World Finance

Another Economics Blog List

CurrencyTrading.net 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:

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.
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.
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.
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.
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).
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.
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
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.
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.
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).
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).
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.