The Finance Professionals' Post

How Much Alpha Is in Preliminary Data?

Illuminating the Differences between Prelim and Final Filings

“In theory there is no difference between theory and practice. In practice there is.”
-Yogi Berra

Companies often report financials twice: first, through a preliminary press release and again in their official, i.e., final, SEC filings. In theory, there should be no difference between the numbers reported in a company’s preliminary financial filings and their final filings with the SEC. In practice, often significant difference can occur between the preliminary and final filings. In this month’s research report, we focus on these observed differences within the S&P Capital IQ Point-In-Time database in order to ascertain the nature and exploitability of these differences. We find that:

The “Altman Z-Score + App” for Assessing the Credit Risk of Companies

This smartphone App provides the client with timely assessments of the credit risk and probability of default of companies on a global basis based on the famed and well tested Altman Z-Score family of models. Business Compass LLC has teamed up with the creator of the Z-Score model, the international global expert on credit risk, Dr. Edward I. Altman, Max L. Heine Professor of Finance at the NYU Stern School of Business and Director of the NYU Salomon Center’s Credit and Debt Markets Program, to provide this important tool for corporate credit analysis.

Costs of Hiring the Wrong Person Go Beyond the Financial

If you ever wonder why companies take so long in deciding which candidate to hire for a particular position, consider this: the cost of selecting the wrong person can run into the hundreds of thousands or even millions of dollars, not to mention the potential negative impact to a company’s reputation, morale, and productivity.

Then there are those stories that grab media attention such as the alleged rogue trader who generated a $2.3-billion-dollar loss for UBS that also led to the resignation of the bank’s CEO who accepted responsibility for allowing it to happen on his watch.

The Hero or the Villain of the Euro

For more than two years, we have witnessed the demise of several European countries, starting with Greece’s shocking assertion in early 2009 that its deficit to GDP was more than double what had been presumed. Most investors and analysts were still not concerned since all major European countries enjoyed high investment grade ratings from the financial market’s watchdog—the major rating agencies. And, the traditional metrics for measuring sovereign debt performance, essentially all top-down macroeconomic indicators, were only just starting to signal a deteriorating scenario. The world’s financial community then began to systematically assess the health of several peripheral southern European countries (the so-called PIIGS [Portugal, Italy, Ireland, Greece and Spain]) leading to a spike in those nations’ required rates of returns on their Government’s debt. Finally, those lofty investment grade ratings began to tumble in 2010 and eventually the European Central Bank and its leading contributing countries were forced to set up rescue packages, first for Greece, then Ireland, now Portugal (still a work in progress).

With the Financial Markets Growing Riskier Why Aren’t Risk Managers More in Demand?

 

Risk management is a lot like anger management. It’s one of those disciplines you don’t really notice until it’s no longer there and things suddenly go awry. To put it simply, risk management is tasked with assessing, mitigating, and monitoring the potential for a bad outcome. When it’s working, everything runs smoothly. When it doesn’t … well, just turn on your television to any business channel.

How Psychological Pitfalls Generated the Global Financial Crisis

ABSTRACT

The root cause of the financial crisis that erupted in 2008 is psychological. In the events which led up to the crisis, heuristics, biases, and framing effects strongly influenced the judgments and decisions of financial firms, rating agencies, elected officials, government regulators, and institutional investors. Examples involving UBS, Merrill Lynch, Citigroup, Standard & Poor’s, the SEC, and end investors illustrate this point. Among the many lessons to be learned from the crisis is the importance of focusing on the behavioral aspects of organizational process.

Acknowledgments: I thank Mark Lawrence for his insightful comments about UBS; Marc Heerkens from UBS; participants at seminars I gave at the University of Lugano and at the University of California, Los Angeles; and participants in the Executive Master of Science in Risk Management program at the Amsterdam Institute of Finance, a program cosponsored with New York University. I also express my appreciation to Rodney Sullivan and Larry Siegel for their comments on previous drafts.

European Safe Bonds (ESBies)

The euro-nomics group^i,*

Markus Brunnermeier, Luis Garicano, Philip R. Lane, Marco Pagano, Ricardo Reis, Tano Santos, Stijn Van Nieuwerburgh, and Dimitri Vayanos

26th of September 2011

INTRODUCTION

The European Union today faces one of the greatest challenges in its existence. The euro-zone, which just at the start of this century was lauded as Europe's great unifying achievement, has given way to states on the verge of default, financial systems that seem as solid as a deck of cards, and a great deal of disappointment with the European institutions. There are many reasons for this state of affairs, most of which fall within the realm of economics. One factor, that is crucial but under-appreciated is that Europe's problems are a consequence of a much wider, world, problem: the lack of safe assets. As a long-term trend, the impressive growth in the developing world during the last two decades has increased the demand for safe assets, as those countries' economic development outpaces their financial development yet they already need to build up reserves to smooth future shocks. As a short-term phenomenon, but one that is here to stay, the financial crisis of 2007–08 showed that financial markets can go through periods of tremendous volatility that have investors plunging towards an asset that is deemed safe.ⁱⁱ.

Modern financial systems rely heavily on safe assets. At the foundation of even the most complex financial securities there is usually a requirement to post as collateral some asset that is deemed safe by the parties involved. Prudent bank regulation, following Basel in its many rounds, requires banks to manage the risk in their assets in proportion to their capital. As a result, a substantial part of any bank's balance sheet must be in safe assets, as defined by the financial regulators. Pension funds are another example of a large class of investors that must hold a significant amount of safe assets, and even the least risk-averse of investors needs, even if only temporarily, to park investments in a safe vehicle. Finally, in conducting conventional monetary policy, the central bank should exchange money for safe bonds.

A safe asset for all of these purposes is one tha is liquid, that has minimal risk of default, and that is denominated in a currency with a stable purchasing power. To meet the large demand we just described, there is very little supply of assets satisfying these three characteristics. As a result, the most used of them, the U.S. Treasury bills and bonds, earn a large "safe haven" premium of as much as 0.7% per year.ⁱⁱⁱ Europe, in spite of the size of its economy and its developed financial markets, and in spite of being home to one of the worlds' reserve currencies, does not supply a safe asset that rivals U.S. Treasuries. This has been noted before. What is less appreciated is that this deficiency is at the heart of the current European crisis.

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In the absence of a European safe asset, bank regulators, policymakers, and investors have treated the bonds of all of the sovereign states in the euro-area as safe for the last 12 years. Bank regulators following the Basel criteria give sovereign bonds held by national banks a riskless assessment in calculating capital requirements, even as insuring against the default of some sovereign bonds using credit default swaps costs more than 5% today. The stress tests of European banks rule out, by assumption, the likely default in some of the sovereign assets held by the banks, making it difficult for investors to trust them. European policymakers have treated Greek and Dutch bonds as identically safe, even though they have traded at widely different prices in the market. The ECB accepts sovereign bonds of all its member states in its discounting operations, and while it applies different haircuts to them, they have been generous towards the riskier sovereigns. In turn, national policymakers have persuaded national banks to hold larger amounts of local national debt than prudent diversification would suggest. Finally, investors have been fervently speculating on whether sovereign states will be bailed out or not by their European partners, alternating between seeing the bonds as all equally safe, or seeing some of them as hopelessly doomed.

This situation led to two severe problems. First it created a diabolic loop, illustrated in Figure 1. Encouraged by the absence of any regulatory discrimination among bonds, European banks hold too much of their national debts, which, far from being safe, instead feeds never-ending speculation on the solvency of the banks. Sovereigns, in turn, face a constant risk of having to rescue their banks, which, combined with the uncertainty on what fiscal support they will receive from their European partners, increases the riskiness of their bonds. Finally, European policymakers lack the institutions and own resources to intervene in all of the troubled sovereign debt markets. The ECB ends up holding the riskiest of the sovereign bonds as the ECB becomes the sole source of financing for the troubled banks.

Figure 1: Diabolic Loop between Sovereign Debt Risk and Banking Debt Risk.

 

Breaking this loop, and giving the euro-zone a chance to survive in the long run, requires creating a European safe asset that banks can hold without being exposed to sovereign risk. However, contrary to what is widely believed, this does not require creating Eurobonds, backed in solidarity by all the European states and their taxing power. Many Europeans are not willing to accept the fiscal integration required by Eurobonds. Moreover, without essential control mechanisms on national public accounts, hastily introduced Eurobonds may lead to a much larger debt crisis in a few years, from which there is no way back. We offer an alternative that creates a safe asset, while eliminating these problems with Eurobonds.

The second severe problem is that, in the absence of a European safe bond, the bonds of some sovereigns at Europe’s center have satisfied the demand for safe assets. In times of crisis, capital flows from the periphery to the center; in boom phases, capital flows from the center to the periphery. These alternating capital flows between searching for “yield” and searching for “safe haven”, generate large capital account imbalances in the Euro area, with associated changes in relative prices and potential disruptions in asset markets.^iv

Our proposal is to create European Safe Bonds (ESB), which we will refer to as ESBies for short.^v They are European, issued by a European Debt Agency in accord with existing European Treaties, and do not require more fiscal integration than the one we already have. They are Safe, by virtue of being designed to minimize the risk of default, being issued in euros and benefitting from the ECB's anti-inflation commitment, and being liquid as they are issued in large volumes and serve as safe haven for investors seeking a negative correlation with other yields. They are Bonds, freely traded in markets, and held by banks, investors and central banks to satisfy the demand that we described.

Combined with appropriate regulation that gives the correct risk weights to sovereign bonds, ESBies could solve the two problems that we just described. Banks would have an alternative to sovereign bonds, allowing them to become better diversified and less dependent on their country’ public finances. Moreover, the flight of capital to a “safe haven” would no longer be across borders, but across different financial instruments issued at the European level.

This document lays down the details of how ESBies work. The next section explains the proposal. Section 3 lists the main benefits that ESBies would bring. Section 4 to 6 go deeper into the nuts and bolts of ESBies explaining, in turn, how their composition is determined, how their safety is ensured, and how they would be issued. Section 7 compares our proposal with alternatives, the leading one being Eurobonds. Section 8 briefly concludes.

ESBies: THEIR STRUCTURE AND USE

In one sentence, ESBies are securities issued by a European Debt Agency (EDA) composed of the senior tranche on a portfolio of sovereign bonds issued by European states, held by that agency and potentially further guaranteed through a credit enhancement.

In more detail, our proposal is for the EDA to buy the sovereign bonds of member nations according to some fixed weights. The weights would be set by a strict rule, to represent the relative size of the different member States. There would be no room to change the weights by discretion to respond to any crises, perceived or real. Therefore, the EDA cannot bail out a nation having difficulties placing its sovereign debt. It would typically run a boring business that does not make the headlines: It would simply passively hold sovereign bonds as assets in its balance sheet, and use them as collateral to issue two securities.

The first security, ESBies, would grant the right to a senior claim to the payments from the bonds held in the portfolio. If the tranching cut-off is X%, then the first X% lost in the pool of bonds because of potential European sovereign defaults would have no effect on the payment of the ESBies. The remaining 1-X% of revenues from holding the bonds would go to the holders of the ESBies. The number X% is relatively large, so that even in a worst-case scenario (e.g. a partial default by Greece, Portugal and Ireland and a haircut on Italian and Spanish debt), the payment on the ESBies would not be jeopardized. On top of it, the EDA, using some initial capital paid in by the member states, would offer a further guarantee on the payment of Y% of the ESBies, so that it would take losses of more than Y+X% before the ESBies did not offer a perfectly safe payment in euros to its holders. As long as this sum was picked adequately, the ESBies would be effectively safe. European banks, pension funds and the ECB would be a natural starting clientele for the ESBies, but as their reputation grows, they could be as widely used as US Treasuries are used today all over the world. They could also be used as reserve currency assets by countries such as China, Brazil, the OPEC, etc.

The second security, composed of the junior tranche on the portfolio of bonds, would be sold to willing investors in the market. In contrast with the ESBies, this is a risky security, akin to an equity claim on the EDA (but obviously without control rights). Any risk that a sovereign state may fail to honor in full its debts would be reflected in the expected return on this security. Any realized losses would be absorbed by the holders of this junior security, and not by the EDA nor the European Union nor its member States. Investors that want to hedge (or even speculate) on the ability of European member states to repay their debt would be willing to hold and trade this security.

Beyond being correctly designed and issued, the success of the ESBies depends on two regulatory changes. First, the ECB would grant strict preferential treatment to ESBies, accepting them as its main form of collateral in repo and discounting operations. In effect, the ECB would still be holding sovereign bonds as assets, but now indirectly via the ESBies; and, importantly, it would only hold the safest component of these sovereign bonds. Because of the fixed weights in the ESBies, this would be consistent with conventional monetary policy, where open market operations trade money for safe ESBies without creating credit risk for the ECB and ensuring it has a safe balance sheet. Second, banking regulators, including Basel, would give a zero risk weight to ESBies, but not automatically to other sovereign bonds. The new risk weights for European sovereign bonds will reflect their default risk just as risk weights reflect the risk on banks’ holdings of other assets such as corporate bonds or corporate loans.

Figure 2 summarizes the details in this description. There are three parts of the proposal that require further explanation: how to set the weights in the portfolio of sovereign bonds? How to choose the size of the ESBies relative to the junior tranche and the credit enhancement? And how would the EDA operate day-to-day? These are explained in more detail in sections 4 to 6. But, before discussing the details in more depth, we summarize the virtues of the proposal.

Figure 2: Graphical Representation of Tranching with Possible Credit Enhancement.

 

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NOTES

*Euro-nomics is a group of concerned European economists, unaffiliated with any of their respective national governments. Their objective is to provide concrete, carefully considered, and politically feasible ideas to address the serious problems currently faced by the Eurozone. Their affiliations can be found at the end of the present document and on www.euro-nomics.com

^i. This is an extract from a chapter of a book being produced as a larger project, Project Europe, by the euro-nomics group: www.euro-nomics.com. That project proposes a new institutional framework for the European financial system to overcome the current crisis. European Safe Bonds are one of the legs of that proposal, and are explained in this document. We are not sponsored by any organization or institution and are independent from any country or policy institution.

^ii. Farhi, Gourinchas and Rey (2011) go in detail over the many reasons why the demand for safe assets far outstrips supply today.

^iii. Krishnamurthy and Vissing-Jorgensen (2010) estimate this premium.

^iv.Some empirical evidence for the “flight to safety premium” for German bunds is that their yield sank to an almost record low in August and September, while at the same time the CDS spread for German bunds increased, indicating that even Germany’s default risk was increasing.

^v.ESBies has the merit of capturing the sound of two possible initials for the securities, ESB for European Safe Bonds, and ESBBS for European Sovereign Bond-backed Securities.

Fully Flexible Extreme Views

The combination of subjective views within a broadly accepted risk model is one of the main challenges in quantitative portfolio management. Indeed, any risk model, be it based on historical scenarios, parametric fits, or Monte Carlo scenarios generated according to a given distribution, is subject to estimation risk and thus it is inherently flawed. Therefore, it is important to provide a framework that allows practitioners to overlay their judgement to any risk model in a statistically sound way.

Astrology and Economic Forecasts

John Galbraith once said that “The only function of economic forecasting is to make astrology look respectable.” Although many of us are avid readers of economic forecasts issued by the OECD, the IMF, and the EU (the government’s forecasts attend to suffer from a general lack of creditability), it is questionable if our confidence in them is well founded. In my opinion, which is based on my experience, it is not.

Are Buy-Backs on a Rising Market Always a Bad Move?

In an article in the Financial Times, “Buy-backs on a rising market are always a bad move” on Monday, June 13, 2011, Tony Jackson made the argument that share buybacks are a failed strategy because companies are buying back stock more frequently when stock prices are high than when they are low. He framed the argument in terms of recent actions by ExxonMobil to use stock to buy XTO Energy last summer and subsequently to increase its buyback program. He stated “Logically, the first action made sense only if Exxon thought its stock was over-valued. The second made sense only if it thought the opposite.”

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.

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.)

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.

Do CEOs Get Penalized for Reporting Losses?

The decision to replace a CEO is probably one of the most important decisions made by the board of directors. The decision has long-term implications for a firm’s investment, operating, and financing decisions. CEO turnover was around 10% per year during the 1970s and 1980s and 11% in the 1990s. However, between 1992 and 2005, annual CEO turnover jumped to 15%. In the more recent years since 1998, CEO turnover is around 16.5%, implying that the average CEO tenure is just over six years. More importantly, boards have become more sensitive to firm performance and are acting decisively in response to poor performance. Overall, the results suggest that the CEO’s job is more precarious than previously thought.

eFinancialCareers Survey Reflects Opportunities for Job Seekers in All Financial Sectors

This could be a good year for job seekers in the financial sector. The latest eFinancialCareers survey released today found that nearly two out of three (62.1%) financial professionals plan on moving to a new employer in 2011. Moreover, four out of five (80.5%) say their current employer has not offered them any positive incentives to stop them from jumping ship.

Continue reading "Opportunities for Job Seekers in All Financial Sectors" »

BP’s Failure to Debias: Underscoring the Importance of Behavioral Corporate Finance

“BP has a systemic problem with its culture that runs deep.”

–Ending the Management Illusion, Shefrin (2008), p. 95.

“In the view of the Commission, these findings highlight the importance of organizational culture and a consistent commitment to safety by industry, from the highest management levels on down.”

–Report to the President, National Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling, (2011), p. ix.

1. INTRODUCTION

In this paper, we apply key concepts from behavioral finance to document how psychological biases and framing effects impacted corporate culture and management decisions at energy firm BP. On April 20, 2010, an accident drilling BP’s Macondo well in the Gulf of Mexico produced the worst environmental disaster in US history, an event which dominated the daily news during the spring and summer of 2010. In itself, this event makes for the study of BP’s decision making of interest, prompting the question of whether the April 20 accident was simply an unfavorable chance event or instead the result of biased decision making.

Positions in Operational Risk On the Rise

Operational risk remains a focus for trading operations and for good reason. Banks and investment firms say they’re worried about repeating the errors of the past. But just where do the operational risk managers and the quants meet, for instance? That’s been a serious point of contention.

Continue reading "Positions in Operational Risk On the Rise" »

The Threat of Losing the AAA is Self-Fulfilling

On Monday, April 18, Standard and Poor’s (S&P) put the US’s sovereign rating on negative outlook. The action was prompted by the continued deterioration of the US’s fiscal imbalances and the lack of urgency with which US political leaders have approached the country’s fiscal problems. By citing that Canada, the UK, France, and Germany all have better fiscal profiles including both better financial leverage ratios and stronger political discipline to manage their countries’ finances the rating agency has signaled that the US has lost its global financial pre-eminence. Such pre-eminence has allowed it to issue bonds at a premium to comparables and have a fiat money that has served as the world’s reserve currency. The US’s reign of global financial dominance has now officially ended.

Pushing the Threshold: New Uses for Exposures Analysis

When we began building our Security Exposures Analysis functionality, the focus was on understanding an exposure to particular criteria—what I call “thematic exposures.” For example, our clients could understand their total firm or group exposure, across every portfolio, to Japanese companies, or big oil. Since then, users have branched out into entirely new analysis methods. They have used exposures analysis to fit a variety of different settings. In all of our conversations with clients, the way people used the product suggested another approach to the analysis being performed: One that focused not on thematic exposures only but also on threshold exposures.

Reputational Risk

The global financial crisis of 2007–2009 was associated with an unprecedented degree of financial and economic damage. For investors and financial intermediaries, the estimates seem to have risen to over $4 trillion or so worldwide by the time things began to stabilize, according to the International Monetary Fund (2009). Along with the financial damage has come substantial reputational damage for the financial services industry, for financial intermediaries and asset managers, and for individuals.

Structured Product Portfolio Managers are Faring Well

Don’t believe the hype. Despite the negative profile structured credit products have received during the past few years, some jobs in the space remain pretty secure. Maybe the people on the trading and sell side weren’t so lucky, but the jobs of portfolio managers with a specialized skill never went away. Even as banks were forced to slough off some of their exotic products, hedge funds and pure asset managers firms stayed in the game.

Continue reading "Structured Product Portfolio Managers are Faring Well" »

Hedge Fund Hiring, Apprentice-Style

With all the Wall Street types who are looking for jobs, and those eager to jump ship, Aram Fuchs, a partner at Fertilemind Capital, figured it’d be no problem filling a senior and junior analyst position at his hedge fund. But when his networking, interviews and other efforts didn’t yield the kind of candidates he was looking for, he decided to take another tack: hold a contest à la Donald Trump’s the Apprentice and award the gigs to the winners.

A Blueprint for Mortgage Finance Reform

JUMP TO: TIMELINE | Q&A | THE ADMINISTRATION'S PLAN

The goal of reforming housing finance should be to ensure economic efficiency, both in the primary mortgage market (origination) as well as in the secondary mortgage market (securitization). By economic efficiency, we have in mind a housing finance system that

• corrects any market failures if they exist; notably in this case is the externality from originators and securitizers undertaking too much credit and interest rate risk as this risk is inherently systemic in nature;
• maintains a level-playing field between the different financial players in the mortgage market to limit a concentrated build-up of systemic risk; and
• does not engender moral hazard issues in mortgage origination and securitization.

Motivated from economic theory, we argue that such a mortgage finance system should be primarily private in nature. It should involve origination and securitization of mortgages that are standardized and conform to reasonable credit quality. The credit risk underlying the mortgages should be borne by market investors, perhaps with some support from private guarantors. There should be few guarantees, if any, from the government.

What’s Your Risk? Single Name Security Exposure Analysis

Over the last two months, I’ve visited many of our portfolio analytics clients in the U.S. to gather feedback on FactSet’s new Single Name Security Exposures tool. Single Name Security Exposures lets you look across all portfolios or a subset of portfolios to quantify your exposure to a security, an issuer, an industry, a country, or a specific set of securities. Simply put, it tells you how much you own and where you own it.

Does Past Performance Matter? The S&P Persistence Scorecard

Investment professionals often consider measures of past performance and related metrics when selecting funds. So how much does past performance really matter? To help answer this important question, the S&P Persistence Scorecard, produced twice a year, tracks the consistency of top performers over consecutive annual periods. The latest Scorecard shows that very few funds manage to consistently repeat top-half or top-quartile performance. In fact, over the five years ending September 2010, only 4.1% of large-cap funds maintained a top-half ranking over five consecutive 12-month periods. 

How to Fake Charisma

If you’re going for any client-facing role in an investment bank, it will help if you have it. It will also help if you want to get promoted. And it will help if you’re interviewing 20 times at Goldman Sachs to establish your fit likeability in the eyes of potential colleagues.

But what happens if you’re not charismatic? What happens if you have the magnetism of a cucumber? Fortunately, this can be overcome.

Click here to read the full article. 

Four Simple Steps to Improve Your Relationships with Recruiters

Though more and more companies are actively seeking candidates online, nothing can yet compare to the advantages of using a flesh-and-blood recruiter who specializes in your field. eFinancialCareers provides some quick tips for getting the most out of your interaction with recruiters.

Click here to read the full article.

UBS Really Needs to Stop Paying So Much, but Absolutely Insists It Won’t

eFinancialCareers takes a look at the recently released financial results from UBS. Despite the fact that UBS is absolutely nowhere near reaching its targets, UBS insists that it WILL pay its investment bankers this year.

Click here to read the full article. 

Cold Calling: How to Break Through the Secretary

We've all been there; having found the key person in the business to speak to about a possible job in your area of expertise, you fire up for a cold call in an attempt to sell yourself. Unfortunately, rather than the man himself, you end up having to try and persuade his assistant you're worthy of his attentions.

Click here to read the article.

Access to Volatility via Listed Futures

While it is impossible to directly access spot volatility (VIX(r)), futures and futures-based indices can provide broad access to what has been dubbed the "investor fear gauge." Though they do not track the spot VIX perfectly, these indices have a strong negative correlation with the S&P 500(r) index. The term structure of volatility has a profound impact on index characteristics and is key to efficient usage of these instruments.

To learn more, read the latest research.

Strategies for Avoiding Hiring Freezes

As usual, at this time of year, hiring is becoming increasingly frozen. If anything, it may be worse this year because: (a) banks got a little carried away and may have hired too many people, and (b) they’ve announced redundancies and can’t be seen to be recruiting anyone while they’re trying to reallocate internally.

Click here to read the full article.

Why Have REITs Been So Strong?

Despite the recent slump in the real estate economy, publicly traded REITs (real estate investment trusts) have been outperforming dramatically. REITs are also significantly ahead of the stock market, beating year to date returns of 2.3% for the S&P 500 and 5.2% for the Russell 2000 (see Table 1).  That’s not much of a surprise, since REITs have surpassed the stock market over nearly any historical period since inception of the FTSE NAREIT U.S. Real Estate Indexes in January 1972.

Equity Research, Management Consultancy, and FIG: Where You Could Possibly Get Hired Before the End of the Year

As a salve for the selection of recent articles about hiring freezes and redundancies, here’s something more uplifting: an affirmation that there is hiring happening, somewhere.

Here’s where:

1) Equity research

Yes, there IS hiring in equity research. Financial News today reports that MF Global wants 20 equity analysts "across the world" before the end of the year. According to one equity research headhunter, six of these hires will be taking place in London.

Click here to read the full article.

 

Five Things NOT to do if You Want to Pass the CFA Exam

Suffice to say, considering the relatively low pass rate, getting through the rigors of all three exams to become a CFA charterholder is not an easy task. But there are many ways you can shoot yourself in the foot.

Aside from not putting in the study time—recommended at around 300 hours per level—there are surprisingly common mistakes or assumptions people taking the exam make, which often make the different between a pass and a fail.

Click here to read the full article.

Six Reasons Why Wall Street's Hiring Recovery Bypassed You

Hardly a day goes by without a fresh headline about Wall Street firms adding jobs or wrestling each other for possession of a star banker or trader. Yet you're not only still looking—what gives?

Click here to read the article.

New Data Uncovers Opportunities in the IPO Market

This white paper, authored by Renaissance Capital, examines how and why the IPO market attracts such a significant amount of capital, and explains the benefits of incorporating IPOs into the asset allocation strategy and shows that if structured properly, IPOs can add superior risk-adjusted returns to a portfolio. Renaissance highlights the FTSE Renaissance IPO Composite Index, which is the first comprehensive benchmark index to track the activity and performance of the US IPO market. This index can be used to accurately compare the performance of the IPO market to the broader equity market. 

Click here to read the white paper "New Data Uncovers Opportunities in the IPO Market."

The FTSE Renaissance IPO Index Series, includes a set of indexes designed to give investors unparalleled exposure to the investable US IPO market.

REITS: Real Estate With A Return Premium

The FTSE NAREIT US Real Estate Index Series is designed to present investors with a comprehensive family of REIT performance indexes that span the commercial real estate space across the US economy, offering exposure to all investment and property sectors. The product suite provides investors with an index series that has additional transparency that acts as a catalyst for growth in the ETF and index fund arena.

This research, compiled by NAREIT provides a detailed comparison of the investment performance of publicly traded REITs and private equity real estate funds, as well as the reasons for REITs outperformance. NAREIT used the FTSE NAREIT Equity REIT Index (an index of 106 U.S. REITs with an aggregate market capitalization of $295 billion whose constituents manage estimated property assets of $500 billion) to measure the performance of REITs.

Click here to read the special report REITS: Real Estate With A Return Premium.

Our Take: Sub-Prime CDO Fraud and Your Career

We interrupt this earnings season for a bulletin: Practices that were considered business as usual in the securitization market a few years ago can suddenly land you in a heap of trouble.

Click here to read the article. 

A New Approach to Equity Investing

FTSE has partnered with Westpeak Global Advisors to launch a new equity style index offering. The new FTSE ActiveBeta Index Series is based on research from Westpeak identifying that momentum and value—two widely used approaches to active management—are, in fact, systematic sources of returns and should therefore be viewed as additional forms of beta (or market) returns, or ‘active betas’. The research also provides evidence of the counter-cyclical nature of momentum and value returns, which implies that the combined capture of momentum and value should provide superior risk-adjusted performance compared to the capture of either momentum or value alone.

Click here to read the white paper.

Human Collateral: How to Keep Unemployment from Sinking Your Marriage

Divorce rates during the past recession fell slightly. Experts attribute this to the fact that a) divorce is cost-prohibitive during down times, and b) tough economies bring people closer to their loved ones and core values. But there's little doubt that a lack of funds hurts matters at home.

Emma Johnson, a columnist for eFinancialCareers, examines the impact that strained finances can have on a marriage in this article. 

Google as an Income Play? Huh?

Especially in today’s fast-changing market, it doesn’t matter whether you are a value investor, momentum investor, research analyst or manager of a long/short portfolio. Having the ability to objectively validate, contextualize and compare the expectations and risk that drive a stock’s price are crucial for maintaining consistently strong investment performance. Click here to try the Market Topographer^TM web-based stock analysis platform and see for yourself.

What do you think would happen if tomorrow, Google’s management announced that its days of exceptional growth were coming to an end? That looking out beyond the next couple of years, it no longer saw opportunities to sustain 17%+ growth due to the competitive environment and its sheer size. Instead it was looking at a long term sustainable growth rate of 10% going forward.

Currency Indexing: The Forward Rate Bias as an Alternative Beta

Although currency is often referred to as an asset class, the arguments to treat it as such have not been compelling enough to draw serious attention from the global institutional investor community. One possible reason for this is the absence of a universal view on the “beta” or market return available from currency investment.

Added Transparency in Securities Lending

The recent financial crisis heightened awareness of the securities lending market; however, as an over-the-counter, historically opaque area of the financial markets, relatively little information about the securities lending market is publicly available. With the launch of the S&P Securities Lending Indices, S&P Indices has created a useful tool for a variety of analytical purposes including the identification of potential new trading, hedging, and investment opportunities. 

Click here to read the white paper.

A Comparison of the Returns Performance for Reported and Revised Measures of Cash Flow

Traditional measures of cash flow are typically based on GAAP-defined calculations of operating cash flow. However, as documented extensively in Financial Warnings (Mulford and Comiskey, 1996), The Financial Numbers Game: Detecting Creative Accounting Practices (Mulford and Comiskey, 2002), and especially, Creative Cash Flow Reporting: Uncovering Sustainable Financial Performance (Mulford and Comiskey, 2005), cash flow measures based on GAAP are easily open to manipulation and, because they exclude the implied cash effects of non-cash transactions, are often misleading. 

Investment Opportunities for a Low Carbon World

As markets globally struggle with recession, a core part of the message from many political leaders to their citizens is that economic growth can be stimulated in part by investment in the technologies, infrastructure and services that will enable the transition to a low carbon economy.

Are Growth Stocks Experiencing Déjà Vu All Over Again? Don’t be Fooled This Time!

Especially in today’s fast-changing market, it doesn’t matter whether you are a value investor, momentum investor, research analyst or manager of a long/short portfolio. Having the ability to objectively validate, contextualize and compare the expectations and risk that drive a stock’s price are crucial for maintaining consistently strong investment performance. Click here for a free trial of the Market Topographer^TM web-based stock analysis platform and see for yourself. 

Added Transparency in Securities Lending

The recent financial crisis heightened awareness of the securities lending market; however, as an over-the-counter, historically opaque area of the financial markets, relatively little information about the securities lending market is publicly available. With the launch of the S&P Securities Lending Indices, S&P Indices has created a useful tool for a variety of analytical purposes including the identification of potential new trading, hedging, and investment opportunities. 

Click here to read the white paper.

A Beta for Sentiment?

The interaction of human emotion and asset pricing has been the focus of much behavioral finance research. Sentiment indicators, which seek to quantify the emotional states of market participants, play an important role in understanding and guiding action based upon this dynamic. In response to the lack of a tradable sentiment index, S&P Indices proposes a frequently-calculated, tradable Sentiment Beta index composed of six metrics of sentiment.

Click here to read the paper. 

Anchoring Valuation of U.S. Stocks in a Fast-Changing Marketplace

Relatively early in the financial crisis and before the most severe market dislocations were to occur, Federal Reserve Chairman Ben Bernanke was asked while speaking at a luncheon at the Economic Club of New York, what information he would find most useful in developing a strategy to navigate the financial crisis? He said “I’d like to know what those damn things are worth”, referring to the toxic assets and complex derivatives which were valued based on black box algorithms. Given the uncertainty and rapid change that have enveloped the equity markets over the past two years, the same could be safely said about the valuation of common stocks as well.

Trends in Free Cash Margin

In the current study, Dr. Charles W. Mulford, CPA, looks at trends in free cash margin for U.S. nonfinancials using a series of rolling twelve-month measurement periods over a time frame that includes two recessions. 

Click here to read the article. 

For more information on free cash margin and Cash Flow Analytics’ other proprietary metrics, please go to www.cashflowanalytics.com/register.php and register to learn more about Cash Flow Analytics’ quantitative and qualitative investment research and analysis solutions.