Saturday, June 28, 2008

Obama and Intrade

I use the Intrade prediction market contracts in class to illustrate how markets aggregate and process information. At present, the Obama 2008 Presidential Contract is trading between $0.66 and $0.67 (in other words, it pays $1 if Obama wins, and costs about $0.66 to play).

Jeff Matthews has an interesting piece on how a recent Obama campaign email makes him wonder if the Obama contract might be a good candidate to short (they indicate that there was a shortfall in fund raising relative to the last month's figure). It;'ll be interesting to see how this plays out.

Read the piece - Jeff notes some interesting parallels to earnings management, discounting, and channel stuffing.

Ah well - back to SAS coding.

I'm Baaaaaaack!

Sorry for the lack of posting lately - it's been a crazy week. But then, lately they all seem like crazy weeks. We survived last week without any need for trips to the emergency room, or grandparents getting injured, but there was still more to come in the Unknown Household.

I woke up last Saturday with my back severely out of whack - my lower back was in a knot, and it hurt to do just about anything other than sit (or lie) completely still). This continued until Monday, when I saw my doctor. She adjusted my sacrum (no, she's not a chiropractor, but she still was able to do it), gave me some very strong muscle relaxants, and told me I need to do more stretching.

On Wednesday my back felt much better so I took the Unknown Son to the Clinic for the routine follow up scans for his original cancer (although he's in remission from the neuroblastoma, he still has scans every six months just in case). Then it was off to the neighboring state for a charity golf tournament my sister and husband started as a means of raising money for neuroblastoma research (their son died of the cancer last year).

Since some relatives on Unknown Wife's side were visiting, she and the kids decided to stay over so that they could visit with family. So, I've almost two full days to myself (they arrive back at the unknown household late Saturday night). I've gotten a fairly good amount of work done (even sent an article out to a journal) and slept in past 9:00 both Friday and Saturday (hey - when you have young kids, sleeping in is a rare occasion)

In any event, it's a beautiful, warm, sunny Saturday afternoon, and I'm SITTING AT MY OFFICE DESK WORKING ON RESEARCH.

Ah well, such is the life of an untenured professor.

Monday, June 23, 2008

RIP George Carlin

George Carlin went into St. John's Health Center on Sunday afternoon, complaining of chest pain. He died at 5:55 p.m. PT.

Carlin was one of the icons of my generation. He constantly pushed the edge, and his routines contained some of the best social commentary around. While one of his pithier ones, his best known routine is Seven Words You Can Never Say On Television

(caution: definitely not safe for work), which my classmates had memorized shortly after it came out.

However, if you want more Carlin, there are a lot of other routines linked to the YouTube piece.

Saturday, June 21, 2008

Another Week In the Unknown Household

Another week gone by, with the usual ups and downs.

Last week's Friday the 13th episode continued the next day with a phone call from the Unknown Elder Brother to tell me that my mother (age 78) had caught her foot on a rug, fell, and broke her hip. So, we packed ourselves into the car and drove the 80 miles to the adjoining state and to my hometown to see her after she got out of surgery.

The next day, we got another phone call to tell us that she was disoriented and having difficulty speaking. We though a stroke was a possibility, but it resolved itself in quick order, and turned out to be just a reaction to the anesthetic. So now she's in rehab for the next three weeks.

The following day, we got the Shrek-quality toxic waste out of the car (detailing was well worth it), followed by the kids having their last day of school before summer vacation.

The remainder of the week passed without incident, and turned out to be a pretty good one as far as research went. The programming for one project has turned out to be a bit of a hairball (the measure I'm constructing to measure analyst performance is not behaving well). I'll figure out what's the problem, but for now, I'll getting a bit sick of it.

So, I put it aside for a few days to work on another project. I'm looking forward to this one for a couple of reasons: first, because it's with two classmates from graduate school. Second, because it's using a relatively new dataset (I have another paper using the same data set in progress, but one of my coauthors got extremely sick, and we're putting it on the shelf until he recovers). And finally, I just think it;s a pretty good idea. The initial results look as good as any I've seen in recent projects, and overall, it looks like it has the potential (if the results hold up) to be the makings of a really good study.

Then I got preliminary results on another study (with another new coauthor) that also look pretty good. So, this almost makes up for the multiple rejections last week. Hey - it's all part of the game.

What makes both projects kind of interesting is that they both use either a data set or an approach that was initially tried in another project or projects that didn't work out. However, they did give me some ideas for other projects which seem to be coming together.

Finally, we have a minor guest infestation starting tomorrow (the Unknown Wife's college roommate is in town for a couple of days). So, while she madly cleans the house, I took the Unknown Kids to see the Incredible Hulk. They didn't understand a lot of it, but 9-foot tall hyper-thyroidal, muscle-bound savages that like to fight and throw things (like cars) translate to all ages pretty well.

Friday, June 20, 2008

Tuesday, June 17, 2008

Lower Interest Rates

This NY Times cartoon is from the early 80's, but it plays just as well today:

HT: The Big Picture

Monday, June 16, 2008

Friday The Thirteenth Hits the Unknown Household

I'm not superstitious, but sometimes you have to wonder. Here's a Friday the Thirteenth play in five acts

Act 1:
We go to Unknown Son's regular chemo treatment (he's now on a once every three week schedule). While Unknown Wife and U.S. were taking care of the chemo, I took Unknown Daughter to an outside garden that's part of the hospital. She starts running around (U.D. has a LOT of energy), promptly falls, and badly skins both knees, her chin, and her forehead (it was a pretty impressive fall). The one bright spot in this episode there's no better spot to skin your knees than at a hospital.

ACT 2: The fall
That night, we get home and U.W. goes on a walk with a neighbor. While I'm upstairs changing to get ready for my bike ride, I hear a thump followed by a moan. I run downstairs to see U.D. sprawled across the stairs moaning. Apparently, she'd slipped on the stairs while walking down and landed hard. The edge of the stairs nailed her right in the back (across the floating ribs). I carried her to the couch and all she could do was gasp in pain, unable to take a full breath. At this point Unknown Wife gets back, and we decide to take her to the emergency room to get her ribs x-rayed.

ACT 3: Projectile Vomiting
Since it was almost 7:30, we decided to take both cars -- U.W. took U.D. and U.S. in the SUV, and I followed in the old beater my kids refer to as "the stinky car" (a 1993 Honda civic with 150,000 miles on it (but it's paid for). That way, I I can be there to help out, and UW can leave
Epilogue: sore back, US is fine, car needs detailing, and UW can leave early with US if there's a need to stay for a while. The hospital's close (about 6 miles), but halfway there, I see U.W. pull over into a parking lot and open the rear passenger door. It seems U.S. announced "I have a headache and I feel sick". This was followed immediately by extreme chemo-induced vomiting. Of course, we forgot his basin, there was not enough warning to get the door open, so the back to our SUV is now covered in Shreck-worthy quantities of vomit.

We transfer him to my car and follow U.W. and U.D. to the ER.

ACT 4: Two for the Price of one
While on the way to the ER, we have to stop three more times for U.S. to empty the remaining contents of his stomach. Once at the ER, he continues vomiting (once it starts, he gets into a cycle). So, while U.D. is waiting to get X-rayed, we have him admitted to get fluids and Zophran (an anti-nausea medication).

ACT 5: The aftermath
Unknown Daughter was given a clean bill of health (it was only a bruise), so I took her home at approximately midnight. Once there, I cleaned the SUV as best I could (that's why I got to go home earlier). Meanwhile, Unknown Wife stayed with Unknown Son until the fluids and Zofran took effect, and crawled home at 1:30.

By next morning, both kids were fine. And it'll only cost about $200 to have the SUV detailed (believe me - after this episode, this is definitely a job for a professional).

Oh, and Unknown Daughter has a mild case of paraskevidekatriaphobia.


My kids already know "When Daddy doesn't have coffee, he gets GRUMPY"
song chart memes
more graph humor and song chart memes

And just in case you don't refill the pot, watch the first 30 seconds of this:

"You kill the jo, you make some mo. You know that, baby!"

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Saturday, June 14, 2008

Stretching Accounts Payables

"Stretching" Accounts Payables (i.e. paying accounts payables past the due date without remitting the penalty, or paying after the discount period has expired but still taking the discount) is a common way that some firms gain cheap financing. However, a firm can only get away with it if they have an imbalance of power between them and the vendor. Here are a few Dilbert cartoons that illustrate the basic idea almost perfectly:

Unfortunately, unless you're a Wal-Mart (notorious for abusing their vendors), the flyswatter eventually ends up in the vendors' hands. So, "free" isn't always "free".

If a textbook vendor was smart, they'd just use Scott Adams for most of their illustrations.

Thursday, June 12, 2008

How Do They Determine A Passing Score on The CFA Exams?

Since the CFA June exams are now done, there's a lot of concern as to how CFAI determines a passing score. So, here's a breakdown for Levels 1 and 2:

In the past CFAI used a strictly numeric method of calculating the pass rate - they'd take 70% of the 95th percentile score. So, back in the day, the minimum passing score would be no greater than 70%, and would typically be even less.

Now, their scoring system has a significant subjective component to it. Here's how it works: CFA Institute brings a number of charterholders that they call "Standard Setters" to Charlotte sometime in June. These people then discuss what they think a "minimally qualified" candidate should know (for L1 and L2). CFAI is pretty opaque as to what this actually means, but my understanding is that they look at the exams and come up with "the score".

They refer to what's know as the "Angoff method". If they apply this method in its strictest sense, this would involve each standard setter examining each question and making a subjective determination as to what percentage of well-qualified candidates would answer correctly on the question. For each question, the standard-setters percentages are averaged to get a percentage for that question. The individual question-percentages are then summed to get the passing score (in terms of number of correct answers needed).

So theoretically, the minimum passing score could be above 70%. But according to the scuttlebut on analyst forum, the minimum has likely been below 70% in each year. So, my gut reaction is that a 70% would get it done, and even slightly less.

But that's just a guess on my part.

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Tuesday, June 10, 2008

Let The Second-Guessing Of The CFA Exam Begin!

One of the frustrating parts of taking the CFA exam is that there's between a 6 and 8 week (depending on which level you took) lag from the time you took the exam to the time you get results. So, there's a lot of time for second-guessing, wild mood swings, and so on. Several of my students and I took the exam at the same test center, and we all shot the breeze over lunch. They were all pretty confident after the morning session. I've already talked to one of them this week (yesterday), and he said that right after the exam, he felt pretty good overall.

Now today, he said he's started the second-guessing. I warned my guys about this, but it's still hard to avoid.

I'm a regular reader of (and sometimes contributor to ) AnalystForum. It seems like the same thing is going on there in the Level 2 forum. It's understandable, since the group there is a pretty open one, with a lot of participation (damn! - I wish I could get a bunch like that in MY classes).

But relax, all. What's done is done, and we'll know the results when we know. If we make it, there'll be plenty of time to start studying for the next level. If not, we'll have plenty of time to start plugging the holes in the current one that we'll have to retake.

But it's still hard to wait.

Ah well. In addition to the exam, I also got two rejections this week. Now I have to patch them up and ship them back out so I can stay compliant with Mungo's Rule (see #5-b). And there's more data to torture for new projects.

To the Bat Cave, Robin!

How to Get a Good Job - Early Advice For Finance Majors

Since I run Unknown University's student-managed investment fund, I get to know a lot of our brightest students - they often come with GPAs well north of 3.50. Many of them hop to eventually work in the investment management industry, either as an analyst, for a hedge fund, as a trader, etc....

Unfortunately, they often have a hard time because A) there's a lot of competition for those jobs (particularly now), and B) Unknown University is not a school that top firms typically recruit from (we're not Ivy League, or even close).

So, I thought I'd put together some tidbits I've found on how to get that plum job - whether on Wall Street or in Corporate America (where most graduates end up). The key is (to borrow a phrase from The Seven Habits of Highly Effective People) to Begin With The End In Mind. So, let's look at the sort of things you'd want to have
  • Good Grades
  • Take hard courses - Accounting/Finance
  • Know Your Professors - one or two a semester
    • Build your reputation
  • Have experience (summer jobs/internships
  • Get your contacts
    • Family & friends
    • Alumni - get a mentor
  • Don't depend on your placement office
  • Know "the deal" - research your job and your company
    • Read their annual report
  • Read the WSJ - become versed in the language of business.

Popular posts: CFA, Academia, Graduate School,

How about some things for the undergrads?

Work Backwards
  • What's the job
  • What does it require
  • does it fit you
  • what will your resume need to look like
  • How can you find an entre
get a mentor
know your profs
know your dean
do something for the college - advisory board
be a boy scout - trustworthy, loyal, etc...
get good grades and a good reputation

Monday, June 9, 2008

Back In The Research Saddle Again

What a relief to have the CFA exam behind me. So far today, I've worked on two projects and talked with two coauthors. They should make for interesting projects - both are using existing data in entirely new settings, and both seem to have the potential for ending up in good quality journals.

One project is with a former grad school classmate that I've wanted to do a paper with since we graduated. On this one, I get to play "data monkey" (it involves a LOT of data manipulation, and he'll be responsible for the initial writeup. On the other project, I get to use some stuff I worked on several years ago that never went anywhere, but with a new data set. The paper is with a new coauthor that I met at a recent conference. In this one, I'll end up doing some data work on the front end, and will probably end up doing more of the writing.

I have high hopes for both projects. They're both "core" finance (dividend policy and bankruptcy), but both papers approach the issues in what I think are novel ways. And to make it more fun, I get to work with two new data sets, and with two new coauthors. I'll have to be careful not to say too much more, since both are regular readers of the blog.

So, as far as I'm concerned, the summer research season is now officially open. So, as Elmer Fudd would say, "Be vewwy vewwy qwiet. I'm hunting data."

Time to close up shop for the day and go on a bike ride. Either that, or rent advertising space on my overly large posterior.

Sunday, June 8, 2008

Last Minute Fun With The CFA Exam

T'was the night before the CFA exam, and of course the Unknown Son starts complaining loudly of severe stomach pains. Of course, this ended all possibility of any last-minute reviewing. He started vomiting repeatedly, and ended up sleeping in our bed with the Unknown Wife, and I went to the guest bedroom (no way I'd get to sleep with a sick kid in the bed).

I got up early the next morning and went to the exam. Just before heading in, I called home to find out that unknown Son was on his way to the hospital. He was admitted in the morning after tests revealed elevated liver enzymes, which typically indicates some kind of viral thingy in the liver.

Despite concerns in the back of my mind about Unknown Son, the morning session of the exam went surprisingly well - or at least I thought so. The afternoon session, on the other hand, was a different story. The best way to describe it is "They didn't call, they didn't send flowers, and they didn't respect me in the morning." So, I have no clue if I made it over the hump or not.

Ah well, done is done. I headed home, changed, and went to the hospital to relieve U.W. and sleep overnight in Unknown Son's room. At least, I slept from 12 until about 6 - he was more interested in reading me sections of his latest book selection (Diary of A Wimpy Kid). His liver results were more normal today, so he got discharged this afternoon, with follow-up tests for later in the week.

With this behind me, I'm eager to put the books down and get back to research tomorrow. For tonight, it's SLEEP (I already took at two-hour nap this afternoon, and should get a good 10-12 hours in).

Friday, June 6, 2008

Forecast For Blogging: Light

Blogging will be light for the next two days - the CFA L2 exam is all day tomorrow. I'm doing my final reviews today, and will probably go out and see Iron Man tonight with the Unknown Wife to relax (and yes, we'll ditch the kids first).

Monday, June 2, 2008

Another Few CFA Test Taking Tips

It's a time for a break from studying. So, here area few more CFA test-taking tips:
  1. Accept the facts as a given - In other words, you might think the scenario given in the question is far-fetched or even incorrect. No matter - assume it's true, and work from there.
  2. Read Carefully! - in particular, watch for negatives and double-negatives. Make sure you pick up words like "least", "most", etc... In fact, you might want to underline them.
  3. If you work out of order, make sure you fill in the correct bubbles. If you mess up (even if you catch it later), it could cost you a lot of time to fix.
  4. Read ALL the answer choices - in particular for questions that ask for the "most" or "least" correct. Don't stop at the first seemingly correct one.
  5. Rephrase the question - sometimes there can be complicated phrasing (see #2 above).
  6. Underline the relevant facts
  7. Try to answer the question in your own mind before reading the answer choices.
As far as what's the best order in which to answer questions, there are a couple of schools of thought. In my opinion, it's best to start with a section you're most comfortable with. That way, you'll build your confidence and "bank" some points." But if you take this approach, keep these points in mind:
  1. Try not to start with ethics - the questions can be lengthy, and can suck up a lot of time.
  2. If you do start out of order, make sure you enter your answers in the correct parts of the answer sheet (see # 3 above). Doing your "most comfortable" section first makes sense. But I'd recommend against doing the whole exam in this way -- if you do, it's all too easy to get confused. So, it might make more sense to do only one or (at most) two "strong" areas and then just work the rest of the exam in order.
  3. Some questions can be real time-wasters (like multistage stock valuation ones). If you're pressed for time, mark these and go back later. A real "time waster" can suck up the same amount of time that it would take to tackle 2-3 easier ones.
  4. Check your answers when you're done.
  5. Don't change an answer unless you have a good reason.
  6. Don't panic if you hit a string of hard questions. There are a total of 240 questions on the Level 1 exam and 120 on Level 2. Although CFA Institute is not very clear about the level needed to pass, a 70% should be plenty (and as low as a 65 or so might do it, but that's just a guess on my part with no empirical support). So, keep moving, and don't panic.
  7. Finally, plan on checking yourself at the 90 minute mark to see how your progress is and check once again with a half-hour left to make sure you haven't left things blank, put answers in the wrong spaces, etc...
Good luck, and keep studying.

Meetings Stink

The semester is over, but the meetings continue (and continue, and continue). I love it how an ineffective chair of a committee can turn 10 minutes of information into a 45 minute snoozefest. Since a picture beats a long explanation, here's one that sums it all up:

funny graphs

And here's one to give to the chair of whatever committee you sit in case they don't know meeting protocol:
funny graphs

Note: both are from Graphjam

Today's CFA Exam Tip

As I continue to grind through the CFA Level 2 material, I'm struck by the number of questions that use a "Which of the following statements is the least true ..." format.

Here's a tip to minimize the chance that you'll misread these types of questions: cross out the "least true " and write in ""Which of the following statements is "FALSE"".