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9 posts from October 2013


Recent Research: Highlights from October 2013

"A Conditional Assessment of the Relationships Between Commodity and Equity Indexes"
The Journal of Alternative Investments (Fall 2013)
David P. Simon

This study models the conditional relationships between the Goldman Sachs Total Return Commodity Index and Sub-Indexes and the S&P 500 index from January 1991 through June 2011 within a bivariate GARCH framework that uses instruments to model time-varying conditional correlations. The results indicate the presence of important spillovers between the conditional means and volatilities of commodity and equity index returns. The findings also indicate that conditional correlations increase from roughly zero to about 0.4 during the sample period, consistent with an increased integration of commodity and equity markets. The results also indicate that conditional correlations rise when the conditional volatility of equity returns increases and when business cycle conditions deteriorate. The greater integration of these markets is also reflected in the increase of conditional betas from around zero to roughly 0.6 over the sample period. Overall, the results indicate that while the diversification benefits of commodities diminished over the sample period, the estimated conditional correlations remain low enough for commodities to provide meaningful diversification benefits to equity investors.

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Setting Your CFA Sights on December 7, 2013

CFA Exam Prep

The December Level I exam is right around the corner. My guess is you are probably viewing this looming date a bit like FDR’s "day of infamy." But if you created a study plan – and kept to it reasonably well – then December 7th does not have to be a day that makes you want to declare all-out war. So let’s see if you are on target.

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Book Review: The Downfall of Money


I still remember a conversation with Pat Hyland, Chairman of Hughes Aircraft, when I was director of their pension fund investments. Pat recalled being in Germany in the early 1920s, seeing people with wheelbarrows filled with paper money. This lasting memory prompted his concern to protect the pension fund from inflation. In Germany to this day, the hyperinflation era continues to influence government fiscal policy and attitude. Frederick Taylor's The Downfall of Money: Germany's Hyperinflation and the Destruction of the Middle Class recalls that financial crisis, and how it affected the public.

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50 Things You’ll Need to Sacrifice If You Want to Make It in Banking

1. Sleep

Heard of the ‘Magic Roundabout’? No? Familiarize yourself, especially if you plan to work as a junior in M&A.

2. Lunch 

It’s supposedly for wimps…

In fact, you will probably have lunch. Banks like Goldman have impressive cafeterias for this exact purpose. But you will probably have a quick lunch and may not leave the building or your desk in order to purchase and consumer it.

3. Midweek sorties with old friends

There’ll be none of that. Old friends who work in government-type jobs might be meeting up for midweek drinks. You will have drinks with the team, or not at all.

4. Midweek sorties without any friends

Most banks will feed you if you work late enough into the evening. Grocery shopping will become a thing of the past.

5. Saturday mornings in the countryside

You’ll be in bed, or at work.

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NYSSA's First Annual Global Infrastructure Conference

Infrastructure is very much on the mind of the American and global investment community at large.  The International Finance Corporation’s Asset Management Company recently completed $1.2 billion in financing (exceeding a $1 billion target) with commitments from 11 investors, including sovereign wealth funds from Singapore and sovereign and pension fund investors from across the globe.  In a recent editorial for Bloomberg law, Jay Tannon, a partner at Patton Boggs LLP, suggested a national infrastructure authority in the US to oversee much-needed improvements across the country.  A recent statement by Liberian President Ellen Johnson Sirleaf that the Dallas Cowboy’s new football stadium uses more electricity than the total capacity of her country prompted detailed responses from sources as diverse as The Wall Street Journal and the Brookings Institution. 

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New Faculty Publication: Global Asset Management: Strategies, Risks, Processes and Technologies

Global Asset Management: Strategies, Risks, Processes and Technologies, edited by Professors Michael Pinedo and Ingo Walter, focuses on all major aspects of the asset management industry including regulations, strategies, processes, applied technologies and risks. It is the first book that addresses the key issues facing the industry and this will provide a comprehensive reference for asset managers; banks, investment banks and prime brokerages; regulators; and vendors. The book collects the thoughts of experts – insiders as well as outsiders with no conflicts of interest – on the complex and dynamic issues that confront the global asset management industry, addressing questions such as:

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12 Tips for Getting a Job When You Have ‘Too Much Experience’


There is no question that cost-cutting and redundancies have been more detrimental to senior staff than junior-level bankers. Not only are they an easier target – due to their high price tag – but it’s also more difficult for experienced bankers to find new work. With fewer senior-level jobs available, many have begun applying and interviewing for more junior roles. Needless to say, scoring a job with “too much experience” is a tough task.

Last month, we offered some philosophical tips on how to combat ageism – an all-too-real phenomenon on Wall Street and in most every other sector. To follow up, we wanted to offer some more concrete tips on how to go about the job search when you’re overqualified – from networking to resume writing to the critical interviews.

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How I Gained 5,000 Twitter Followers in 4 Years

This is not a get-rich-quick or even a quick-success story, but you’ll find some helpful Twitter tips in it.

After four years I hit 5,000 Twitter followers in April 2013. Five thousand—which grew to 6,000* by the time of this post—is not a lot compared to Justin Bieber’s 44,055,359 fans or even The Motley Fool investing website’s 436,638 fans, but it’s not bad in the world of financial advisors, asset managers, and niche writers where @MichaelKitces is a star with 9,305 followers (all stats as of September 3, 2013).

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The Wisdom of Stupid Questions

One Eastern fable tells of animals that want to build a bridge to greener pastures. The elephant proposes to build a wide, strong bridge, the bunny wants to build a light one, and so on. The jackass says that the group should decide whether to build the bridge across or along the river.

Sitting in the midst of the Marcellus shale, considering the debates between energy companies and environmentalists about the costs and benefits of fracking, I develop a feeling similar to the donkey’s. The proponents of fracking emphasize the supposed contribution of a cheap “natural” gas to the national economy. Environmentalists concentrate on the emission of greenhouse gases and the pollution of streams and water tables. Yet I have not been able to find an answer to a simple question, one that I formulated long ago: is fracked gas (a product of underground gasification of hydrocarbon-saturated shale—I call it “shale gas” below) a complete substitute for natural gas that comes from traditional sources (“wellhead gas”)?  

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