but now it's on YouTube, it's definitely worth embedding. H/T Abnormal Returns and Infectious Greed. Features Paul Wilmott, Emanuel Derman, Matthew Goldstein and Mike Osinski. While it covers a lot of ground that will be familiar to many of our users, it's does a better job of explaining the critical issues involved than any documentary I've seen produced in the UK on this subject. [Externalrss-FinanceFocus-titles-rssl-6-30][Externalrss-mstwitter-titles-rssr-4-30] [RandomProduct-225] http://www.moneyscience.com/Finance_Focus/Documentary_-_Quants,_the_Alchemists_of_Wall_Street.htmlhttp://www.moneyscience.com/Finance_Focus/Documentary_-_Quants,_the_Alchemists_of_Wall_Street.htmlThu, 29 Apr 2010 11:49:00 +0100 By Dorje C. Brody, Lane P. Hughston, Andrea Macrina       Abstract This paper presents an overview of information-based asset pricing. In this approach, an asset is defined by its cash-flow structure. The market is assumed to have access to "partial" information about future cash flows. Each cash flow is determined by a collection of independent market factors called X-factors. The market filtration is generated by a set of information processes, each of which carries information about one of the X-factors, and eventually reveals the X-factor. Each information process has two terms, one of which contains a "signal" about the associated X-factor, and the other of which represents "market noise". The price of an asset is given by the expectation of the discounted cash flows in the risk-neutral measure, conditional on the information provided by the market. When the market noise is modelled by a Brownian bridge one is able to construct explicit formulae for asset prices, as well as semi-analytic expressions for the prices and greeks of options and derivatives. In particular, option price data can be used to determine the information flow-rate parameters implicit in the definitions of the information processes. One consequence of the modelling framework is a specific scheme of stochastic volatility and correlation processes. Instead of imposing a volatility and correlation model upon the dynamics of a set of assets, one is able to deduce the dynamics of the volatilities and correlations of the asset price movements from more primitive assumptions involving the associated cash flows. The paper concludes with an examination of situations involving asymmetric information. We present a simple model for informed traders and show how this can be used as a basis for so-called statistical arbitrage. Finally, we consider the problem of price formation in a heterogeneous market with multiple agents. Download the Paper from arXiv [Externalrss-FinanceFocus-titles-rssl-6-30][Externalrss-mstwitter-titles-rssr-4-30] [RandomProduct-225] http://www.moneyscience.com/Finance_Focus/Modelling_Information_Flows_in_Financial_Markets.htmlhttp://www.moneyscience.com/Finance_Focus/Modelling_Information_Flows_in_Financial_Markets.htmlFri, 23 Apr 2010 14:23:03 +0100President Obama speaks at Cooper Union in New York City, where he spoke on the need for reform two years earlier, and tells Wall Street and Republicans to support these common sense reforms to end bailouts, close loopholes and protect consumers. [Externalrss-FinanceFocus-titles-rssl-6-30][Externalrss-mstwitter-titles-rssr-4-30] [RandomProduct-126] http://www.moneyscience.com/Finance_Focus/Video_-_President_Obama_Tells_Wall_Street_to_Back_Reform.htmlhttp://www.moneyscience.com/Finance_Focus/Video_-_President_Obama_Tells_Wall_Street_to_Back_Reform.htmlWed, 21 Apr 2010 15:27:39 +0100 The lawsuit filed by the US Securities and Exchange Commission against Goldman Sachs for securities fraud, charging the bank with misrepresenting the way a collateralized debt obligations (CDO) had been formed, has revived public disgust at credit default swaps (CDS), the instrument used to bet against these CDOs. Before the 2008 financial crisis, CDSs were an esoteric product, known only to a restricted number of sophisticated investors and specialized academics. Today, they are a household name, synonymous with unruly speculation, boundless greed, and, ultimately, systemic instability. Indeed, CDSs are blamed as one of the main causes of the financial crisis. The legality of Goldman Sachs' behavior will be determined by a court of law, but CDSs' odious reputation is jeopardizing the survival of this instrument in the court of public opinion... Luigi Zingales writes at Project Syndicate. [Externalrss-FinanceFocus-titles-rssl-6-30][Externalrss-crchronicles-titles-rssr-6-30] [RandomProduct-5] http://www.moneyscience.com/Finance_Focus/Credit_Default_Swaps_on_Trial.htmlhttp://www.moneyscience.com/Finance_Focus/Credit_Default_Swaps_on_Trial.htmlWed, 21 Apr 2010 15:20:39 +0100One bad apple can spoil a whole barrel of the fruit, or so the traditional saying goes. It's a useful piece of advice when shopping for food. Some suspicious shoppers might not just shun apples if they find one or two on display are rotten, but avoid other fruit at the supermarket too. After all, if the shop can't be trusted to sell good apples, what does that tell you about the quality of its oranges? And what about other shops that sell fruit -- should they be shunned too? So how do consumers react when the ‘bad apple' is a scandal-ridden financial company? How much do sales suffer as a result of its wrongdoing? What are the effects on sales of other similar companies such as pension providers, fund managers, and insurers? That's what Henrich Greve INSEAD-chaired professor of Organisation and Management Theory sought to find out with his academic colleagues Stefan Jonsson of Uppsala University and Takako Fujiwara-Greve of Keio University. Their results are published in a recent edition of Administrative Science Quarterly. They focused on Skandia, one of Sweden's oldest and biggest financial groups. And, until 2002, one of the country's most respected companies. Then a series of scandals broke that led to the resignation of many senior staff, and the chief executive being given a prison sentence (although this was later overturned on appeal and charges were dropped)... Andrew Woods writes at Insead Knowledge. [Externalrss-FinanceFocus-titles-rssl-8-30][Externalrss-mstwitter-titles-rssl-6-30] [RandomProduct-5] http://www.moneyscience.com/Finance_Focus/On_the_loss_of_legitimacy_and_contagion_of_scandals.htmlhttp://www.moneyscience.com/Finance_Focus/On_the_loss_of_legitimacy_and_contagion_of_scandals.htmlWed, 21 Apr 2010 14:26:51 +0100By Bertrand M. Roehner       Abstract This anniversary paper is an occasion to recall some of the events that shaped institutional econophysics. But in these thoughts about the evolution of econophysics in the last 15 years we also express some concerns. Our main worry concerns the relinquishment of the simplicity requirement. Ever since the groundbreaking experiments of Galileo some three centuries ago, the great successes of physicists were largely due to the fact that they were able to decompose complex phenomena into simpler ones. Remember that the first observation of the effects of an electrical current was made by Alessandro Volta (1745-1827) on the leg of a frog! Clearly, to make sense this observation had to be broken down into several separate effects. Nowadays, with computers being able to handle huge amounts of data and to simulate any stochastic process no matter how complicated, there is no longer any real need for such a search for simplicity. Why should one spend time and effort trying to break up complicated phenomena when it is possible to handle them globally? On this new road there are several stumbling blocks, however. Do such global mathematical descriptions lead to a real understanding? Do they produce building blocks which can be used elsewhere and thus make our knowledge and comprehension to grow in a cumulative way? Should econophysics also adopt the "globalized" perspective that has been endorsed, developed and spread by the numerous "Complexity Departments" which sprang up during the last decade? Download the Paper from arXiv. Professor Roehner is the author of Patterns of Speculation: A Study in Observational Econophysics - Available from Amazon UK - US [Externalrss-FinanceFocus-titles-rssl-6-30][Externalrss-econophysicslinks-titles-rssr-6-30] Econophysics News, Links and Resources from MoneyScience Subscribe by Email Econophysics Hub Econophysics Papers at arXiv Econophysics Library http://www.moneyscience.com/Finance_Focus/Fifteen_years_of_econophysics:_worries,_hopes_and_prospects.htmlhttp://www.moneyscience.com/Finance_Focus/Fifteen_years_of_econophysics:_worries,_hopes_and_prospects.htmlWed, 21 Apr 2010 12:01:35 +0100 Issue 5 The Level and Quality of Value-at-Risk Disclosure by Commercial Banks Christophe Pérignon and Daniel R. Smith Predicting Hedge Fund Failure: A Comparison of Risk Measures Bing Liang and Hyuna Park The Variability of IPO Returns Michelle Lowry, Micah S. Officer, and G. William Schwert Distribution of Institutional Ownership and Corporate Firm Performance Elyas Elyasiani and Jingyi Jiag Portfolio Choice and Risk Attitudes: An Experiment Gary Charness and Uri Gneezy Contributions and Stock Returns Michael J. Cooper, Huseyin Gulen, and Alexei V. Ovtchinnikov The “Antidirector Rights Index” Revisited Holger Spamann Does Corporate Governance Matter in Competitive Industries? Xavier Giroud and Holger M. Mueller On the Preferences of Principals and Agents Marco Castillo, Ragan Petrie, and Maximo Torero Escape from New York: The Market Impact of Loosening Disclosure Requirements Nuno Fernandes, Ugur Lel, and Darius P. Miller Does Public Ownership of Equity Improve Earnings Quality? Dan Givoly, Carla K. Hayn, and Sharon P. Katz The Effect of State Antitakeover Laws on the Firm’s Bondholders Bill B. Francis, Iftekhar Hasan, Kose John, and May Waisman Download the report (pdf) Issue 1 Issue 2 Issue 3 Issue 4 Visit the Risk Management Research Report Homepage Risk Management Research Report is published quarterly to serve the professional and academic risk management communities by presenting extended summaries of recently published academic articles of particular interest. RMRR seeks to select the best and most important articles in risk management and corporate governance and to communicate the essential ideas of that research to risk managers and risk management scholars in a timely manner and a convenient format. The editor of RMRR, Robert W. Kolb, selects the articles for inclusion, writes the summary of each article, and bears sole responsibility for the content of RMRR. [Externalrss-mstwitter-titles-rssr-6-30] [RandomProduct-39] http://www.moneyscience.com/Finance_Focus/Risk_Management_Research_Report_-_Issue_5_-_Spring_2010.htmlhttp://www.moneyscience.com/Finance_Focus/Risk_Management_Research_Report_-_Issue_5_-_Spring_2010.htmlTue, 13 Apr 2010 14:09:47 +0100The launch of the Tahawwut (Hedging) Master Agreement (TMA) earlier in March 2010 by the Bahrain-based International Islamic Financial Market (IIFM) in cooperation with the International Swaps and Derivatives Association, Inc. (ISDA) gives the global Islamic financial industry the ability to trade Shariah-compliant hedging transactions such as profit-rate and currency swaps, which are estimated to represent most of today's Islamic hedging transactions. While Ijlal Ahmed Alvi, the CEO of IIFM, hails the TMA as "a breakthrough in Islamic finance and risk management, and marks the introduction of the first globally standardized documentation for privately negotiated Islamic hedging products," it may be wise to remember that it remains a financial industry framework document that may be used on a voluntary adoption basis, as almost all standards issued by various relevant international bodies such as IIFM, AAOIFI (Accounting and Auditing Organization for Islamic Financial Institutions) and the IFSB (Islamic Financial Services Board) in the Islamic finance space. As such, it is premature to suggest that the Tahawwut Master Agreement "is applicable across all jurisdictions where Islamic finance is practiced" because it would be subject to the vagaries of the legal and political governance process in various jurisdiction... More from Trading Markets. [Externalrss-FinanceFocus-titles-rssl-6-30][Externalrss-islam2-titles-rssr-6-30] [RandomProduct-54] http://www.moneyscience.com/Finance_Focus/A_breakthrough_in_Islamic_finance_-_Tahawwut_(hedging).htmlhttp://www.moneyscience.com/Finance_Focus/A_breakthrough_in_Islamic_finance_-_Tahawwut_(hedging).htmlTue, 13 Apr 2010 13:15:21 +0100A new research paper from Contango Capital Advisors examines the shortcomings of academic thought in developing models that can be used by financial institutions to institute effective enterprisewide risk management systems and policies. In "Economists' Hubris - The Case of Risk Management," Shahin Shojai, global head of strategic research at Capco, and George Feiger, chief executive of Contango, conclude that most academic models fail when put under the microscope, and that the development of effective models is a long way off. But no matter which models are used, the authors say, the current IT and operational infrastructures of banking institutions do not allow management to obtain a holistic view of risk... Michael S. Fischer writes at Investment Advisor. Introduction to Economists' Hubris - The Case of Risk Management In this, our third article in the economists’ hubris series, we look at the shortcomings of academic thinking on financial risk management, a very topical subject. In the previous two articles, we examined and rejected the notion that contributions from the academic community in the fields of mergers and acquisitions [Shojai (2009)] and asset pricing [Shojai and Feiger (2009)] were of practical use. Economists have drifted into realms of sterile, quasi-mathematical and a priori theorizing instead of coming to grips with the realities of their subject. In this sense, they have stood conventional scientific methodology, which develops theories to explain facts and tests them by their ability to predict, on its head. Not surprisingly this behavior has carried over to the field of risk management, with an added twist. Like the joke about the man who looks for his dropped keys under the street light because that is where the light is rather than where he dropped the keys, financial economists have focused on things that they can ‘quantify’ rather than on things that actually matter. The latter include the structure of the financial system, the behavior of its participants, and its actual ability to capture and aggregate information. Download the Paper. [Externalrss-mstwitter-titles-rssl-6-30][Externalrss-riskmantwitter-titles-rssr-6-30] http://www.moneyscience.com/Finance_Focus/What_Academics_Think_About_Financial_Risk_Management_.htmlhttp://www.moneyscience.com/Finance_Focus/What_Academics_Think_About_Financial_Risk_Management_.htmlMon, 12 Apr 2010 16:35:50 +0100 Econophysics News, Links and Resources from MoneyScience Subscribe by Email Econophysics Hub Econophysics Papers at arXiv Econophysics Library Prominent Econophysicists: Jean-Philippe Bouchaud, Doyne Farmer, Dirk Helbing, Imre Kondor, Rosario Mantegna, Matteo Marsili, and Yi-Cheng Zhang have penned the following open letter: Dear Mr. Soros, Several leading economists, including several Nobel Prize winners, have recently made their dissatisfaction with their own field clear. In doing this they have confirmed the same criticisms of the Neoclassical Paradigm that econophysics researchers have been making for more than a decade. Early on, they have warned of the pitfalls of mechanical analogies from the 19th century, which current economic theory is built on. Physicists have pointed out that “Economy needs a revolution” and diagnosed the lack of robustness of the financial system, in some cases before the recent crisis (see attachments). Their criticism concerns the pillars of established economics: - Markets are not efficient by nature. - Economics can be driven far from equilibrium (as bubbles and crashes illustrate). - The system behavior is dominated by interactions between the market participants, and is hard to regulate. - Network interactions can change the behavior of markets dramatically. - Science needs to be driven by empirical data, not ideologies and preconceived mathematical formalisms. Their new approach allows us to understand markets as ecosystems, in which extreme events are the result of systemic instabilities. This is based on the theory of complex dynamical systems, considering randomness and strong interactions as fundamental features. The financial crisis has not only created huge financial losses. It has damaged the economic system to an extent that several countries are at the verge of bankruptcy, and social systems have become dangerously vulnerable. The problems we have seen may just be the beginning of a larger crisis. The situation may totally get out of control, endangering social peace and cultural achievements. It may interest you that the European Union is currently building scientific “Flagships” to address the grand challenges of the future. With a budget of 100 million EUR per year, over a period of ten years, they want to foster unprecedented scientific discoveries and radical innovation by transdisciplinary research. The FuturIcT flagship initiative aims at developing a realistic theory of economics and concepts for a sustainable world, involving scientists from a large range of fields. Hundreds of experts in mathematic, physics, economics, sociology, psychology, ecology, computer science, etc. will be working together to combine the best of human knowledge. We would like to invite you to be a galleon figure of this Flagship. The FuturIcT flagship fits perfectly the goals of your Institute of New Economic Thinking. We hope that you can join us, and that in any case you will add econophysicists to the advisors of your institute. Joining forces could largely accelerate the required paradigm shifts and the development of solutions to the challenges humanity is facing. Sincerely yours, Jean-Philippe Bouchaud, Doyne Farmer, Dirk Helbing, Imre Kondor, Rosario Mantegna, Matteo Marsili, and Yi-Cheng Zhang. Source: Econophysics Forum [Externalrss-FinanceFocus-titles-rssl-6-30][Externalrss-RecentLinks-titles-rssr-6-30] [RandomProduct-39] http://www.moneyscience.com/Finance_Focus/Econophysicist's_pen_Open_Letter_to_George_Soros.htmlhttp://www.moneyscience.com/Finance_Focus/Econophysicist's_pen_Open_Letter_to_George_Soros.htmlMon, 12 Apr 2010 15:21:49 +0100 Wilbur Ross is backing Sir Richard Branson's attempts to conquer British high street banking. http://bit.ly/axuBr3 @SSRN How are Shorts Informed? Short Sellers, News, and Information Processing http://bit.ly/azE0xB @victorricciardi @SSRN - Asset Pricing in the Presence of Social Interaction - http://bit.ly/9Mp6i0 @victorricciardi @SSRN - Success/Failure of Past Trades and Trading Behavior of Investors http://bit.ly/ci0NWK Brilliant @victorricciardi @SSRN A Corporate Beauty Contest - Maturity, Baby-facedness, and competence http://bit.ly/bbWinU Diagnosis and Prediction of Market Rebounds in Financial Markets -http://bit.ly/9T8BEv Justin Fox was at Oxford's Saïd Business School event on Reputation, Emotion and the Market. http://bit.ly/bBtX44 BBC: City Diaries: 31 March http://bit.ly/cjF6cT Diversity and Arbitrage in a Regulatory Breakup Model - http://bit.ly/cKcRAX Oliver Stone on Why the Wall Street Sequel Was Bumped - http://bit.ly/b0Np0Z RT @Risk_Mgmt - Time to Outlaw Naked Credit Default Swaps? http://bit.ly/ddHBf0 Eight years after the euro was introduced, the franc is still in use in Le Blanc - a small market town of 7,000 people http://bit.ly/cXQjDq City trader in FSA insider dealing case breaks silence - http://bit.ly/diM0By I cannot tell you how much this annoys me. http://bit.ly/aXj6i6 - "Bonus: A free set of Tibetan Meditation Orbs" doesn't redeem it. Abel Mathematics prize to John Tate for his work on number theory http://bit.ly/bXexpt The Tangled OTC Derivatives Marketplace - http://bit.ly/crU16Q Do headhunters really hunt? http://bit.ly/9TUix1 FRB Discussion Paper: How Did a Domestic Housing Slump Turn into a Global Financial Crisis? http://bit.ly/ca6HIp FRB Discussion paper: Interest on Excess Reserves as a Monetary Policy Instrument: The Experience of Central Banks http://bit.ly/9Adqg0 15 Bizarre Insurance Policies http://bit.ly/akBD9d - includes 20,000 people who pay a premium for insurance against alien abduction. RT @HedgeFundFocus - Dr Nick Motson explains his award-winning research into the risk appetite of fund managers. http://bit.ly/cr7xtG Leading industrial relations academics sent this letter to the Guardian condemning BA's tactics http://bit.ly/9FDybO Commodity terms of trade: The history of booms and busts - http://bit.ly/aRb8N0 Yesterday was Ada Lovelace Day - http://bit.ly/a7CiuO @SSRN Monte Carlo Bounds for Game Options Including Convertible Bonds by Christopher Beveridge and Mark Joshi http://bit.ly/c88Qt9 Happiness. It's not about wealth but status - http://bit.ly/cTpfa7 RT @Risk_Mgmt - Stress Testing Credit Risk: The Great Depression Scenario http://bit.ly/9ydOFy The food activist and economist who wishes to state for the record that he is not the messiah - http://bit.ly/9oCpaT Research - Multiplicative approximation of wealth processes involving no-short-sale strategies via simple trading - http://bit.ly/8Xqfdz Hedge Fund Focus 10-03-10 - Hedge Fund News, Links and Resources from @MoneyScience http://bit.ly/9DyAFL Peter Brown and Bob Mercer, the new co-CEOs of Renaissance Technologies LLC, are considering a few changes. http://bit.ly/d0UCYE RT @HedgeFundFocus - Hedge-Fund Worker Among Six Arrested for Inside Deals - http://bit.ly/9OpUa4 Gary Gorton vs. Michael Lewis -http://bit.ly/dxbsEz The UK's FSA has just completed it's "largest-ever operation against insider dealing" - http://bit.ly/d7pNkm Numerix Gives University of Technology, Sydney Financial Engineering Students a Dose of OTC Derivatives Reality http://bit.ly/aoIfWO Quantitative Finance - Foundations and Applications Blog http://bit.ly/bDKXzm The Somali Pirates' Business Model - http://bit.ly/9BdFPu @NAGTalk @JohnCHolden Numerical Algorithms Group Marks 40th Anniversary by Expanding their Student Awards Program - http://bit.ly/aJEZBq ICAP, the World's biggest interdealer broker, admits stockbroking foray has floundered - http://bit.ly/8Zloqw Video "The town printing its own currency" http://bit.ly/cQa5BN North Korean finance chief executed for botched currency reform - http://bit.ly/9qeQc7 Theflyonthewall.com's Instant Posts of Wall Street Research Banned http://bit.ly/dgj1Ou It's not unusual for banks to fire over-performers - http://bit.ly/ar3P1H the British government is on something of a financial services hiring spree. http://bit.ly/dbZNtr @psyfitec - Volatility, the Last Anomaly http://bit.ly/dgukni RT @SimoleonSense - Weekly Wisdom Roundup. http://bit.ly/bIpK8s SEC Investigating Jim Cramer's TheStreet.com - http://bit.ly/bv7ooI RT @J_Bettany Videos: Warren Buffett on Gambling (http://bit.ly/dCjsL1) / As Axel Rose (http://bit.ly/biuitw) Rothschild aims higher with private banking business - http://bit.ly/9dAZnp Neuroeconomics and Climate Change - http://bit.ly/as2mar Obama goes into battle for Wall Street reform - http://bit.ly/bE47L9 Turning around Tyco: how corporate governance saved the day - http://bit.ly/baa0A Bankruptcy's Financial Crisis Accelerator - The Derivatives Players' Priorities in Chapter 11 http://bit.ly/bfkOVu @SSRN This is the first paper that studies the causal effect of studying economics on subjective well being. http://bit.ly/b0UKsO No Kidding: Price of Laughter Up 3.4 Percent http://bit.ly/cjV0TB BBC: City Diaries http://bit.ly/b4Dx2I Joe Stiglitz and Jim Chanos: "Selling Us Short: The Limits of Markets (and Governments)." http://bit.ly/d1tkkk Major Lehman News Round Up over at The Big Picture. http://bit.ly/cfUnUA The Pain in Spain ... And What It Means for Europe and Beyond - http://bit.ly/9UEuoK RT @Risk_Mgmt -Training - Advanced Finite Difference Method for Quant Finance: Theory, Applications and Computation http://bit.ly/9ergYi Lehman whistleblower lost his job weeks after raising alarm - http://bit.ly/a52pfn RT @INSEADKnowledge - Microfinance comes of age. http://bit.ly/ca7ONC Profile - Didier Sornette, The Professor Who Chases Financial Bubbles - http://bit.ly/cz6sos @SSRN - The Risk of Beta - Investor Learning and Prospect Theory: http://bit.ly/dgCRGU @SSRN - Market Reaction to Corporate News and the Influence of the Financial Crisis http://bit.ly/9AsGpC RT @foxjust @HarvardBiz What Business Should Want Out of Financial Reform - Justin Fox. http://bit.ly/cXvUUn How not to be an entrepreneur - Varsity Express: Baby Branson's bogus business. http://bit.ly/bsdLB9 WARNING: Physics Envy May Be Hazardous To Your Wealth according to Andrew Lo et al - http://bit.ly/bnqYHg The Quants By Scott Patterson: Book Review - http://bit.ly/bKWuBb Upcoming Financial Training from MoneyScience - http://bit.ly/cMvUUE Where is the full-scale filmic assault on the evils of global finance? Will Oliver Stone's Wall Street sequel be it? http://bit.ly/da9PWk Scuppered in the UK: A private members' bill to prevent so-called vulture funds preying on the poorest countries. http://bit.ly/bFgsPP The International Centre for Financial Regulation last week announced the establishment of its Academic Panel. http://bit.ly/ay4jQB What should be the fate of Lehman Brothers' chief executive, Dick Fuld? http://bit.ly/cigh0O @VoxEU Does marriage make people less risk averse? http://bit.ly/9ORX8S Accounting Fraud, Short Sellers & the SEC - http://bit.ly/bfFB0z Harry Markopolos, SEC Chairman? http://bit.ly/9aip4A Why The ‘Fail Fast' Mantra Fails Startups: http://bit.ly/aVAwTR Ed Thorp: A Perspective on Quantitative Finance: Models for Beating the Market (pdf, 2003) - http://bit.ly/b4i0Cn RT @HedgeFundFocus - Hedge-funds - How big is big? http://bit.ly/9MNRKV Marco Avellaneda - Risk Magazine's Quant of the Year 2010 - http://bit.ly/d759lg What do Quants have to do with Benard Madoff? (pdf) http://bit.ly/bUGlHK A "lazy accounting gimmick" at Lehman. http://bit.ly/bV43tc Banking giant Sir Brian Pitman dies at 78 - http://bit.ly/cDTxNM Elsevier launches Journal of Family Business Strategy - http://bit.ly/bGFKUw Larry Tabb of the TABB Group: In Praise of Shorts and Financial Speculation - http://bit.ly/9iHMv9 Unleashing Aspiration: The Final Report of the UK's Panel on Fair Access to the Professions (pdf) http://bit.ly/9C2D5Z Students of Nicole El Karoui are coming of age - http://bit.ly/dzICR0 RT @JimMahar RT @WayneMarr: In experiments, women are less likely to choose competitive compensation mechanisms http://bit.ly/apKJHy @FelixSalmon - How to regulate CDS - http://bit.ly/9X1dbc Lots of Econophysics Papers at arXiv - http://bit.ly/9V554m And more interesting articles on Econophysics over at our Econophysics Hub (which could do with an update). http://bit.ly/9GyN3c On this theme, Doyne Farmer's 1999 article: Physicists attempt to scale the ivory towers of finance (pdf) http://bit.ly/9D3fvE Talk by Marc Potters (co-CEO of Capital Fund Management): Physics, Finance and Some Useful Mathematics - http://bit.ly/dq8REg HSBC says Swiss data theft affects 24,000 accounts - http://bit.ly/aj8NNC Developing nations storm Forbes rich list as America Movil's Carlos Slim beats Microsoft's Bill Gates to top spot. http://bit.ly/cnnuaA Updated Course: Advanced C++ for Computational Finance with Daniel Duffy. June 2 - 3, 2010, London, UK. http://bit.ly/44rJg2 The Daily Princetonian on Starting your Career in Finance. http://bit.ly/9ktAr0 Q&A: Credit default swaps http://bit.ly/ciWwyX Economist Jeffrey Sachs calls for Robin Hood tax on 'smirking' Wall Street - http://bit.ly/9ckHDH hile's earthquake 'may cost insurers up to $7bn' - http://bit.ly/aED0KJ RT @MebFaber - The Value of Content SeekingAlpha Has Received For Free - http://bit.ly/d3Aic9 Here's How Blogs Are Making The Financial Press Worse - http://bit.ly/cd1lRi RT @HedgeFundFocus has a new look! http://bit.ly/auZUDq Not exactly finance: How generosity cascades through social networks - http://bit.ly/a2k7gA For the first time in 5 years, no big US investment bank appears among the top 9 sovereign bond bookrunners in Europe http://bit.ly/9KjO6B "An unswerving confidence in the efficiency of markets became an excuse for many to simply rest on their laurels" http://bit.ly/cLoAUI @SimoleonSense Interviews James Montier Part 1 (http://bit.ly/agjISX) Part 2 (http://bit.ly/cwSk3b) Rick Bookstaber: The Gold Bubble - http://bit.ly/c3MC4N RT @FelixSalmon: "Link-phobic bloggers at the NYT and WSJ" - and some interesting discussion in the comments. http://bit.ly/bWzycI Econobloggers need their crisis back: http://bit.ly/9iY77L International School on Multidisciplinary Approaches to Economic and Social Systems - June 27 - July 3, Siena, Italy http://bit.ly/bJKEHC And while I'm at it: Chaos Models in Economics (http://bit.ly/cvWFgn) and The (unfortunate) complexity of the economy (http://bit.ly/cDu35h) This paper estimates that the top 35 US CEOs were overpaid by about 129 times their ideal salaries in 2008: http://bit.ly/daGewT Quantitative Finance: Two Cultures - http://bit.ly/bOB1Gt RT @QuantNet - Jim Gatheral leaves Merrill Lynch to join Baruch MFE program http://bit.ly/dvN9Ec Fraud charges for 'America's prophet' who claimed to predict stockmarket - http://bit.ly/deIN2H Book Review: The Greatest Trade Ever: How John Paulson Bet Against the Markets and Made $20 Billion - http://bit.ly/bdirqm F is for finance in F1 - http://bit.ly/cOr7Ms RT @HedgeFundFocus - @Ken_Yeadon: Will Hedgehogs' killer apps spike the bulge bracket's guns? http://bit.ly/dtURGo RT @SimoleonSense - Weekly Wisdom Roundup http://bit.ly/a2q7p2 Eugene Fama - My Life in Finance http://bit.ly/cAYhBu 'Swap Tango': A Derivative Regulation Dance - http://bit.ly/90HWgP RT @j_bettany: Cultural Cognition of Scientific Consensus - http://bit.ly/ar4LKV What Do Bankers and Movie Stars Have in Common? http://bit.ly/8ZTWQM @FelixSalmon - Iceland says no: http://bit.ly/92pHnu RT @infoarbitrage: "Economic Utility" and "social" investing - http://bit.ly/9j0qbw Accountancy has a reputation for dullness but its history is the history of civilisation itself - http://bit.ly/9Yo0pp How much will the super-tax on UK bonuses raise? http://bit.ly/bgEGdK Barry Ritholtz: Advice to a Young Market Participant http://bit.ly/d8QsEU RT @SimoleonSense - Contagion of Unethical Behavior: The effect of one bad apple on the barrel. http://bit.ly/9j9pfM RT @JimMahar: James Porterfield, GSB finance professor and market expert, dead at 89 http://bit.ly/9T2H7u Europe 'set for €1 trillion of bank asset sales' - http://bit.ly/bxUC2K MoneyScience - 100 Most Recent Posts - http://bit.ly/16VbBJ Hedging the Unhedgeable - Current Developments in Valuation and Hedging in Incomplete Markets: 30 April -1 May 2010 http://bit.ly/dmUEXD RT @BusinessSchools - Three's a crowd. Will two business schools come to dominate in Europe? http://bit.ly/8XAqqD Journal - "Applied Stochastic Models in Business and Industry" - http://bit.ly/atJaCJ Free articles from 2009 Nobel Prize winning economists Oliver Williamson and Elinor Ostrim - Courtesy Wiley-Blackwell http://bit.ly/daLBOJ #FF @a_yakovlev, @zeos_blog, @financeandKM, @jvkup, @creditplumber, @guanosphere, @InSIS, @complianceweek, @ProfessorGary, @JPCounihan Why, Exactly, Are Big Banks Bad? http://nyti.ms/acpHyo According to this documentary the current economic crisis is not a failure of capitalism, but a failure of culture. http://bit.ly/cCYGsE Banks across Europe were summoned by the EC to discuss regulation of sovereign CDS in the wake of the Greek crisis. http://bit.ly/d1pjWr RT @Risk_Mgmt Credit Default Swaps Liquidity modeling - A survey - http://bit.ly/d5S89j @MoneyScience Twitter Review - March 2010 - http://bit.ly/97sL7b US economists challenge conventional view that Africa is a basket case http://bit.ly/9IdBnO Is Disaster Looming For UK's Credit Rating? http://bit.ly/aqiRJu UK Financial Stability Board "in full agreement" with US on limiting prop trading activities at deposit-taking banks http://bit.ly/9Hgm6g Bankers Blow $20 Billion Faster Than Gamblers: William Pesek - http://bit.ly/byVd0i Amid Global Securitization Ebbs and Flows, UK Prepares Prime RMBS - http://bit.ly/diqOuo Video: Football finance is suffering a crisis similar to the banking crisis - http://bit.ly/cUayEy @FelixSalmon: What I Read - http://bit.ly/bagjQO TV Economics - The impact of filming 'Lost' in Hawaii - http://bit.ly/bvOxpo Book Review and Excerpt - 'The Big Short - Inside the Doomsday Machine' by Michael Lewis - http://bit.ly/c9UOBk Training - Using Stochastic Volatility and Lvy Processes based models in Finance - Day 2: Hands On Workshop - http://bit.ly/9wt2S1 Training: Using Stochastic Volatility and Lvy Processes based models in Finance Day 1: Models, Algorithms and Practice http://bit.ly/3asfNg What the brain values may not be what it buys - http://bit.ly/aSaDJw The Trade News Poll: "Market split on the great prop divide" http://bit.ly/94lWfN @psyfitec on the Psychology of Credit Cards - http://bit.ly/9U6Vq2 Classic Research: James Montier's "Seven Sins of Fund Management" - http://bit.ly/9U9mLP Video Lecture: Myron Scholes Pre Crisis "liquidity, risk transfer, chaos, the role of hedge funds" http://bit.ly/bvHmCP @SimoleonSense 's always impressive Weekly Wisdom Roundup. http://bit.ly/9ofP0q The act of being an entrepreneur is indeed an act of leadership. http://bit.ly/aSTNH5 There is a reason why there are so few high ranking technologists in banking - http://bit.ly/aiCwKq @TimHarford on the Robin Hood Tax Campaign (http://bit.ly/9VGMkV) and the bibliography compiled by ActionAid. (http://bit.ly/ai3FBq) Except from "The Devil's Casino: Friendship, Betrayal, and the High Stakes Games Played Inside Lehman Brothers" - http://bit.ly/a9rO5I RT @Risk_Mgmt - The benefits of naked CDS - http://bit.ly/bKfOUt PSY-Q 2010 Conference - Ideas in Finance - http://bit.ly/aCv92p Wall Street's Bailout Hustle - http://bit.ly/d4kCGY Unemployment among the affluent is only 3%. http://bit.ly/b8mXrk The Future of Money: It's Flexible, Frictionless and (Almost) Free - http://bit.ly/aPXYCS So You Want to Become a Quant? http://bit.ly/bA1qdq Loads of discussion on @yvessmith 's article: So Why Hasn't the Credit Default Swaps Casino Been Shut Down? - http://bit.ly/d8Q0w7 Time to outlaw naked credit default swaps? http://bit.ly/cNwWbd Manufacturing Tail Risk - A Perspective on the Financial Crisis of 2007-09 - http://bit.ly/9VQia2 Darrell Duffie: In Defense of Financial Speculation - http://bit.ly/bX9kY8 Is It Real, or Is It Randomized?: A Financial Turing Test - http://bit.ly/9YlATE 'NICE' (non-inflationary constant expansion) is so last decade-now we face 'DRAG' (deficit reduction and anaemic growth)http://bit.ly/d8xGDK Fairness in Trading — A Microeconomic Interpretation - http://bit.ly/9dPbQT @SSRN - Who Disciplines Bank Managers? http://bit.ly/dafqNg @SSRN - How Real People Make Long-Term Decisions: The Case of Retirement Preparation - http://bit.ly/c4TVJJ Icelandic bankers and British 'rate tarts' caused the Icesave folly, yet the taxpayers will be footing the bill http://bit.ly/9TvnpA Previously July 2009 August 2009 September 2009 October 2009 November 2009 December 2009 January 2010 February 2010 March 2010 Education Tweets Sept / Oct Key RSS Feeds Complete MoneyScience Quantitative Finance Hedge Fund Focus Financial Technology Financial Education Financial Recruitment Follow us on Twitter MoneyScience BusinessSchools HedgeFundFocus Risk_Mgmt MSLuxury Events and Training Training Conferences Seminars Business Schools Social Resources Facebook Linkedin More Resources [Externalrss-FinanceFocus-titles-rssrightf-30-30][Externalrss-educationnews-titles-rssrightf-25-30][Externalrss-RecentLinks-titles-rssrightf-20-30][Externalrss-bookreviews-titles-rssrightf-20-30][Externalrss-quantevents-titles-rssrightf-15-30][Externalrss-eventscr-titles-rssrightf-15-30][Externalrss-eventsde-titles-rssrightf-15-30][Externalrss-eventsfm-titles-rssrightf-15-30][Externalrss-latestbusinesses-titles-rssrightf-15-30] http://www.moneyscience.com/Finance_Focus/MoneyScience_Twitter_Review_-_April_2010.htmlhttp://www.moneyscience.com/Finance_Focus/MoneyScience_Twitter_Review_-_April_2010.htmlMon, 12 Apr 2010 11:08:52 +0100Felix Salmon at Reuters writes: Nicola Gennaioli, Andrei Shleifer, and Robert Vishny have a great new paper out entitled "Financial Innovation and Financial Fragility”.* It doesn't break a lot of new conceptual ground, but it's very thought-provoking, and it helps to codify in a formal way the serious problems with financial innovation. Their conclusion is spot-on, I think: "Recent policy proposals, while desirable in terms of their intent to control leverage and fire sales, do not go nearly far enough. It is not just the leverage, but the scale of financial innovation and of creation of new claims itself, that might require regulatory attention." The idea here is that financial innovation is, by its nature, inherently and predictably dangerous. If something's innovative, it's new. And if something's new, it's untested. Meanwhile, a very large part of what we consider "financial innovation"consists of "improving" on existing securities, usually by creating a source of new supply for in-demand securities while also providing some kind of pick-up in yield... Download the Paper here. [Externalrss-FinanceFocus-titles-rssl-8-30][Externalrss-mstwitter-titles-rssr-5-30] [RandomProduct-126] http://www.moneyscience.com/Finance_Focus/How_financial_innovation_causes_crises.htmlhttp://www.moneyscience.com/Finance_Focus/How_financial_innovation_causes_crises.htmlMon, 12 Apr 2010 09:36:26 +0100If you listen to climate scientists - and despite the relentless campaign to discredit their work, you should - it is long past time to do something about emissions of carbon dioxide and other greenhouse gases. If we continue with business as usual, they say, we are facing a rise in global temperatures that will be little short of apocalyptic. And to avoid that apocalypse, we have to wean our economy from the use of fossil fuels, coal above all. But is it possible to make drastic cuts in greenhouse-gas emissions without destroying our economy? Like the debate over climate change itself, the debate over climate economics looks very different from the inside than it often does in popular media. The casual reader might have the impression that there are real doubts about whether emissions can be reduced without inflicting severe damage on the economy. In fact, once you filter out the noise generated by special-interest groups, you discover that there is widespread agreement among environmental economists that a market-based program to deal with the threat of climate change - one that limits carbon emissions by putting a price on them - can achieve large results at modest, though not trivial, cost... Paul Krugman writes at length in the New York Times. H/T Simoleon Sense. [Externalrss-FinanceFocus-titles-rssl-6-30][Externalrss-ssense-titles-rssr-6-30] [RandomProduct-51] http://www.moneyscience.com/Finance_Focus/Environmental_Economics_101.htmlhttp://www.moneyscience.com/Finance_Focus/Environmental_Economics_101.htmlWed, 07 Apr 2010 16:36:29 +0100eFinancialCareers notes that Goldman Sachs has been accused of putting a female employee on a ‘mummy track’ after she returned from maternity leave - and in a followup article highlight one reader's comment to the effect that "women... who work part time are doing others who are committed to banking careers a terrible disservice...". I was wondering if the MoneyScience users have any thoughts on the subject.   var skin = {}; skin['BORDER_COLOR'] = '#cccccc'; skin['ENDCAP_BG_COLOR'] = '#e0ecff'; skin['ENDCAP_TEXT_COLOR'] = '#333333'; skin['ENDCAP_LINK_COLOR'] = '#0000cc'; skin['ALTERNATE_BG_COLOR'] = '#ffffff'; skin['CONTENT_BG_COLOR'] = '#ffffff'; skin['CONTENT_LINK_COLOR'] = '#0000cc'; skin['CONTENT_TEXT_COLOR'] = '#333333'; skin['CONTENT_SECONDARY_LINK_COLOR'] = '#7777cc'; skin['CONTENT_SECONDARY_TEXT_COLOR'] = '#666666'; skin['CONTENT_HEADLINE_COLOR'] = '#333333'; skin['DEFAULT_COMMENT_TEXT'] = '- add your comment here -'; skin['HEADER_TEXT'] = 'Comments'; skin['POSTS_PER_PAGE'] = '15'; google.friendconnect.container.setParentUrl('/' /* location of rpc_relay.html and canvas.html */); google.friendconnect.container.renderWallGadget( { id: 'div-4731754816302851587', site: '16193895887062730248', 'view-params':{"disableMinMax":"true","scope":"PAGE","allowAnonymousPost":"true","startMaximized":"true"} }, skin); http://www.moneyscience.com/Finance_Focus/Open_Thread_-_Women,_Banking_and_Discrimination.htmlhttp://www.moneyscience.com/Finance_Focus/Open_Thread_-_Women,_Banking_and_Discrimination.htmlWed, 07 Apr 2010 15:30:40 +0100Christian C. Opp The University of Chicago Booth School of Business Marcus M. Opp University of California, Berkeley - Finance Group Milton Harris University of Chicago - Booth School of Business   Abstract This paper develops a rational expectations model to analyze how rating agencies alter their information acquisition and disclosure policy when ratings are used for regulatory purposes such as bank capital requirements. Although rating agencies generally publish informative ratings, sufficiently large regulatory distortions may lead to a complete break-down of delegated information acquisition - rating agencies merely facilitate regulatory arbitrage by selling inflated ratings to originators. Our model reveals that this result is more likely to occur in complex security classes and how, in general, the impact of regulation on ratings depends on the cross-sectional distribution of borrower types. Download the Paper from SSRN. [Externalrss-FinanceFocus-titles-rssl-8-30][Externalrss-mstwitter-titles-rssr-5-30] [RandomProduct-126] http://www.moneyscience.com/Finance_Focus/Rating_Agencies_in_the_Face_of_Regulation_-_Rating_Inflation_and_Regulatory_Arbitrage_.htmlhttp://www.moneyscience.com/Finance_Focus/Rating_Agencies_in_the_Face_of_Regulation_-_Rating_Inflation_and_Regulatory_Arbitrage_.htmlWed, 07 Apr 2010 15:03:16 +0100An insider trading trial could dramatically expand the powers of America's securities regulator to monitor the derivatives blamed for exacerbating the financial crisis. The Securities and Exchange Commission will bring its first prosecution tomorrow for insider trading which involved credit default swaps (CDS). Attorneys described the prosecution as an attempt by the commission to assert its authority over CDSs at a time when Congress is discussing how to regulate the huge derivatives market. Stanley Keller, a partner at the law firm Edwards Angell Palmer & Dodge, said: “It’s a very interesting and important case because it really covers the whole issue of the scope of the SEC’s enforcement authority.” The commission has accused Jon-Paul Rorech, a bond and credit default swap salesman at Deutsche Bank, of giving Renato Negrin, a former portfolio manager at the hedge fund manager Millennium Partners, inside information on an upcoming bond issue by VNU, the Dutch media company. They allege that the information handed Mr Negrin’s fund a €950,000 profit... Christine Seib writes in The Times. H/T: Credit Risk Chronicles. [Externalrss-FinanceFocus-titles-rssl-6-30][Externalrss-crchronicles-titles-rssr-6-30] [RandomProduct-126] http://www.moneyscience.com/Finance_Focus/Insider_trading_trial_could_give_new_powers_to_Securities_and_Exchange_Commission.htmlhttp://www.moneyscience.com/Finance_Focus/Insider_trading_trial_could_give_new_powers_to_Securities_and_Exchange_Commission.htmlThu, 25 Mar 2010 11:38:41 +0000Early in the morning on a typical weekday, men can be seen resolutely streaming down lower Broadway, braced against a pulverizing wind. They are preparing to enter their office buildings, put on their headsets, flick on their Bloombergs, and go to war. And if they look miserable - or weary, frustrated, angry, or petrified - it's because they have one of the most emotionally taxing jobs in the world. Playing the market is a constant ricochet between panic and euphoria. There's a reason the burnout rate is high. But the formula for succeeding in a high-stress financial environment is simpler than you might think. If you ask a trader, or someone who studies them, what the single most important factor is in determining whether a person will be good at trading, they will say that it's the ability to control one's emotions. The trouble for all those men pouring into the trading desks is that recent studies suggest purely rational behavior may not come as naturally to them as gender stereotypes would suggest. A couple of weeks ago, for instance, the investment-management company Vanguard released data showing that men were more likely than women to sell stocks at the bottom of the market. Could it be that the fairer sex is better able to ride the ups and downs of Wall Street without letting their emotions get in the way? Sheelah Kolhatkar writes in The New York Magazine H/T Simoleon Sense. [Externalrss-mstwitter-titles-rssl-8-30][Externalrss-ssense-titles-rssr-5-30][Externalrss-neuro-titles-rssr-5-30] [RandomProduct-5] http://www.moneyscience.com/Finance_Focus/Women_and_Wall_Street,_Testosterone_and_Risk.htmlhttp://www.moneyscience.com/Finance_Focus/Women_and_Wall_Street,_Testosterone_and_Risk.htmlMon, 22 Mar 2010 14:06:59 +0000 The Psy-Fi Blog RSS Feed Jitterbugging Markets As we’ve previously seen many of the strange anomalies that affect investors have a nasty habit of disappearing, just as soon as people recognise that they exist. This wantonly random behaviour gives fuel to the last remaining adherents of the efficient markets hypothesis who can point out that despite the best attempts of behavioural financiers the evidence keeps on vanishing. Despite the mysterious case of the missing anomalies there’s one that resolutely refuses to go away, squatting in the middle of the markets like a recalcitrant and extremely ugly toad. Rather ungraciously stocks continue to bounce around like a jitterbugger on speed. Regardless of everything else it’s volatility, the last anomaly, that keeps on giving. And then taking away. And then giving back again. Stuff Happens High volatility – the nasty habit of share prices to veer about in a sickening rollercoaster fashion rather than trending along near some fundamental value – is a worryingly unpredicted emergent property of markets. Observing the apparently irrational bouncing about of stock valuations one might be tempted to wonder if this is happening less because of the markets adjusting prices due to changes in fundamentals and more, well, because sometimes stuff just happens... More from the Psy-Fi Blog. [Externalrss-psyfi-titles-rssl-8-30][Externalrss-mstwitter-titles-rssr-5-30] [RandomProduct-48] [RandomProduct-49] http://www.moneyscience.com/Finance_Focus/Volatility_-_The_Last_Anomaly.htmlhttp://www.moneyscience.com/Finance_Focus/Volatility_-_The_Last_Anomaly.htmlMon, 22 Mar 2010 08:50:31 +0000Mark J. Roe Harvard Law School; European Corporate Governance Institute (ECGI)     Abstract: Chapter 11 bars bankrupts from immediately repaying their creditors, so that the court can reorganize the debtor without creditors shredding the bankrupt firm’s business. Not so for the bankrupt’s derivatives counterparties, who can seize and liquidate collateral, net out gains and losses, terminate their contracts with the bankrupt, and keep both preferential eve-of-bankruptcy payments and fraudulent conveyances they obtained from the debtor in ways that favor them over other creditors. Their right to jump to the head of the bankruptcy repayment line, ahead of even ordinary secured creditors, warps their pre-bankruptcy incentives both to monitor the pre-bankruptcy debtor and to adjust their investments to better account for counterparty risk, since they do well in any resulting bankruptcy. If they bear less risk, other creditors bear more risk and have more incentives to monitor the debtor or to assure themselves that the debtor is a safe bet. But the other creditors — such as the United States of America — are poorly positioned to provide that monitoring. Moreover, the policy justification for the super-priorities — reducing financial contagion risk — is difficult to maintain today: contagion is as likely to be propagated by the priorities as it is to be stifled, the priorities did not prevent contagion in the 2007-2008 financial melt-down and may have spread it, and we use alternate resolution mechanisms anyway for systemically vital failing financial institutions. Bankruptcy policy was made in the erroneous belief that it could contain contagion and that there was no other way to do so. The best regulatory reaction to these monitoring and regulatory disconnects is for Congress to cut back the extensive de facto priorities embedded now in chapter 11 for these derivatives counterparties. Repeal would induce the derivatives market to better recognize the risks of counterparty financial failure, which in turn should dampen the possibility of another AIG/Bear/Lehman financial melt-down, thereby helping to maintain financial stability. Yet the major financial reform packages now in Congress do not contemplate the needed cutbacks. Via: Credit Risk Chronicles. You can download the paper from SSRN. [Externalrss-crchronicles-titles-rssl-6-30][Externalrss-FinanceFocus-titles-rssr-6-30] [RandomProduct-51] http://www.moneyscience.com/Finance_Focus/Bankruptcy's_Financial_Crisis_Accelerator_-_The_Derivatives_Players'_Priorities_in_Chapter_11_.htmlhttp://www.moneyscience.com/Finance_Focus/Bankruptcy's_Financial_Crisis_Accelerator_-_The_Derivatives_Players'_Priorities_in_Chapter_11_.htmlWed, 17 Mar 2010 13:01:34 +0000Thanks to Miguel over at Simoleon Sense for spotting this one: Didier Sornette has immersed his life in risk. He rides motorcycles, windsurfs and water skis long stretches of a 120-mile route between Nice and Corsica. Now comes a daunting professional challenge: "The Financial Bubble Experiment." Mr. Sornette, 52 years old, is the director of the Financial Crisis Observatory at the Swiss Federal Institute of Technology in Zurich, or as he calls it, "the MIT of Europe." Late last year, he launched the bubble experiment by identifying four developing bubbles and forecasting when they'll peak. His predictions are locked away in encrypted files that can't be altered, to be revealed only when the forecasted bubble peaks have passed, on May 1. "My colleagues think I am crazy to risk my neck" making such predictions, says Mr. Sornette. Academics tend to be rather cautious, he says, to protect their reputations. "You have to find a guy like me, a maverick who has low risk aversion."... Eleanor Laise writes over at the Wall Street Journal. You might also be interested in: - Didier's Webpage at ETH - The Financial Crisis Laboratory at ETH Research by Didier Sornette at arXiv [Externalrss-ssense-titles-rssl-6-30][Externalrss-FinanceFocus-titles-rssr-6-30] [RandomProduct-126] http://www.moneyscience.com/Finance_Focus/Profile_-_Didier_Sornette,_The_Professor_Who_Chases_Financial_Bubbles.htmlhttp://www.moneyscience.com/Finance_Focus/Profile_-_Didier_Sornette,_The_Professor_Who_Chases_Financial_Bubbles.htmlTue, 16 Mar 2010 14:23:16 +0000By Andrew W. Lo and Mark T. Mueller Abstract The quantitative aspirations of economists and financial analysts have for many years been based on the belief that it should be possible to build models of economic systems - and financial markets in particular - that are as predictive as those in physics. While this perspective has led to a number of important breakthroughs in economics, "physics envy" has also created a false sense of mathematical precision in some cases. We speculate on the origins of physics envy, and then describe an alternate perspective of economic behavior based on a new taxonomy of uncertainty. We illustrate the relevance of this taxonomy with two concrete examples: the classical harmonic oscillator with some new twists that make physics look more like economics, and a quantitative equity market-neutral strategy. We conclude by offering a new interpretation of tail events, proposing an "uncertainty checklist" with which our taxonomy can be implemented, and considering the role that quants played in the current financial crisis. Download the paper from arXiv. [Externalrss-FinanceFocus-titles-rssl-6-30][Externalrss-mstechnews-titles-rssr-6-30] [RandomProduct-51] http://www.moneyscience.com/Finance_Focus/WARNING:_Physics_Envy_May_Be_Hazardous_To_Your_Wealth.htmlhttp://www.moneyscience.com/Finance_Focus/WARNING:_Physics_Envy_May_Be_Hazardous_To_Your_Wealth.htmlSat, 13 Mar 2010 14:02:11 +0000The International Centre for Financial Regulation (ICFR) last week announced the establishment of its Academic Panel, comprising of leading academics in the field of financial economics and regulation and whose knowledge and expertise will help to guide the ICFR in its development and growth. The panel will enable the ICFR to foster closer links with the academic world, and to exchange ideas on important developments in regulatory thinking from around the globe. In addition to advising on the ICFR’s research agenda, the panel will cultivate relationships between the ICFR and leading academics studying these topics. Members of the Academic Panel include: - Alistair Milne, Reader in Banking at Cass Business School - Andrew Walter, Reader in International Political Economy at the London School of Economics - Arnoud Boot, Professor of Corporate Finance and Financial Markets at the University of Amsterdam - Charles Goodhart, Professor Emeritus of Banking and Finance at the London School of Economics - David Llewellyn, Professor of Banking and Finance at Loughborough University - John Board, Professor of Finance at University of Reading - Julian Franks, Professor of Finance at London Business School - Neil Shephard, Professor of Economics at Oxford University - Nobuhiko Sugiura, Professor and Associate Director at Chuo University Graduate School of Strategic Management - Richard Herring, Professor of International Banking at Wharton School of Business, University of Pennsylvania - Richard Portes, Professor of Economics at London Business School - Viral Acharya, Professor of Finance at Stern School of Business, New York University The international focus of the panel provides a holistic view of regulation worldwide that underscores the ICFR’s global approach. David Currie, Chairman of the Academic Panel commented, "At a time when reform of financial markets is high on the agendas of governments across the world, considered research and informed debate are crucial. The Academic Panel will develop and focus the ICFR's research agenda to address the critical issues facing regulators". Richard Reid, Director of Research for the ICFR commented: "This highly regarded group of academics will enable the ICFR to remain at the forefront of issues within regulation. We will work in conjunction with this through a variety of channels, including seminars, briefings and research to share ourknowledge and insight with the global financial community." About the ICFR The International Centre for Financial Regulation (ICFR) is the product of cooperation between 19 leading financial services companies together with Her Majesty’s Government and the City of London, and provides training, scholarship and thought leadership on financial regulation. The Centre, while based in the City of London, will serve constituencies well beyond the borders of the UK. Internationally, the ICFR will engage dialogue across borders on effective regulatory cooperation and regulatory best practice; act as a clearing centre for those seeking training on regulation and commission research on regulatory frameworks fit for the 21st Century. For further information please refer to www.icffr.org. Original ICFFR Press Release. [Externalrss-FinanceFocus-titles-rssl-6-30][Externalrss-mstwitter-titles-rssr-4-30] [RandomProduct-126] http://www.moneyscience.com/Finance_Focus/International_Center_For_Financial_Regulation_Names_Academic_Panel.htmlhttp://www.moneyscience.com/Finance_Focus/International_Center_For_Financial_Regulation_Names_Academic_Panel.htmlFri, 12 Mar 2010 11:15:33 +0000Quite how I missed this (pdf) I don't know but in January readers of Risk Magazine voted Marco Avellaneda, Quant of the year for 2010 for his groundbreaking work on the effect of short-selling restrictions on price dynamics: His paper, "A dynamic model for hard to borrow stocks", co-authored with Mike Lipkin of Katama Trading, was published in Risk in June last year (pages 92–97), and has quickly become a classic of market microstructure literature. "Marco addresses complicated issues in his characteristic style, with simplicity and clarity," says Alex Lipton, co-head of the global quantitative group at Bank of America Merrill Lynch and visiting professor of mathematics at Imperial College London. "Avellaneda and Lipkin have created an easy to understand model that changes the way one should think about particular stocks when writing options," says Alex Langnau, global head of quantitative analytics at Munich-based Allianz Investment Management. "In a way that is different from many other academics, Avellaneda looks at real market situations and then forms a model in the simplest mathematical way that describes the effect. It goes straight to the point without being dragged down by formalism, which is what makes his work so valuable."... More in this PDF document on Marco's Home Page at NYU Courant. Articles and commentary by Marco include: Leveraged ETFs: All you wanted to know but were afraid to ask (Risk Professional, February 2010) Path Dependence of Leveraged ETF Returns (May 15, 2009) What do Quants have to do with Benard Madoff? (December 15, 2008, in GARP Feb. 2009) A dynamic model for hard-to-borrow stocks (this version, March 11, 2009) Downloadable papers and presentations Shorting: the math (Forbes, September 25,2008) Restrictions on Short-Selling are bad for Markets(September 18,2008) Statistical Arbitrage in the U.S. Equities Market (this version: June 15, 2009), Published version Hedge-funds: How big is big? (unpublished working paper, 2005) [Externalrss-FinanceFocus-titles-rssl-8-30][Externalrss-mstwitter-titles-rssl-5-30] [RandomProduct-220] http://www.moneyscience.com/Finance_Focus/Marco_Avellaneda_-_Risk_Magazine's_Quant_of_the_Year_2010.htmlhttp://www.moneyscience.com/Finance_Focus/Marco_Avellaneda_-_Risk_Magazine's_Quant_of_the_Year_2010.htmlThu, 11 Mar 2010 15:24:21 +0000A great spot from Miguel over at Simoleon Sense: As part of a groundbreaking new Initiative for the Theoretical Sciences (ITS), the Graduate Center at CUNY presents a talk by Marc Potters, co-CEO of Capital Fund Management, one of France's oldest alternative investment management firms. After a Ph.D. in Physics from Princeton University and postdoctoral work at the University of Rome, Potters joined CFM, where he now serves as director of research. He has made substantial contributions to many problems in quantitative finance, and is the coauthor, with Jean-Phillippe Bouchaud, of the major modern text on these issues, Theory of Financial Risk and Derivative Pricing: From Statistical Physics to Risk Management (Cambridge University Press, 2003). His work, and that of his colleagues, shows how theoretical ideas developed to understand one part of the world find application in unexpected places. You might also be interested in another good spot from Miguel, Robert Merton's observations on the Science of Finance in the practice of finance. [Externalrss-ssense-titles-rssl-6-30][Externalrss-FinanceFocus-titles-rssr-6-30] [RandomProduct-220] Econophysics News, Links and Resources from MoneyScience Subscribe by Email Econophysics Hub Econophysics Papers at arXiv Econophysics Library http://www.moneyscience.com/Finance_Focus/Physics,_Finance_and_Some_Useful_Mathematics.htmlhttp://www.moneyscience.com/Finance_Focus/Physics,_Finance_and_Some_Useful_Mathematics.htmlTue, 09 Mar 2010 14:00:35 +0000 UC San Diego and Harvard deliver first experimental findings on spread of cooperation in a social network For all those dismayed by scenes of looting in disaster-struck zones, whether Haiti or Chile or elsewhere, take heart: Good acts – acts of kindness, generosity and cooperation – spread just as easily as bad. And it takes only a handful of individuals to really make a difference. In a study published in the March 8 early online edition of the Proceedings of the National Academy of Sciences, researchers from the University of California, San Diego and Harvard provide the first laboratory evidence that cooperative behavior is contagious and that it spreads from person to person to person. When people benefit from kindness they "pay it forward" by helping others who were not originally involved, and this creates a cascade of cooperation that influences dozens more in a social network. The research was conducted by James Fowler, associate professor at UC San Diego in the Department of Political Science and Calit2's Center for Wireless and Population Health Systems, and Nicholas Christakis of Harvard, who is professor of sociology in the Faculty of Arts and Sciences and professor of medicine and medical sociology at Harvard Medical School. Fowler and Christakis are coauthors of the recently published book "Connected: The Surprising Power of Our Social Networks and How They Shape Our Lives." In the current study, Fowler and Christakis show that when one person gives money to help others in a "public-goods game," where people have the opportunity to cooperate with each other, the recipients are more likely to give their own money away to other people in future games. This creates a domino effect in which one person's generosity spreads first to three people and then to the nine people that those three people interact with in the future, and then to still other individuals in subsequent waves of the experiment. The effect persists, Fowler said: "You don't go back to being your 'old selfish self.''' As a result, the money a person gives in the first round of the experiment is ultimately tripled by others who are subsequently (directly or indirectly) influenced to give more. "The network functions like a matching grant," Christakis said. "Though the multiplier in the real world may be higher or lower than what we've found in the lab," Fowler said, "personally it's very exciting to learn that kindness spreads to people I don't know or have never met. We have direct experience of giving and seeing people's immediate reactions, but we don't typically see how our generosity cascades through the social network to affect the lives of dozens or maybe hundreds of other people." The study participants were strangers to each other and never played twice with the same person, a study design that eliminates direct reciprocity and reputation management as possible causes. In previous work demonstrating the contagious spread of behaviors, emotions and ideas – including obesity, happiness, smoking cessation and loneliness – Fowler and Christakis examined social networks re-created from the records of the Framingham Heart Study. But like all observational studies, those findings could also have partially reflected the fact that people were choosing to interact with people like themselves or that people were exposed to the same environment. The experimental method used here eliminates such factors. The study is the first work to document experimentally Fowler and Christakis's earlier findings that social contagion travels in networks up to three degrees of separation, and the first to corroborate evidence from others' observational studies on the spread of cooperation. The contagious effect in the study was symmetric; uncooperative behavior also spread, but there was nothing to suggest that it spread any more or any less robustly than cooperative behavior, Fowler said. From a scientific perspective, Fowler added, these findings suggest the fascinating possibility that the process of contagion may have contributed to the evolution of cooperation: Groups with altruists in them will be more altruistic as a whole and more likely to survive than selfish groups. "Our work over the past few years, examining the function of human social networks and their genetic origins, has led us to conclude that there is a deep and fundamental connection between social networks and goodness," said Christakis. "The flow of good and desirable properties like ideas, love and kindness is required for human social networks to endure, and, in turn, networks are required for such properties to spread. Humans form social networks because the benefits of a connected life outweigh the costs." http://www.moneyscience.com/Finance_Focus/How_generosity_cascades_through_social_networks.htmlhttp://www.moneyscience.com/Finance_Focus/How_generosity_cascades_through_social_networks.htmlMon, 08 Mar 2010 09:44:22 +0000Differentiating Financial Products Even the smartest amongst us can be fooled by the pricing structures of relatively simple financial products. In any normal industry we would expect the law of one price would be prominent – in efficient markets all identical goods must have only one price. Now whether or not the market for financial services is efficient or not is a moot point but the industry’s ability to create a vast swathe of differentiated products could almost have been designed to prevent the law of one price from operating. With the documentation for even simple financial products running into several pages of hieroglyphics in a convoluted and slightly sinister attempt to promote “clarity” the chances of anyone actually recognising that any two products are identical is minimal. In such a situation efficiency is a pipe dream... More from Tim Richards at the excellent Psy-Fi Blog. [Externalrss-psyfi-titles-rssl-6-30][Externalrss-FinanceFocus-titles-rssr-6-30] [RandomProduct-174] [Externalrss-mstwitter-titles-rss100-30-30] http://www.moneyscience.com/Finance_Focus/Finance_-_Where_The_Law_Of_One_Price_Doesn't_Apply.htmlhttp://www.moneyscience.com/Finance_Focus/Finance_-_Where_The_Law_Of_One_Price_Doesn't_Apply.htmlFri, 05 Mar 2010 10:43:37 +0000 Wiley-Blackwell congratulates the 2009 Nobel Memorial Prize in Economic Sciences winners: Elinor Ostrom and Oliver E. Williamson. Professor Ostrom is also the first woman to receive the Prize in Economics. To celebrate their outstanding achievement, we are delighted to give you the opportunity to read articles by both winners for free. Professors Ostrom and Williamson were awarded the 2009 Nobel Prize in Economics for their analysis of economic governance, especially the commons (Prof Ostrom) and the boundaries of the firm (Prof Williamson). Now you can read some of the articles that have advanced economic governance research from the fringe to the forefront of scientific attention. OLIVER E. WILLIAMSON Transaction Cost Economics: The Precursors Economic Affairs Volume 28, Issue 3, Date: September 2008, Pages: 7-14 Oliver E. Williamson Strategizing, economizing, and economic organization Strategic Management Journal Volume 12, Issue S2, Date: Winter 1991, Pages: 75-94 Oliver E. Williamson Opportunism and its critics Managerial and Decision Economics Volume 14, Issue 2, Date: March/April 1993, Pages: 97-107 Oliver E. Williamson Strategy research: governance and competence perspectives Strategic Management Journal Volume 20, Issue 12, Date: December 1999, Pages: 1087-1108 Oliver E. Williamson Outsourcing: Transaction Cost Economics and Supply Chain Management Journal of Supply Chain Management Volume 44, Issue 2, Pages 5-16 Date: 3 Apr 2008 Oliver E. Williamson ELINOR OSTROM Consumers as Coproducers of Public Services: Some Economic and Institutional Considerations Policy Studies Journal Volume 9, Issue 7, Date: June 1981, Pages: 1001-1011 Roger B. Parks, Paula C. Baker, Larry Kiser, Ronald Oakerson, Elinor Ostrom, Vincent Ostrom, Stephen L. Percy, Martha B. Vandivort, Gordon P. Whitaker, Rick Wilson The Quest for Meaning in Public Choice The American Journal of Economics and Sociology Volume 63, Issue 1, Date: January 2004, Pages: 105-147 Elinor Ostrom, Vincent Ostrom Institutions and the Environment Economic Affairs Volume 28, Issue 3, Date: September 2008, Pages: 24-31 Elinor Ostrom The Public Service Production Process: A Framework for Analyzing Police Services Policy Studies Journal Volume 7, Issue s1, Date: December 1978, Pages: 381-381 Elinor Ostrom, Roger B. Parks, Gordon P. Whitaker, Stephen L. Percy Institutional Capacity and the Resolution of a Commons Dilemma Review of Policy Research Volume 5, Issue 2, Date: November 1985, Pages: 383-394 William Blomquist, Elinor Ostrom Social Traps and the Problem of Trust: Theories of Institutional Design – By Bo Rothstein Political Psychology Volume 29, Issue 1, Date: February 2008, Pages: 136-139 Elinor Ostrom Crowding out Citizenship Scandinavian Political Studies Volume 23, Issue 1, Date: March 2000, Pages: 3-16 Elinor Ostrom Collective Choice in the Commons: Experimental Results on Proposed Allocation Rules and Votes The Economic Journal Volume 110, Issue 460, Date: January 2000, Pages: 212-234 J. M. Walker, Roy Gardner, Andrew Herr, Elinor Ostrom Heterogeneity, Group Size and Collective Action: The Role of Institutions in Forest Management Development and Change Volume 35, Issue 3, Date: June 2004, Pages: 435-461 Amy R. Poteete, Elinor Ostrom A framework for analysing the microbiological commons International Social Science Journal Volume 58, Issue 188, Date: June 2006, Pages: 335-349 Charlotte Hess, Elinor Ostrom A communitarian approach to local governance National Civic Review Volume 82, Issue 3, Date: Summer 1993, Pages: 226-233 Elinor Ostrom [Externalrss-FinanceFocus-titles-rssl-6-30][Externalrss-mstwitter-titles-rssr-4-30] [RandomProduct-126] http://www.moneyscience.com/Finance_Focus/Free_articles_from_2009_Nobel_Prize_winning_economists_Oliver_Williamson_and_Elinor_Ostrim.htmlhttp://www.moneyscience.com/Finance_Focus/Free_articles_from_2009_Nobel_Prize_winning_economists_Oliver_Williamson_and_Elinor_Ostrim.htmlFri, 05 Mar 2010 10:05:43 +0000I haven't seen it, but according to this Feature Length Documentary: The current economic crisis is not a failure of capitalism, but a failure of culture. Generation Zero explores the cultural roots of the global financial meltdown - beginning with the narcissism of the 1960's, spreading like a virus through the self-indulgent 90's, and exploding across the world in the present economic cataclysm. Generation Zero goes beneath the shallow media headlines and talking head sound bites to get to the source of today's economic nightmare. With a cutting edge style and haunting imagery, this must see documentary will change everything you thought you knew about Wall Street and Washington. Featuring experts, authors, and pundits from across the political spectrum, Generation Zero exposes the little told story of how the mindset of the baby boomers sowed the seeds of economic disaster that will be reaped by coming generations. var skin = {}; skin['BORDER_COLOR'] = '#cccccc'; skin['ENDCAP_BG_COLOR'] = '#e0ecff'; skin['ENDCAP_TEXT_COLOR'] = '#333333'; skin['ENDCAP_LINK_COLOR'] = '#0000cc'; skin['ALTERNATE_BG_COLOR'] = '#ffffff'; skin['CONTENT_BG_COLOR'] = '#ffffff'; skin['CONTENT_LINK_COLOR'] = '#0000cc'; skin['CONTENT_TEXT_COLOR'] = '#333333'; skin['CONTENT_SECONDARY_LINK_COLOR'] = '#7777cc'; skin['CONTENT_SECONDARY_TEXT_COLOR'] = '#666666'; skin['CONTENT_HEADLINE_COLOR'] = '#333333'; skin['ALIGNMENT'] = 'left'; google.friendconnect.container.setParentUrl('/' /* location of rpc_relay.html and canvas.html */); google.friendconnect.container.renderSignInGadget( { id: 'div-8075657666965305249', site: '16193895887062730248' }, skin); [Externalrss-FinanceFocus-titles-rssl-6-30][Externalrss-quantevents-titles-rssr-6-30] [RandomProduct-126] http://www.moneyscience.com/Finance_Focus/Trailer_-_Generation_Zero.htmlhttp://www.moneyscience.com/Finance_Focus/Trailer_-_Generation_Zero.html