I just thought I'd throw this out - UConn (one of my alma maters) is now ranked #1 in the country for both their men's and women's basketball teams (and the men just spanked #7 Louiville - by 17 points).
Go Huskies!
"Bonuses" and "Maluses"
One of the problems with bonuses is that they create asymmetric payoffs - there's typically an upside for some actions, but no downside (yes, I know, there's the settling up in the labor market, etc., but that's a story for another piece). To deal with this, at least one firm (UBS) has started using "maluses" along with bonuses
This concept is aslo called a "clawback", and embedding it in compensation packages so that a person has a downside component is a great idea. Looks like something we'll end up discussing in class.
HT: Proxyland, ("corporate governance and other oxymorons"), a blog worth reading.
"Just as bonuses (Latin for “good”) are paid out for good performance, maluses (“bad”) will be meted out if the bank subsequently makes losses or if the employee misses performance targets, UBS said. The maluses could wipe out all previously agreed share bonuses and two thirds of all cash bonuses under stringent new rules designed to align the interests of executives and traders with those of shareholders."
HT: Proxyland, ("corporate governance and other oxymorons"), a blog worth reading.
200,000 Hits, Baby
Sometime Tuesday night, Financial Rounds had it's 200,000th visitor. I'm amazed that this many people have so little to occupy themselves.
Just kidding - I appreciate all the traffic, and I'm humbled by people actually reading what I post up here. When I started this four years ago, I never thought I'd be seeing almost 10,000 hits a month (the average the last few years).
Just kidding - I appreciate all the traffic, and I'm humbled by people actually reading what I post up here. When I started this four years ago, I never thought I'd be seeing almost 10,000 hits a month (the average the last few years).
Beware The Bid-Ask Spread in ETFs
When the average Joe (or Jane) looks at transactions costs from trading, they typically focus on the commission charged by the broker. But in the case of some thinly-traded ETFs (exchange-traded funds), the bid-ask spread can add significantly to that cost. Here's a good piece on the topic from Morningstar:
Read the whole thing here
No one has a very precise definition of liquidity, but it roughly boils down to how easy it is to buy or sell a particular security and how much agreement there is in the marketplace upon the security's fair value. The most liquid funds or stocks have miniscule bid-ask spreads, where the prices differ by only a penny. On the other side, a brand new ETF tracking a selection of more thinly traded mortgage-backed securities has a bid-ask spread near 0.80% as I write this. That means that buying and selling the fund at market prices, even without any commissions charges or price changes, would result in a 0.80% loss. Not exactly a terrifying loss, especially compared with what we all saw in 2008, but still an unwelcome drag on portfolio returns if it can be avoided.
Read the whole thing here
Econbrowser on Hedge Fund Risk
James Hamilton at Econbrowser gives a good example of "tail risk" from a Financial Analyst's Journal article by MIT's Andrew Lo:
And if you want to see another study on the returns of put-writing strategies, here's an older post. It documents what Lo (and Hamilton) discuss - consistently good returns in the overwhelming majority of periods along with rare massive losses.
1992-1999 was a good time to be in stocks-- a strategy of buying and holding the S&P 500 would have earned you a 16% annual return, with $100 million invested in 1992 growing to $367 million by 1999. As nice as this was, it pales in comparison to CDP's strategy, which would have turned $100 million into $2.7 billion, a 41% annual compounded return, with a positive return in every single year.Read the whole post hereWant to learn more? CDP stands for "Capital Decimation Partners", a hypothetical fund created by Professor Lo in order to illustrate the potential difficulty in evaluating a fund's risk if all you had to go on was a decade of stellar returns. The strategy whereby CDP would have amassed a hypothetical fortune was amazingly simple-- it simply sold put options on the S&P 500 stock index (SPX).
And if you want to see another study on the returns of put-writing strategies, here's an older post. It documents what Lo (and Hamilton) discuss - consistently good returns in the overwhelming majority of periods along with rare massive losses.
PETA, Sea Kittens, and Steak
Some of you might not have heard about PETA's latest half-baked attempt (pun intended) to dissuade people from eating fish. Their "logic":
- People eat less of creatures that they think are cute
- Fish aren't cute
- Kittens are cute
So, the solution? Just rename fish "sea kittens", and people will think they're cuter, and eat less fish. Riiiiiiight.
Luckily, someone had already registered the site Seakittens.com. When you go to the site, the PETA site www.peta.org/Sea_Kittens shows in the lower frame. What's in the upper frame? An ad for Omaha Steaks.
Making money off a far-left whacky group? Priceless.
If I ever have a PETA sticker on my car, it will be People for the Eating of Tasty Animals, and it will have the phrase "All God's Creatures Have Their Place - Right Next To the Mashed Potatos"
Luckily, someone had already registered the site Seakittens.com. When you go to the site, the PETA site www.peta.org/Sea_Kittens shows in the lower frame. What's in the upper frame? An ad for Omaha Steaks.
Making money off a far-left whacky group? Priceless.
If I ever have a PETA sticker on my car, it will be People for the Eating of Tasty Animals, and it will have the phrase "All God's Creatures Have Their Place - Right Next To the Mashed Potatos"
HT: Wall Street Journal's Best Of The Web
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