Surely that will improve teaching ratings!

The FT reports that the UK government will start a randomized trial to see whether starting the school day later would improve teenagers' performance. 

I'd wish I could have been part of such a trial when I was younger. Starting school at 7:10am (off-topic: never understood the :10 start) in Brazi wasn't nice. It made me have to wake-up at 6am.

Randomized trials such as this one are a great way to test the impact of the effects of proposed policy before they are rolled out to the rest of the country. Just like the idea behind testing the effectiveness of new medicines, here they randomize schools that will get the treatment (i.e. that will start the school-day earlier) and compare it to those with similar characteristics that will carry on as before (i.e. the control group).

Here are a couple of interesting links with more on randomized trials:

http://www.economist.com/blogs/freeexchange/2013/12/randomised-control-trials

http://blogs.worldbank.org/africacan/can-randomized-control-trials-reduce-poverty

Transparency vs Market Impact: Oil Market Example

The FT has a story today about a event that I'm sure will become an academic paper in no time.

Mexico has been hedging their oil risk for quite a few years now. Basically they buy put options for a huge number of barrels, granting them the right to sell oil at a certain price at maturity (the story says they have set on $80/ barrel). Since PEMEX produces loads of barrels they are naturally hedged and guarantee their sale price per barrel in the future.

While spot and futures oil markets are large and deep, options this big are not that liquid. This is why most of the times these options are written over-the-counter with an investment bank counterparytuy.

This is an interesting example of the transparency vs market impact debate but incomplete. Maybe I'm missing something but I think they are making too much about it. The data is released with an obvious delay and the options are traded over-the-counter, so no big market impact. Maybe if the investment banks hedge their exposure by buying call options they could move markets, but they could also enter into OTC contracts themselves with other banks or use futures to pass the risk along.

Anyway, this would make a nice case study for a derivatives course.

Academic-kids problems

Should I feel bad for preferring to attend a Marketing seminar rather than a Corporate Finance happening at the same time?

Seems to be an interesting seminar to attend:

THE SMALL BIG, how small changes can make a big difference to your influence

Robert Cialdini, Arizona State University

2.30pm, Friday 19th September, Castle Teaching Room

Whatever your role in life much of your success is dependent on your ability to effectively influence and persuade others. But how? In his first ever visit to the University of Cambridge world renowned and eminently respected persuasion researcher Dr. Robert Cialdini will explore some of the fundamental principles of the influence process, including insights from his latest book THE SMALL BIG, co-authored with long time collaborators Steve Martin and Noah Goldstein.

Brazil, Education and Inequality

This Sunday I gave a small interview to Rio's largest newspaper about Brazil and the crucial role that proper investment on education will play in reducing inequality and long-term grown prospects.

It is in Portuguese though. Sorry to my 6 English-only readers!

Academia vs Practice

I am at a practititioner oriented conference and a couple things spring to mind.

I) Practitioners oftn have no idea what academic life in a Finance B-school looks like. They have no idea about the tenure system and that research is key to sucess.

II) people have to be aware that if you are given 15mins to present, it is impossible to go over more than 10-12slides. People usually bring too much and run over time.

Corffee breaks are usually very useful to test new ideas to see i they make sense in the real world and for potntial sources of new data.

Looking forward to going back home!

Should I Even Care?

Today the FT has a long article on the infamous Jérôme Kerviel, who made Soc Gen lose 4.9bi euros in 2008 due to cheating / forgery of trades.

Reading the article I felt that the journalist (or Jerome) was trying to blame the "system" for what he did.

 Jerome says "Think about my position. You have been condemned to pay €4.9bn, you have jail, you have the justice system against you. You have no life, few friends, no prospects. It’s difficult to rebuild any kind of real life with all that hanging over you,..."
Well, maybe you should have thought about that BEFORE doing you what you did.

I feel no pity for those involved in this case. The trader cheated hoping to make big bonuses, while his bosses probably knew and covered him up while things were working well.

Luck or Skill?

Harvard has just signed up Sir Alex Ferguson to teach on their ExecEd programs:

http://on.ft.com/1q0fjmw

That reminded me of the eternal luck vs. skill debate in asset management... Although my dislike for Man Unt, probably biases my opinion!

Don't Cry for my Argentina

I usually joke to students that Brazilians are more creative than Argentinians. While in Brazil we are always inventing new ways to mess with our economy, in Argentina they always make the same mistakes over and over again.

This WSJ article has a quote that summarizes it all: ""Our cycles are almost biblical," 

It is such a shame to see a country that has a well educated work force and decent infrastructure to keep suffering from the same type of mismanagement over and over again. Let 's see how long it will take for the bust to come this time. 

Meanwhile in South America...

Often students ask me about Brazil and where its economy is headed. Alas, I'm very bearish about the current government and their views on what needs to be done.






While the government remains in the fantasy-land and believe that all is well, the economy is sending many signs that it is reaching breaking point.


I particularly find the following graphs interesting:

What will happen in 2014 with the elections and the World Cup? We'll find out soon...

Twitter IPO

A colleague just sent me this:

"Twitter filed to go public yesterday, choosing the stock ticker TWTR. Twitter shares are expected to start trading before Thanksgiving this year.

But it looks like some investors are a bit confused. A company called TWTR Inc., which as far as we can tell has nothing to do with Twitter, is up a whopping 1,500% today, but fluctuating wildly."

I'm amazed by how many investors don't do even the most basic research. C'mon people, at least check if what you are buying is really what you want to buy. Then some complain that markets are like a casino...

 Read more: http://www.businessinsider.com/twtr-stock-up-1500-percent-2013-10#ixzz2glzgyHNl

Late Summer Readings

Every year the FT publishes the books shortlisted for its "Business Book of the Year" prize. While I of course don't read more than 1-2 from the list (if that). There are always some books that I feel sorry for not reading.

From this year's shortlist, I'd really like to read Jeff Bezos's story and Alan Blinder's book on the financial crisis.

Here is the URL:
http://www.ft.com/cms/s/2/b126d26e-fb7a-11e2-a641-00144feabdc0.html

Brazil: Where Is It Heading? How Did It Get Here?

Last week I taught a class about Brazil to participants at the Cambridge Advanced Leadership Programme.

While it was very different to summarize 500 years of history and future outlook I think they had a good time. As I've mentioned before, I think that education and infrastructure are the two main bottlenecks the country faces.

To me, Brazil has milked all the benefits from the economic reforms made by the Cardoso government (1994-2002) and the benefits of the huge expansion in coverage of the welfare program (i.e. the Bolsa Familia) during Lula's term (2002-2010). Now that the global commodity boom is cooling off and China is no longer buying commodities like crazy, Brazil has to step up its game and carry on the reforms that it still needs to make if it wants to move to a higher class of development.

The most striking slide is, I think, the last one showing how poorly we do relative to other countries in education. While it is a good sign that the number of people with high school degrees has significantly increased from my parents' generation to mine is still near the bottom. I won't even talk about the tertiary education progress as it makes me angry (we rank bottom and haven't improved at all).

I wish I could be more optimistic but I do think we'll face slow growth over the next few years unless the government gets its act together.

Here are the slides I've prepared to the class. You can download them from this link. 

   ALP 2013 - Pedro Saffi - Brazil by psaffi

Big Data and Big Crashes

Today the FT carries an op-ed by two of the most respected finance academics in market microstructure, Maureen O'Hara and David Easley.

The heavy number-crunching behind many hedge-funds nowadays poses a new type of risk to financial markets arising from erroneous interpretation of information. They write:

"
About two years ago, it became common for hedge funds to extract market sentiment from social media. The idea is to develop trading algorithms based on the millions of messages posted by users of Twitter, Facebook, chat rooms and blogs, and detect demand trends in relation to individual companies. However, these algorithms typically do a bad job when it comes to making guesses on small data sets. In recent months, it has become very popular to develop algorithms that fire off orders as soon as unscheduled information is published, such as natural disasters or terrorist attacks. More hash crash-type events, which are caused by a single erroneous data point, are disasters waiting to happen."

 Computers need not only to process things fast but also correctly. If something is mistakenly posted in AP's newsfeed, a human being might check it before acting while a computer wouldn't (at least until AI is here for good).

Nowadays, I'm leaning more and more towards setting some sort of minimum trading time. I guess that 0.1secs won't help much with the type of crash described above, but that's another story.

New website

I have finally taken some time to put my old personal homepage back up.

It doesn't have much and it definitely doesn't look stylish but if you want to see what I've been working on, this is the place to go:

www.pedrosaffi.com/

Brazil's Possible Future: Italy

In Brazil there is saying that if we ever become a first-world country we will be like Italy, with all the good and bad.

This FT article kind of describes the bad things:

"In Italy we have a huge bureaucracy but no state, an administration of nothing,” he says. “In Italy you start a project without money. In France politicians say you have to do this and the bureaucracy organises with public and private money and then there is the tender and building. A linear process. But here it is not like this."