07/28/2014

Recent Research: Highlights from July 2014

"Going for Broke: Restructuring Distressed Debt Portfolios"
The Journal of Fixed Income (Summer 2014
Sanjiv R. Das and Seoyoung Kim

This article discusses how to restructure a portfolio of distressed debt and what the gains are from doing so, and attributes these gains to restructuring and portfolio effects. This is an interesting and novel problem in fixed-income portfolio management that has received scant modeling attention. We show that debt restructuring is Pareto improving and lucrative for borrowers, lenders, and investors in distressed debt. First, the methodological contribution of the paper is a parsimonious model for the pricing and optimal restructuring of distressed debt, i.e., loans that are under-collateralized and are at risk of borrower default, where willingness to pay and ability to pay are at issue. Distressed-debt investing is a unique portfolio problem in that a) it requires optimization over all moments, not just mean and variance, and b) with debt restructuring, the investor can endogenously alter the return distribution of the candidate securities before subjecting them to portfolio construction. Second, economically, we show that post-restructuring return distributions of distressed debt portfolios are attractive to fixed-income investors, with risk-adjusted certainty equivalent yield pickups in the hundreds of basis points, suggesting the need for more efficient markets for distressed debt, and shedding light on the current policy debate regarding the use of eminent domain in mitigating real estate foreclosures.

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Are You Too Paranoid to Report Mistakes on the Trading Floor?

EfinancialCareers

Big blow outs start in small ways. Kweku Adoboli made a $400k loss on a trade in October 2008, which he opted to hide rather than to tell his manager about. Nick Leeson started out hiding his small losses in his error account and ended up taking down Barings. Bruno Iksil (who unlike the others, hasn’t been charged for wrongdoing) made $400m for JPMorgan in 2011 and only started coming unstuck in 2012, when his losses quietly started to inflate.

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07/27/2014

Book Review: Wall Street Research

ABSTRACT

Sell-side research is often seen as a competition among analysts for top rankings in surveys of investors. From time to time, scandals cause the profession to be viewed through the prism of ethical standards. Even the celebrity culture now colors perceptions of the analytical profession. In Wall Street Research: Past, Present, and Future, Boris Groysberg and Paul M. Healy of the Harvard Business School adopt the market for sell-side research as their framework. Oddly, this perspective is rarely used by brokerage industry types, who are otherwise thoroughly immersed in markets.


Brokerage houses tend not to think of research as a service bought and sold in a market because their ambition is to sell securities, not security analysis. The firms must nevertheless recover the costs of producing research. Prior to the US SEC’s abolition of fixed commission rates on 1 May 1975, broker/dealers paid for their teams of industry-specialized security analysts by bundling research with execution services. That worked well under pre–“May Day” commissions of 20–30 cents a share but proved unviable when those rates declined precipitously in the late 1970s.

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07/16/2014

How To Write A Killer CV That Gets You Hired

I still recall my younger days applying for my first few jobs in finance. It was intense, quite some spraying (of my CV, that is), and learning loads on the way on how the whole recruitment process works. Now, a little older (and wiser), I'm lucky enough to be in a position to hire members for my own team - I certainly remembered the time where I first had the green light to hire an intern to work with me - oooh, such power!

We advertised the job and I received around 5-8 CVs, already pre-filtered by my HR colleague. I reviewed them and narrowed down to 3 for an interview. When I shared my final 3 with my French colleagues (I worked for a French company at that time), they were surprised and doubtful at one of my choices because he wasn't from a "good school" (when translated meant non Ivy-league). I scanned the CVs without any preconception of French schools and chose him based on relevant work experience. I got a sense of his determination and interest in finance through 4 various internships he had, although they were at smaller, less prestigious firms. 

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07/15/2014

Young, Fabulous, and Unemployed: Strategies for Survival, Part I

The graduation-party balloons are drooping, and so are your spirits. If you are among the thousands of recent college grads who haven’t landed a job yet, take heart. No, you did not waste time going to college. Research shows that, in the long run, more education translates to higher income.

And, yes, today’s job market is merciless and frustrating. Employers require on-the-job experience, but how are you going to get that experience if they won’t hire you? Plus, summer is here. Companies both large and small postpone hiring decisions from about mid-May until after Labor Day. Hiring managers take vacations. And as hard as it is for us Type-A Americans to admit it, business slows down a bit when the weather gets warmer and the days longer.

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07/14/2014

Book Review: Can China Lead?

ChinaChina is viewed as the only real competitor to U.S. economic and geopolitical position, and its future is one of the most timely and high priority economic issues here. Can China Lead?: Reaching the Limits of Power and Growth focuses on the issue by looking at the role of the Chinese Communist party. The authors are well qualified to evaluate China's future as a potential world leader: William C. Kirby and F. Warren McFarlan are on the faculty of Harvard Business School, which has done many case studies of Chinese companies (sixty-six are listed in the book's Appendix). Regina Abrami is at the Wharton School, and Director of the Global Program of the Lauder Institute. PMc Farlan is a guest professor at Tsinghua University, and codirector of the HBS China Business Case Center. Kirby is Chairman of the Harvard China Fund, and a honorary professor at several Chinese universities.

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07/11/2014

Is Friday Still the Best Day to Apply for a Job in Banking?

EfinancialCareers

Today’s the day. According to our own figures, Friday is the day of the week when the ratio of resume searches per job application is optimal: there are two searches per application, compared to 1.5 to 1.7 on other days. Recruiters appear to be comparatively busy on Fridays, while candidates appear to be comparatively slack. You therefore have a few more hours to send out your resume.

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07/07/2014

Career Transition Is the New Normal

These days, given the accelerating rate of change in the world, in the economy, and in the workplace, we’re ALL either in a state of “career transition”—or we will be soon. Whether you are a CEO or executive, a manager, an individual contributor on the front lines, in business for yourself, just beginning your career, a seasoned professional, or re-inventing your career, you will be more effective, successful and happy in your work when you:

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06/25/2014

The Central Contradiction of Capitalism that Piketty Overlooked

It is instructive to observe the reaction to the Piketty phenomenon — a 700-page treatise on political economy that became an overnight Amazon bestseller deserving, according to Larry Summers, of a Nobel Prize. It is similarly instructive to note the spectacle of the viral Russell Brand interview with the BBC’s Jeremy Paxman in which Brand pretty much shreds Paxman and calls for revolution. I can’t claim to have actually read Piketty’s tome, but I’ve read a lot of the reviews, and I have watched the Russell Brand video. Regardless of where you come down on their arguments, the response to Piketty’s book and the wide appeal of Brand’s rant taken together tell us that trouble is brewing.

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06/24/2014

What Is CFA Good for?

Aren't you glad that the June exams are over? 

It's normal to feel a sudden void in your life now, having a bucketload of spare time in your hands while waiting for the big results day. Somewhere along the way, you'd wonder whether the CFA journey is worthwhile, or why you even took it in the first place. Even if you're a potential December Level 1 candidate, this is certainly a question of utmost importance.

According to a CFA Institute survey, 37% of us took the CFA challenge for career development and advancement. Not surprising. But when deciding whether or not CFA is right for your career goals, a common question emerges: would CFA work for me?

A Quick Look into CFA Charterholders' Typical Roles and Employers

To answer this question, the first port of call is to have a quick look at what current charterholders are doing and their typical employers. Luckily CFAI has summarized these information in a 2011 survey.

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06/23/2014

Book Review: The Dollar Trap

The-Dollar-Trap

The author, an international finance expert, focuses on the complexities of the US dollar as the global reserve currency. Exploring current fundamental modeling and the politics of international financial coordination, he details why, in spite of news reports concerning its demise, the dollar will continue to be the dominant world currency.

International investments are ultimately driven by the value of the dollar, the core currency around the globe. Currency movements are a primary determinant of international fixed-income diversification and are important for any international equity decision. Nonetheless, hedging is the default approach among money managers because their ability to forecast currency movements is so limited. Given the difficulty of forecasting, relatively little time is spent analyzing the fundamental components of currency returns. Dollar dynamics are often relegated to being treated as a mystery.

–Mark S. Rzepczynski

Continue reading "Book Review: The Effective Investor" »

Forward Thinking on Collateral Management

Most financial firms in the present day would need an overhaul of their current collateral management practices. This comes in the midst of the burden being experienced by an already intensely regulated financial industry and the new measures of regulation on OTC derivatives in the post financial crisis world. The costs of regulation are near-crippling to some firms. Big dealers are planning to exit or divest certain lines of business that will face huge operational costs as a result of regulation, and are no longer deemed profitable.

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06/18/2014

Banking CV Clichés You Must Definitely Avoid, by Job Function

EfinancialCareers

While most financial services professionals must now surely be savvy enough to avoid generic CV clichés like “entrepreneurial”, “innovative team-player,” or “dynamic problem-solver”, there’s a chance you could be inadvertently including hackneyed phrases when attempting to demonstrate your prowess for your particular business area.

The key, say exasperated recruiters, is to be as specific as possible. If it’s not tangible, or something that can demonstrate your real achievements, it’s probably bunkum.

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06/16/2014

Recent Research: Highlights from June 2014

"Go Big or Go Home: The Case for an Evolution in Risk Taking"
The Journal of Investing (Summer 2014
Mike Sebastian

This article argues that alternative investments—private equity, real estate, and hedge funds—have natural advantages in risk and return over traditional stock and bond investments. A large allocation to alternatives relative to current institutional practice is needed for a material contribution to an institutional investor’s bottom line. Investors should consider whether moving toward an “efficiency” portfolio with an emphasis on low-cost passive management or an “opportunity” portfolio with heavy reliance on value added through active management—especially alternative investments—is most appropriate for them. Investors who can tolerate the cost, complexity, and illiquidity should consider opportunity-type allocations of 40% of their return-seeking assets to private equity, non-core real estate, and hedge funds. Over time, institutional investors will likely choose alternative investments and indexing as their primary investment options, and traditional active management will likely transform to take on qualities currently associated with alternative investments.

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06/11/2014

Guide Your Readers Better than This Trail Guided Me

P1190742I got lost. A poorly marked hiking trail sent my husband and me in one wrong direction and then another before we found our way. This reminded me of how writing that lacks trail markers sends readers astray.

The best trail markers for your writing are topic sentences. A strong topic sentence—the first sentence of any paragraph—summarizes the information covered by the rest of the paragraph.

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CAREER CHATS™ AND
FRIDAY CAREER COFFEES™
CAREER CHATS AND COFFEES

NYSSA Career Chat™: The Challenges Women Face on Wall Street
Wednesday, September 3, 2014

Join NYSSA to enjoy free member events and other benefits. You don't need to be a CFA charterholder to join!


CFA® EXAM PREP

CFA® Level II Weekly Review – Session A: Wednesdays
Midtown

Wednesdays, January 8–April 30, 2014
Instructor: O. Nathan Ronen, CFA

CFA® Level II Weekly Review – Session B: Mondays
Midtown

Mondays January 27–May 12, 2014
Instructor: O. Nathan Ronen, CFA

CFA® Level II 6-Week Saturday Condensed Review
Midtown

Saturdays, March 22–May 3, 2014
Instructor: O. Nathan Ronen, CFA

CFA® Level II 4-Day Boot Camp
Midtown

Thursday, May 15–Sunday, May 18, 2014
Instructor: O. Nathan Ronen, CFA

CFA® Level III Weekly Review – Session A: Tuesdays
Midtown

Tuesdays, January 7–May 6, 2014
Instructor: O. Nathan Ronen, CFA

CFA® Level III Weekly Review – Session B: Thursdays
Midtown

Thursdays, January 23–May 15, 2014
Instructor: O. Nathan Ronen, CFA

CFA® Level III 6-Week Sunday Condensed Review
Midtown

Sundays, March 16–May 4, 2014
Instructor: O. Nathan Ronen, CFA


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