The Economist - Christmas Issue III - Barbecues

My apologies to my vegetarian friends, but who doesn't like a good barbecue? The last article that I enjoyed reading is about the American barbecue culture.

I guess that in Brazil, Argentina, and Uruguay we have a similar love for a good barbecue but use much less seasoning than in the US. Here a good barbecue goes with "farofa" made out of yucca (or manioc) flour (difficult to explain its taste unless you have tried it, but think about sand that tastes deliciously).

Food is such a strong way to make people bond... Traveling around Italy, France , and Spain just chasing their regional cuisine is an amazing experience and one of the joys of living in Europe.

The Economist - Christmas Issue II - Expats

The second article I enjoyed reading in The Economist is a piece on the experiences of Western expats in China, and of Chinese expats in the West.


I leave a question to my readers. Would you prefer to live an expat's life (with all the perks involved) in a dictatorship growing like crazy, or stay in "old" Europe with its small growth rates?

The Economist - Christmas Issue - Lucky to be in Business School

One of my favorite past-times during the Holidays season is to read the Christmas issue of The Economist. There are lots of "not-so-serious" articles on a wide range of topics that makes for an excellent reading.

In the next three posts I'll talk a bit about three of them that drew my attention.

The first ones is about life in academia and the unmatched expectations of doing a PhD (specially in humanities).

It must be really difficult to finish your PhD in Literature and have no place that would have paid you no more than 40k USD / year anyway. Not mention the fact that currently it takes about 7-8 years to get a PhD in those fields. A newly minted Finance PhD in the US gets around 170-220k / year. European salaries are much lower than that (apart from LBS and INSEAD) but still much better than what a humanities PhD would get.

I've been very lucky to be in a field where PhDs are highly paid (thank you Wall Street and the City for raising our outside option value) and that it is something that I love. At least in my case, the expectations I formed over the five years seemed close to what I ended up getting.

Vizualization

This link has a very interesting (and beautiful) use of Internet data that looks at geotagged photos to determine movement patterns of tourists and locals in several cities of the world. The photos are constructed by Eric Fisher. I found through this post (hat tip to my wife for sending it to me!):

http://trendland.net/2010/10/20/eric-fischer-maps-photographs-of-locals-vs-tourists/#

The pic on the link above is for NY. For Barcelona it is amazing how different traffic is between the two (Red are tourists and Blue are the locals).

Like someone said in the comments, the compilations looks like a Pollock painting.

What a month!

I apologize to my few readers for the lack of action in this blog. I've spent only 5 days in the past month at home and it has been difficult to find time to post. I hope to publish a few interesting things I've saved over the next week or so.

Anyway, I have spent the past 10 days in the US working with my co-authors in Georgetown. It is amazing how working face-to-face really speed things up. As usual, progress was slower than expected, but nevertheless we did good work on all the papers and should be able to submit at least one before the end of the year. DC is really a great city. Very international, full of good restaurants and with a very nice vibe. I highly recommend a visit to anyone.

Still a long way

Lots of student and non-Brasilian friends ask me about the Brazilian economy and its recent emergence as an economics power house. I usually tell them that we have gone a long way, but still have a million problems to solve.

This graph below (from the FT's Beyond BRIC's blog shows the composition of Brazilian exports since 2002 split between primary and manufactured goods. Much of the increase in primary goods can be explained by the commodity price boom (both in prices and Chinese demand).

This is all fine in simple monetary terms, but if Brazil ever wants to be at the frontier of development we serious need to begin developed higher value-added products (and research). Otherwise we will be the granary of the world (with good caipirinhas and samba) and that's about it.

Life Must Be Tough for Some People

It must be really hard to be a real estate agent in Florida...

Man vs. Machine

Since the "flash crash" in May, there has been lots of talk about how computer trading algorithms  (i.e. algo trading) can crash the market by overwhelming the market with sell orders triggered after some event-based signal takes place.

Using computers to trade in the milisecond frequency makes it almost impossible for human beings to beat machines because there is no way to match their trading speed.

The FT last week had a very interesting story on how two (independent) Norwegian traders exploited a flaw in the algorithm of a U.S. firm to make money out of illiquid Norwegian stocks. So far so good, but the traders have been handed suspended prison sentences for market manipulation and a fine equal to their trading profits.

I find these charges a little odd. How come a computer that has a built in set of rules is not "manipulating" the markets when it places their orders? Two investors, doing a careful research job, find a flaw in the strategy and placed their bets, taking up the risk along with it. What's wrong with that? T

he U.S. firm is to blame for having a poor algorithm in the first place.Unfortunately this reminds me of that story saying that financial firms enjoy the profits but ask someone to bail them out in case of losses.

It's alive!

Those things don't happen often (at least not as often as I hoped!), but here is the link to my latest paper. It is joint work with Reena Aggarwal and Jason Sturgess (from Georgetown University)

To those of you interested in knowing a bit more about my research, this is it. Any comments are highly welcome!

Does Proxy Voting Affect the Supply and/or Demand for Securities Lending? 

We use a comprehensive proprietary data set consisting of shares available to lend (supply), shares borrowed (demand), and loan fee to study the securities lending market in the United States. We provide a better understanding of the securities lending market; examine the role of institutional investors in the voting process by analyzing the supply of lendable shares around the time of a proxy vote; and to address some of the issues related to empty voting we examine the changes in borrowing demand around the time of a proxy vote. On average, 19.57 percent of a firm’s market capitalization is available for lending, 3.3 percent is actually borrowed, and the annualized loan fee is 42 basis points. During our sample period, 2005-2009, there are 105,143 proxy agenda items. At the time of a proxy vote, there is a significant reduction in the supply of shares available to lend because institutions restrict or recall their loaned shares prior to a vote. The reduction in the supply of lendable shares is most pronounced in cases associated with significant events such as mergers, and with agenda items for which ISS recommends voting AGAINST the proposal. Our findings are consistent with institutional investors responsibly recalling shares, hence reducing supply ahead of material proposals. Most of the increase in loan fee around the time of a vote is associated with the reduction in supply which is related to the desire of institutions to vote their shares. We find statistically significant evidence of increase in demand however this increase in demand is economically small relative to the reduction in supply. In contrast, we find that the large increase in loan fee around the time of the ex-dividend date is driven by an increase in borrowing demand for cash flow reasons, with no change in the supply of lendable shares.

Why There is No System Like Capitalism...

Many in Brazil are fond of socialism, tough none moved to Cuba or China. Here is maybe why:

Alphas, Betas, and Sales Pitch

On Friday I had lunch with a colleague that told me about a job interview when he used to be at Goldman Sachs for a position with on the sales team.

Being asked how good he was at sales the candidate - an Insead MBA student - said:

"I will sell your beta as if it were alpha."

If I was sure he came up with this answer on his own, I would have given him the job on the spot. Maybe I would prefer that he had told the truth and explained how he could sell high beta as a good market timing move, but I still fiound it a greant answer. For those of you that don't remember.know what is the difference between beta and alpha, here goes a (maybe not so) simple explanation.

In modern models returns are explained as a function of their exposure to underlying risk factors (like the stok market, liquidity, etc.). A fund that takes up lots of market-related risk will have a high "beta" relative to the movements of the stock market. Thus, any over-performance relative to market would simply be due to higher exposure to risk rather than a superior managerial skill (i.e. a high "alpha") possessed by the fund's manager. Alpha is the return over an above the expected given the fund's exposure to sources of risk.

Handling mobile phone calls during a class

A colleague sent me this link on how a professor (in Asia) reacted to a student picking up the phone and answering during a lecture.

Is this the way to go forward?

Una profesora de cuidado en Yahoo! Video

Another year begins!

European schools usually start their academic year about a month after US schools do. Tomorrow it 's my turn and I begin teaching the Capital Markets course to 1st MBA students. It is always exciting to meet a new class and get to know students.

For those of you visiting the blog for the first time, welcome! I hope you like what you read and keep coming back!

 

Tips on Lectures

One of my colleagues sent me this very interesting video with tips/comments on how to improve the quality of lectures. This link below contains the full list of videos at Harvard's Derek Bok Center for Teaching and Learning

http://isites.harvard.edu/icb/icb.do?keyword=k1985&topicid=icb.topic650252&panel=icb.topic650252%3Arwatch%248%3Fentry%3D18850%26watchfull%3Dt&state=popup&view=view.do#a_icb_topic650252

Hat tip to JCVD.

MBA Rankings

I love rankings and this post here, by the guy who created the Busines Week one, analyzes the big MBA rankings out there. IESE makes #1 in the Economist ranking, but this seems to be the worst ranked of all.

To be honest, I think IESE has one of the best but not the best MBAs in the world. We have some top-notch departments and a few characteristics that makes us unique in the world.

That said, I believe that the writer has the usual U.S. bias in his analysis, downplaying European schools a bit.

My two cents on this is that the top 3 things are:

1. Salary 2-3 years after graduation (PPP-adjusted)
2. Student diversity (US schools could do better here, IMHO)
3. Faculty commitment (tough to measure but it makes a world of a difference to students)

Any opinions?