Another Economics Blog List has compiled a list of 100 Top Economics Blogs. Financial Rounds is listed under the "Blogs By Univesity Professors" section.

Check out their list. Present company excluded, it's pretty good.

Posting Will Be Light

Posting has been light for the last few days (and probably will be for the next few) because of a death in the family. One of my nephews (my younger sister's son) passed away this last week. He was diagnosed at age 4 with neuroblastoma, a relatively rare form of childhood cancer (there are only a couple hundred cases a year in the U.S.). He went into remission after a year or so, but the cancer recurred about 2 1/2 years ago. He put up an amazing fight, but unfortunately, there is no known cure for recurrent neuroblastoma.

So, we will be at the wake and funeral for the next couple of days. Please keep my sister's family in your prayers as they go through this terrible time.

Stockholder Meetings

I'm sure this will somehow make it into class this year (probably when I talk about pay-performance sensitivity). I particularly like the fact that there's not one, but two pointy-headed bosses at the table. Let's hope they have policies against office romances.

Do Insider Trading and Short Selling Provide Useful Information?

The answer (according to University of Michigan professors Najat Seyhun and Amiyatosh Purnananadam) seems to be "yes".

In a new study that just hit the SSRN, they find that combining "standardized" short selling and insider trading provides better information about future returns than either does separately. They create their standardized measures by first calculating average historical levels of insider trading (purchases scaled by total shares outstanding) and then dividing differences from the average by historical standard deviations in insider trading and short interest. They find a number of interesting patterns with these measures:
  • The two measures (standardized insider purchasing and standardized short interest) are only very weakly correlated. This means that the two measures aren't capturing the same information. So, there are potential gains to suing both in combination.
  • They argue that using patterns in insider purchasing, they can identify "informed" short selling. In other words, when insider trades are in the same direction as short sales, short selling is most likely to be driven by informed traders. In other words, when standardized insider purchases are low (i.e. insiders have bad news) and standardized short interest is high (i.e. short sellers have bad news), subsequent stock returns are likely to be low (and the opposite for high insider purchases and low short interest).
  • When they form hedge portfolios that are long the "good" firms (high insider purchases and low short interest) and short the "bad" firms (low insider purchases and high short interest), they get obtain risk adjusted returns (based on 4-factor model) of 0.88% to 1.22% per month.
So in short (no pun intended), their study finds pretty credible evidence that short selling and insider trading could potentially be combined into a profitable trading strategy.

Read the whole thing (on SSRN in pdf format) here.

Grad School Rules

Fabio Rojas (a Sociology professor at Indiana) has compiled a truly impressive collection of advice for graduate students that he calls Grad School Rulz. Here are the topics he covers, listed along with my take on each piece:
  1. Get the (official) rules - know the actual requirements for your program. This keeps you from doing things you don't have to, and makes sure you dot all the necessary I's and cross all the essential T's. Don't rely on your faculty - go to someone who has the responsibility to know the correct rules -- like the graduate chair or the director of the program.
  2. Get the unwritten rules - most of the "really" important information you need to survive (like how to approach certain classes, who to work with (or not), and where to get help with technical issues) isn't on paper. Make sure you tap the experience of the student who've gone before you.
  3. Choosing a graduate program - different schools have vastly different profiles. This can be anywhere along the continuum from "survival of the fittest" to ""we look after our own" (luckily, mine was of the second kind). Try to figure out the profiles of the programs you're considering, and make sure it's a good fit for your strengths/weaknesses.
  4. How to make the best of course work - some very good rules of thumb on what types of courses to take (and how much effort to put into them). In the short run, they're important. But in the long run, keep your eye on the prize - focus on your research, and use courses to help you in furthering your progress towards it.
  5. Grad school exams - Exams are a "hygiene issue (i.e. you don't get noticed unless they're bad). For "sit down" tests, get copies of old exams, and talk to previous students. For take home exams, also get copies of old exams, but prepare beforehand by having good written summaries of articles (you should be doing this during your seminars in any event).
  6. Why friends are important - While over-socializing can hurt you, don't be a hermit. Friends can offer emotional support, provide technical assistance or comments on your work, and generally help you in your weak areas. It's likely that grad school peers will become your first non-faculty coauthors. And in addition, no one else will really understand what you're going through like the other people in your program. That's why many of them will become life-long friends.
  7. Picking your advisor - no advisor is perfect, but yours should have at least one strong suit. Some of the factors to consider are: record in placing students, reputation for competence in the profession, record of coauthoring with grad students, accessibility, ability to offer helpful criticism, expertise, and intellectual style
  8. Choosing other (non-chair) members for your dissertation committee - The end goals of your committee are to facilitate your getting the dissertation done and to help you get a job. Most of the responsibility for both jobs lies with your chair. But as for the rest of the committee, make sure they have complementary skills, get along, and aren't jerks that will put you through unnecessary hell.
  9. Why you shouldn't pay for grad school - it can be expensive. Luckily, b-school professors make good money. But in the humanities, that's not often the case. This piece makes some suggestions on how to minimize your debt load coming out.
  10. Choosing a dissertation topic - should you go with the "big obvious problem", come up with your own new problem, or take a topic from your advisor? Each has pluses and minuses. Whichever you choose, make sure it's something you feel passionate about (you'll likely be working on it and related pieces for several years). Also think about issues of compatibility with your intellectual style, strengths, and weaknesses, the popularity of the topic, and where the topic is in the research life-cycle (too new or too old both have risks).
  11. What to do while you are working on the dissertation- the short answer is, "as little of non-dissertation activities as possible." It might not be possible (depending on finances), but try to minimize teaching responsibilities. Also, be very leery of moving away from campus - it's much harder to finish your dissertation when you're in another city (to a great extent, it's "out of sight, out of mind" from your professors' viewpoints).
  12. Writing your dissertation (parts 1 and 2) - part 1 discusses how the different models for how the dissertation fits into your larger career (i.e. is it intended to be drafts of future books.articles, a job marketing tool, etc...). The more interesting (and potentially helpful) material is in part 2, which gives some very useful advice: dissertations are NOT "masterpieces, and the best ones are FINISHED ones. So do good work, but realize that the key thing is to "get er done".
All in all, Fabio's individual pieces of advice are all well worth reading. Follow them and you'll save yourself a lot of unnecessary work and grief.

More Resources For Grad Students

Ph.D. programs are fundamentally different than undergraduate or masters programs - mostly because they're preparing students for careers as researcher and teachers. A significant portion of my traffic comes from people either looking for information about Ph.D. programs in finance and economics. A second, smaller group of readers are looking for info on one or more particular grad-school issues. So, whenever I come across things that might be useful to these groups, I try to post them here. So, here are some of the latest things I've come across:
Eric Rasmusen is one of my favorite economists. His text on Games and Information was an invaluable resource during my time in the Ph.D. program. He also has a very well written short piece on writing. He aslo has a blog here that touches on economics, law, and faith (and a pretty broad span of other topics).

Along those lines, Kwan Choi (at the time, the editor of the Review of International Economics) has put together a pretty good collection of pieces on the academic publishing process at How To Publish In Top Journals. Note: it also contains helpful suggestions on dealing with referee comments, being a good referee, and so on.

Finally, assuming you get into a doctoral program, here are some things you probably shouldn't say at your dissertation defense.
Enough blogging - back to work. I have data to torture.

Another Reason Why I Hate Meetings

And Now For Something Completely Different

Now is the time most faculty are putting together syllabi for the fall semester. Since I'm in the midst of it too, I was going through my files for anything that might get a chuckle from the class. Here are a few things I came across.
I definitely WON'T share this wonderful example of financial engineering (Courtesy of Barry Ritholtz): Constant Obligation Leveraged Originated Structured Oscillating Money Bridged Asset Guarantees, or COLOSTOMY BAGS.

From the always popular Monty Python, we have The Stock Market Report and The Money Programme

Finally, here's one of my favorite musicians of days past(Dr. Teeth of the Muppets) singinging The Money Song
If you have any others (whether in good taste or not), send them along (or use the comments section).

Wednesday Link Dump

We've had guests at the Unknown Household the last two days, but they left today. So, it's back to work, cycling, and blogging.

I've been working on a fairly intensive project that requires me to merge data from five different databases, and two of the databases are pretty large (13 and 60 gigabytes in size, respectively). I'd done much of the work in the last couple of weeks, and then realized that I was using the wrong date to merge things by. I redid some of my programs that had accessed the different databases individually so that they now pulled all the data in one pass. But it took 9 hours to run. It reminds me of the old days in grad school programming on a mainframe when I'd submit the program as I left for the night and would let it run overnight.

But enough wonkery. It's time to clean out my files. And that means a Link Dump:
Hedge Funds and Private Equity

It's been a rough couple of weeks for hedge funds that use statistical arbitrage and merger arbitrage strategies. Abnormal Returns has it's usual great roundup of links on the topic.

You know it's a private equity bubble when you see this


Here are two pieces on insider trading: The New York Times discusses recent research by Najat Seyhun (the "academic god" of insider trading research) on his new approach to weighting insider trading data. His conclusion is that insiders aren't nearly a bearish as we'd thought. And here the Wall Street Journal (online subscription required) reports that executives have been pretty bullish following the recent market correction.

A good example of a stock spam scam (say that three times fast if you can).

Academic Research and Academia

The reputational effects for Directors from Financial Fraud by Fich and Shivdasani

CXO Advisory Blog reports on research by James Doran, David Peterson and Colby Wright on academics views on market efficiency. They find that while most finance professors believe that markets are semi-strong form efficient, about 20% use strategies that seem to fly in the face of that view.


Raging bull (HT: The Big Picture)

Slate has a good primer on How to speak hedgie that could have been written by Ambrose Bierce.
That's enough for now. Back to torturing data.

A Waterlogged Family Weekend

T'was a good weekend at the Unknown Household. Saturday, the Unknown Wife and I celebrated our 17th anniversary. It's kind of humbling to realize that our friend's daughter (who just graduated high school) wasn't born until about a month after our wedding.

Sunday we went to a nearby place that has a small hill for skiing & snowboarding during the winter. But during the summer, they have a water slide that's about 5 stories high (built onto the side of the hill) with some great twists and turns. Our kids must have gone down it about 25 times. Since walking up the hill got to be a bit much for the Unknown Wife and I after about the 15th time, we mostly waited at the bottom near the pool and enjoyed the sights and sounds of the kids coming down. We could always tell when it was our daughtergoing down the slide, because her screams made a nice Doppler effect as she got closer.

By this morning, I still had about half the water in my sinuses, and a nice sunburn on the top of my head (it seems like the "ground cover" has gotten a bit sparse). But at least my legs felt o.k - all that biking I've been doing this summer seems to have been good for something.

A Revise and Resubmit

Looks like I get to end the week on a good note. I just got a "revise and resubmit" in the mail. For those not in academia, this means that an article I sent to a journal made it past the first round of reviews. The referee gave us a lot of issues to address, but nothing too difficult. with a bit of work, we should be able to address the referee's concerns and get it sent back to the journal in the next few weeks.

So I might well be starting the new academic year with another publication. It's nothing earth shattering, but at this point I figure another two publications (this one and one other) in the next year should make getting tenure a very good probability.

Pointy Headed Bosses Shouldn't be Given Spreadsheets

Wednesday (Birthday) Link Dump

Sometimes having kids can be hazardous to your health. Today's my 49th birthday (in another year I suppose I'll start getting those AARP mailings), and I faked being asleep this morning when the kids came up to wake me up. So, the 8 year-old Unknown Son puts his mouth to my ear and shouts "WAKE UP". This was followed by the classic:
Happy Birthday to you
Happy Birthday to you
You Look Like a Monkey
And Smell Like A Zoo
Now that my ears have stopped ringing, I figure it's time for a Link Dump (it's been a while, and I've been taking a bit of a slacker's vacation from blogging). So, in no particular order:
Barry Ritholtz at The Big Picture has been finding and posting some pretty cool visuals (thanks - they'll be used in my classes this fall) on the slicing and dicing of mortgages, here and here. highlights a new study by Westphal and Clement that finds that top executives try to temper analysts negative reports by currying favor. Not surprising, really, but still a good read.

According to a study by Christopher Clifford of Arizona State university, large block (> 5%) investments by activist hedge funds result in significant operational improvements by target companies.

Joe Carter at Evangelical Outpost lists and explains Five Logical Fallacies
in part 3 of his "How Not To Argue" series.

Here's a very cool YouTube video of a guy repairing high voltage wires from a helicopter. I'll take my current job, thank you very much.

The Wall Street Journal (online subscription required) reports on the sub-par performance of long-short and market-neutral funds.
Enough blogging - back to work.

Using Sub-Prime Loans to Stick It To The Man

I'm getting kind of sick of hearing everyone talk about subprime loans. But John Stewart at the Daily Show and Larry Wilmore (the show's "Senior black correspondent) have a different take on the subject.

HT: Credit Slips

update: it looks like the links at Comedy Central were messed up. It's working now.

Lyme Disease

The Unknown Daughter had a rash for the last few days. Today we went to the doctor, and it turns out she has Lyme Disease. For those of you in parts of the country where it's not common, it's a spirochete that gets spread by deer tick, and usually manifests as a bulls eye-shaped rash.

If it's not caught early, it can result in a lot of serious and long-ranging problems. But luckily, we did catch it, so it merely means a three-week course of amoxicillin.

But I can;'t let this go without a link to this.

Some Interesting Uses For The VIX

David Merkel at The Aleph Blog has put up several great pieces on the VIX (the CBOE Volatility Index):
In this post, he relates changes in the VIX to changes in the S&P (a % change in the VIX results in about a 10 basis point change in the S&P in the opposite direction), with an R-squared of about 50% (i.e. variation in the VIX explain about 50% of the variation of the S&P). He also notes the mean-reversion in the VIX, and that the S&P tends to be high when the VIX is low (and vice-versa).

He lays out some of the math of VIX mean reversion here (caution - serious nerd alert ahead), and gives a few applications here (including a slick way of using implied vcolatility to get beta).
And yes, he's been added to the blogroll.

At Least I Never Used This Mover

The Unknown Wife and I have made interstate moves five times in the last 17 years (our anniversary is in about a week and a half). Some moves have gone well, and some not so well. But at least we never used this guy.

As I recently read on another blog, TNSTAAFL (There's No Such Thing As A Free Lunch). On a related note, Unknown Wife has informed tme that if I don't get tenure, I better find a school to commute to, since she loves our current neighborhood). But I don't think it'll be too much of a problem - I have a pretty good publishing record so far, and I have 5 currently under review.

But just in case, remember - don't go with the big guy.