< The Finance Professionals' Post: June 2011

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23 posts from June 2011


Worldview Podcast: What is Globalization?—A Primer

Worldview PodcastThe term “globalization” is thrown around a lot. While it sounds good as a buzzword, understanding what it actually means is critical. NYSSA held a career chat to discuss this very issue, featuring speakers from all over the world, representing a number of career fields. The panel kicked off with a brief explanation, presented here in an excerpt as a helpful introduction to globalization.

If you want to watch the webcast of this entire event or any other NYSSA program, visit NYSSA's On-Demand website.


Leveraging Your Skills in a Tight Financial Services Jobs Market

EFinancialCareersThe one constant in financial markets is change. The same could be said for jobs within the financial markets sector. Not only are specific jobs changing in terms of what skills you need in order to perform them, but job availability is continually shifting among financial job categories. For example, there may be fewer opportunities for securities analysts now than in the past, but there is an overwhelming need for wealth managers and financial advisors.

What if I told you that the same skills needed to be a successful financial analyst also apply to being a successful financial advisor? Financial analysts assess the performance of stocks, bonds, commodities, and other types of investments, skills generally employed by financial advisors.

Continue reading "Leveraging Your Skills in a Tight Financial Services Jobs Market" »


What Would Ben Graham Do Now?


What Would Ben Graham Do Now?Going global as an investor is conspicuously problematic—particularly for the value crowd. When we dig into the public markets in places like China and India, we find that corporate behavior is far different from what we have learned to expect in the United States and Europe. The companies just don’t appear to be very stable, making calculations of a useful intrinsic value difficult. In fact, the economies themselves appear to be changing rapidly (that is, developing). Additionally, information, even in published financial reports, appears questionable. Unless you’re investing short-term, it’s a struggle to invest in changing companies in changing environments with limited and/or incorrect information.

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Fully Flexible Views: Theory and Practice

Scenario analysis allows the practitioner to explore the implications on a given portfolio of a set of subjective views on possible market realizations, see e.g. Mina and Xiao (2001). The pathbreaking approach pioneered by Black and Litterman (1990) (BL in the sequel) generalizes scenario analysis, by adding uncertainty on the views and on the reference risk model. Further generalizations have been proposed in recent years. Qian and Gorman (2001) provide a framework to stress-test volatilities and correlations in addition to expectations. Pezier (2007) processes partial views on expectations and covariances based on least discrimination. Meucci (2009) extends the above models to act on risk factors instead of returns, and thus covers highly non-linear derivative markets and views on external factors that influence the p&l only statistically.

Continue reading "Fully Flexible Views: Theory and Practice" »


Robert Litterman: Who Should Hedge Tail Risk?

CFA InstituteIn a somewhat ironic turn of events, many investment banks began selling insurance against equity tail risk to institutional investors following the financial crisis. Ironic because one might expect that investment banks, with high leverage and quarterly earnings reports to worry about, would be the natural buyers of such insurance and long-horizon investors the natural sellers.

Surely, those with deep pockets and long horizons, who would be little affected by the crisis, should be selling insurance to those with short horizons and leveraged positions, who would be most highly affected.

Of course, there will always be a price low enough that a given investor would be willing to buy insurance, and there will always be a price high enough that the same investor would be willing to sell insurance. But investors who have long horizons, sufficient liquidity, and low leverage should consider carefully whether, in practice, the price at any given time is low enough that buying tail-risk insurance makes sense for them. That scenario is unlikely because long-horizon investors are not natural buyers of tail-risk insurance.

Continue reading "Who Should Hedge Tail Risk?" »


Artifacts of Finance: Bull and Bear, Wall Street’s Good Luck Icon

Bull and Bear Statue from the NYSE Luncheon Club
There is debate as to the exact origins of the terms “bull” and “bear” markets. But, many agree that the term “bears” first originated in reference to London bearskin brokers who would speculate on the future purchase price of the skins they acquired from trappers. The bulls were likely designated the opponents of the bears due to the popular 19th century blood sport of pitting bears against bulls. It has also been suggested that the metaphor is derived from the manner in which the animals attack, with the bull thrusting its horns up, and the bear swiping its paw down.

Continue reading "Artifacts of Finance: Bull and Bear, Wall Street’s Good Luck Icon" »


From the Arcives: Benjamin Graham on Being Right in Security Analysis

Ben GrahamBenjamin Graham, the man widely recognized as the father of security analysis, wrote the following article in 1946. Though the market has changed dramatically since then, his approach to judging the success of an analyst’s recommendations remain just as valid today.


The most interesting and important work of the senior ana­lyst leads up to and includes the recommendation that one or more common stocks be purchased. How can we tell whether such a recommendation has been right or wrong?

Continue reading "From the Arcives: Benjamin Graham on Being Right in Security Analysis" »


NYSSA Volunteer Receives Outstanding Asian American in Business Award

Lijie ZhuLijie Zhu, vice chair of NYSSA’s Career Development Committee, was recognized as one of fifty Outstanding Asian Americans in Business in 2011 by the Asian American Business Development Center at a June 16 gala.

The award honors individuals with outstanding leadership, vision and accomplishments who have built a successful business or distinguished themselves in their community. NYSSA President and CEO Amy Geffen, PhD, said, “The Society is very proud of Lijie’s accomplishments and is honored to have her as a dedicated volunteer.” In 2010, Zhu was named a NYSSA Volunteer of the Year for her work on the Career Development Committee, especially its popular Friday Career Coffee series.

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CFA Prep Podcast: Eliminate Test-Day Surprises

CFA Exam Prep PodcastThere's nothing worse than walking into an exam unprepared. You've been studying for months and you know the material cold, but how will you be tested on it? Check out our CFA Prep Podcast for a look at the format of the CFA Exam Levels I, II, and III.

If you want to hear the webcast of this entire event or any other NYSSA program, visit NYSSA's On-Demand website.

CFA Level I Orientation


Worldview Podcast: Singapore, Globalization, and You

Worldview PodcastBlake Zhang had nearly a decade of experience working in Singapore before becoming a vice president at Daiwa Capital Markets America. Zhang provides valuable insight not only into Singapore's place in our quickly globalizing world, but also which economic and hiring strategies in use in Singapore truly exemplify that often hazy term.

If you want to watch the webcast of this entire event or any other NYSSA program, visit NYSSA's On-Demand website.

Iron Condor Spread Strategies: Timing, Structuring, and Managing Profitable Options Trades

Iron Condor Spread StrategiesThe purpose of this essay is to improve your ability to trade iron condor option spreads. Iron condors have become a very popular spread type among active options traders, but there is little detailed or quantitative information available about the best way to employ these spreads. As participants in the crash of 2008 and the intense bull market of 2010 can attest, the static “set-it-and-forget-it” method with which some novice traders approach iron condors does not produce ideal results. In the following, I will consider the circumstances in which it is appropriate to enter a condor spread, key techniques and considerations when structuring spreads, and will present some backtested historical returns for a few strategy variations.

Continue reading "Iron Condor Spread Strategies: Timing, Structuring, and Managing Profitable Options Trades" »


Three Tips to Make Waiting for CFA Exam Results More Bearable

CFA Exam PrepFor those who took the CFA exam two weeks ago, the hardest part is over—or is it? Waiting for the results can be an excruciating process. After having poured months of effort into preparation (or years, if you’re taking Level II or III), candidates now have to wait 60 to 90 days to discover whether they’ve passed an exam with a notoriously high fail rate.

Over the past few decades, psychologists have discovered that our perception of time can be affected by a number of factors that can either mitigate or exacerbate our anxiety about waiting. Here are some simple suggestions to help ease the pain of waiting for the results of your CFA exam.

Continue reading "Three Tips to Make Waiting for CFA Exam Results More Bearable" »

Fukushima, Mon Amour

Fukushima Power Plant


Nuclear energy is generally considered an important part of any future energy mix. Yet, it is a Cinderella of American public policy: neoconservatives like it because it is “manly,”—unlike the “effeminate” renewables—and because it annoys environmentalists and has its origins in nuclear weapons research. Yet many do not believe in global warming, and are generally extremely supportive of the oil and gas lobby. Legislators from Utah, one of the most conservative states in the nation, keep the objects of civilian nuclear infrastructure out of the state with the assiduousness of the most determined treehuggers.

Tea Partisans dislike federal subsidies in general, and nuclear energy specifically, as it has heavily relied on federally funded research and development. Environmentalists, who tend to be politically liberal, like neither the nuclear industry and its wastes, nor the generous federal support nuclear energy has historically received at the expense of renewables. Finally, nuclear energy is one of the greatest sufferers of the NIMBY (not in my back yard) attitude typical of the American taxpayer. Only a few, poorly organized legislators representing nuclear industry–heavy states (Tennessee, New Mexico) tend to be supportive of nukes independently of their party colors. The net result of this conundrum is that no new reactors have been opened in the US over the past 30 years. This relegates the US utilities to older, less safe reactor designs, which show their physical wear.

Continue reading "Fukushima, Mon Amour" »

“US Debt Default Would Be a Moral Disaster”

So declared JPMorgan CEO Jamie Dimon regarding the prospect of a US default on its debt, after which he received a standing ovation at the University of Colorado’s Denver School of Business.  Hmm… Let’s do a little press review—the following items quoted from recent news articles:

  • JPMorgan Chase recently lost a class-action lawsuit brought upon the bank for illegally foreclosing on military members’ homes while they were on active duty. 

Continue reading "“US Debt Default Would Be a Moral Disaster”" »


CTAs Grow Despite a Downturn in May

EFinancialCareersCommodity trading advisors—a subset of the hedge fund sector—are enjoying a heyday stateside, as well as in Europe and Canada. It’s no surprise given the inflows into the entire hedge fund space. CTAs snagged $6 billion in March, making it the fourth straight month of inflows. Much of the inflow came from newly interested institutional investors.

Continue reading "CTAs Grow Despite a Downturn in May" »


Book Review: Managing the China Challenge

Managing the China ChallengeManaging the China Challenge: How to Achieve Corporate Success in the People's Republic is an authoritative guide to China’s intricate political and business structure. Author Kenneth G. Lieberthal is the director of the John L. Thornton China Center at the Brookings Institution and was senior director for Asia on the National Security Council from 1998 to 2000. His new book is essential reading for anyone investing or doing business in China, where “the state is always your partner.”

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Recent Research: Highlights from June 2011

Futures-Based Commodity ETFs.” The Journal of Index Investing (Summer 2011). Ilan Guedj, Guohua Li, and Craig McCann.

Exchange-traded funds (ETFs) have become popular investments since first introduced in 2004. These funds offer investors a simple way to gain exposure to commodities, which are thought of as an asset class suitable for diversification in investment portfolios and as a hedge against economic downturns. However, returns of futures-based commodity ETFs have deviated significantly from the changes in the prices of their underlying commodities. The pervasive underperformance of futures-based commodity ETFs compared to changes in commodity prices calls into question the usefulness of these ETFs for diversification or hedging. This article examines the sources of the deviation between futures-based commodity ETF returns and the changes in commodity prices using crude oil ETFs. The authors show that the deviation in returns is serially correlated and that a significant portion of this deviation can be predicted by the term structure of the oil futures market. They conclude that only investors sophisticated enough to understand and actively monitor commodity futures market conditions should use these ETFs.

Continue reading "Recent Research: Highlights from June 2011" »


144,900 Candidates Register for June 2011 CFA Exams

EFinancialCareersThe CFA Institute, the global association of investment professionals, announced today that 144,900 candidates from 162 countries have registered for the CFA exam in June 2011. That's a four percent increase of the number of candidates that registered last June.

The CFA says the increase reinforces "the strong commitment among finance professionals to high standards of ethics, education and professional excellence, which the CFA Program demands."

Overall, there were 209,945 registrations for CFA exams in fiscal year 2011 which includes December 2010 and June 2011, an increase of five percent on fiscal year 2010.

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SEC Rules on Wall Street Pay—Major Intrusion or Minor Annoyance?

CFA InstituteWhen the U.S. Securities and Exchange Commission (SEC) took aim at incentive pay packages at financial institutions in a recent controversial proposal, it was the culmination of a three-year push to rein in executive pay at large banks, brokerages, and hedge funds. The move was not unexpected fol- lowing an era of lucrative incentives that were deemed to have fueled excessive risk taking and contributed to a global financial collapse. The crisis prompted a government rescue and, in turn, an angry reaction from Congress. The effects of the crisis will be long lasting, as reflected in our recent CFA Institute Financial Market Integrity Outlook Survey.

Continue reading "Operations in Financial Services—An Overview" »


The Bank Panic of October 1907—A Spectator's View

Bank Panic 1907, Harpers This is a story not an analysis: the “what happened” of this event is well-known. Several studies have focused on the economy, the money supply and systemic faults in the banking system, and the bank events have been well discussed. Behind them there was the stock market and the behavior of stock speculators in the month of October. This story explains more about the “why” of this event; it is the story of Charles W. Morse and his friend, Fritz Heinze.

To give some background on Morse and Heinze, we need to go back to 1900. A short man with penetrating blue eyes, Morse combined many ice companies to create the American Ice Company, which monopolized the natural ice business in New York (estimated to be two million pounds a year). Morse doubled the price of ice on May 1, during an early warm spell, and suddenly everyone in New York knew Charles W. Morse, including William Randolph Hearst and Governor Theodore Roosevelt. Under pressure in the press and through many law suits, the price was reduced, and in two years Morse was forced out of the company, taking at least $11 million with him.

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Operations in Financial Services—An Overview

Over the past two decades, research in service operations has gained a significant amount of attention. Special issues of Production and Operations Management have focused on services in general (Apte et al. 2008), and various researchers have presented unified theories (Sampson and Froehle 2006), research agendas (Roth and Menor 2003), literature surveys (Smith et al. 2007), strategy ideas (Voss et al. 2008), and have discussed the merits of studying service science as a new discipline (Spohrer and Maglio 2008). A few books and a special issue of Management Science have focused on the operational issues in financial services in particular (see Harker and Zenios 1999, 2000, Melnick et al. 2000). However, financial services have still been given scant attention in much of the literature relative to other service industries such as transportation, health care, entertainment, and hospitality. The dilution of focus, by concentrating on more general distinguishing features does not do justice to financial services where some of these characteristics are not central. (The more general features that are typically being considered include intangibility, heterogeneity, contemporaneous production and consumption, perishability of capacity, waiting lines (rather than inventories), and customer participation in the service delivery.)

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Three Stress-Reduction Tips For Acing the CFA Exam

CFA Exam PrepFrom an analysis for a client, to a decision about when to buy that stock you’ve been watching, your job tests you every day. If you’re taking the June exam to become a Chartered Financial Analyst (CFA) the test is not just a figure of speech: it’s an impending reality. Even if you have figured out how to manage a portfolio, the prospect of three six-hour-long exams is understandably daunting. Are you nervous about taking tests? Are you wondering how you can turn test-taking stress into test-passing confidence? Our look at recent scientific research on test-taking and anxiety will help you manage your stress and get the test results you need.

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Historical Scenarios with Fully Flexible Probabilities

After reviewing the parametric and scenario-based approaches to risk management, we discuss a methodology to enhance the flexibility of the scenario-based approach. We change the probability of each scenario, and then we compute the ensuing p&l distribution and all relevant statistics such as VaR and volatility. The probabilities can be changed to reflect specific market conditions, advanced estimation techniques, or partial information, using the entropy-based Fully Flexible Views technique in Meucci (2008). The implementation of this approach is trivial, as no costly repricing is needed.

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