< The Finance Professionals' Post: February 2013

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9 posts from February 2013


Book Review: How to Win Friends and Influence People

NYSSA CDC Monthly Reading Recommendation

It is with great pleasure that the Career Development Committee announces a monthly reading recommendation as our newest offering. To fulfill NYSSA’s mission to foster the interchange of ideas and information, we will recommend books, journals, and scholarly articles that we believe will support you in your career advancement. We hope that you will enjoy these readings and find them as beneficial as we do.

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Friday Is the Best Day of the Week to Apply for a Job


For job seekers, Fridays shouldn’t be spent dreaming of the weekend, updating your fantasy football team or sneaking out for a long liquid lunch. Applying for a role at the end of the workweek could give you an edge over the competition.

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Recent Research: Highlights from February 2013

"Volatility, Correlation, and Diversification in a Multi-Factor World"
The Journal of Portfolio Management (Winter 2013)
Richard Roll

In a multi-factor world, diversification benefits do not generally depend on correlation. Investors can restructure portfolios to align factor sensitivities. This implies that diversification benefits depend only on the idiosyncratic volatility that remains after restructuring. Similarly, the risk reduction that follows adding an asset to an existing portfolio does not depend on the asset’s correlation with the portfolio. These implications evince the fundamental importance of measuring the underlying factors and estimating factor sensitivities for every asset. Other researchers have investigated several methods for measuring factors. An easy-to-implement general method involves specifying a group of heterogeneous indexes or traded portfolios. Exchange-traded funds (ETFs) could be well suited to this purpose.

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Aggregate Risk and the Choice between Cash and Lines of Credit

We model corporate liquidity policy and show that aggregate risk exposure is a key determinant of how firms choose between cash and bank credit lines. Banks create liquidity for firms by pooling their idiosyncratic risks. As a result, firms with high aggregate risk find it costly to get credit lines and opt for cash in spite of higher opportunity costs and liquidity premium. Likewise, in times when aggregate risk is high, firms rely more on cash than on credit lines. We verify these predictions empirically. Cross-sectional analyses show that firms with high exposure to systematic risk have a higher ratio of cash to credit lines and face higher spreads on their lines. Time-series analyses show that firms' cash reserves rise in times of high aggregate volatility and in such times credit lines initiations fall, their spreads widen, and maturities shorten. Our theory and evidence shed new insights on the relation between macroeconomic risk, financial intermediation, and firm financial decisions.


–Viral V. Acharya, NYU–Stern, CEPR, ECGI & NBER; Heitor Almeida, University of Illinois & NBER; Murillo Campello, University of Illinois & NBER

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Leadership Communication: Four Signs a Company Just Doesn't Get It

When you're analyzing whether a company is a smart investment, it's critical that you evaluate how the company communicates with employees. No corporate strategy, no matter how smart and innovative it is, will succeed if employees can't—or won't—execute the strategy. True leaders know that employees are the audience the company depends on the most. Here are the four danger signs that a company fails to communicate effectively with employees:

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What JPMorgan's Recently Released Internal Reports Unintentionally Say

After apologizing at Davos—but only to his shareholders—according to William Cohan on the Bloomberg View, the JPMorgan Chairman and CEO hastened to add about 2012, “We did have record profits. Life goes on.”

It is true; JPMorgan reported a strong financial performance in 2012, “London Whale” trading fiasco notwithstanding. I must admit that despite my 18 years inside the firm (when it had a meager $300 billion balance sheet), I struggle to comprehend $100 billion of revenues, and a $2.3 trillion balance sheet, with an “off-balance sheet” managed by a few handfuls of mostly male, mostly 30-something traders that is many orders of magnitude larger. Maybe I’m a dinosaur. Life goes on.

Not so fast.

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Of Guns, Whales, Freedom, and Justice

After visiting an awe-inspiring women’s empowerment program at work in several rural villages north of Delhi, our host at the Ashram, scanning his Blackberry, related the news: a horrific shooting…assault rifle…children slaughtered…in a school…in Connecticut (my son’s school is in the state)…and then after what seemed like an endless pause as I grew more anxious…Newtown.

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Book Review: The New Tycoons


For Jason Kelly, “private equity by its nature and design, is secretive, a breathtakingly wealthy corner of the world.” Kelly is a writer at Bloomberg News, where he covers the global PE (private equity) industry. In his new book, The New Tycoons: Inside the Trillion Dollar Private Equity Industry That Owns Everything (Bloomberg) he uncovers hidden aspects of the field. Readers new to PE will find value in the book’s frontmatter, which includes a list of key organizations, individuals, and terms, and a chart illustrating the flow of money. Financial professionals will appreciate Kelly’s depictions of the major businesses and individuals and his coverage of trends and challenges.

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More than the Mainstream: Greater Fools

More than the Mainstream

It looks like the real estate bubble is back! I just got back from a conference where the CEO of Meritage Homes, Steve Hilton, was bragging that Phoenix home prices were going up 2% a month.  He told investors that the cash on his balance sheet would go down as he buys more lots.  He doesn't want to miss the boat on this boom.  Then I saw this article in the Washington Post.

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