Tuesday, May 25, 2010

The MBA Oath

Apparently 300 graduating MBAs from Havard have taken the "MBA Oath" this year and pledged to make a positive impact on society.

While this seems a positive development, it is worth remembering that MBA programs have historically had a bit of an ethics problem. A study done in 2006 reported that 56% of MBA students admitted to cheating.

Financial numeracy and subprime defaults

The Economist reports on a recent study that shows sub-prime mortgage defaults are more common among people with lower financial numeracy - basically folks who can't do the math too well.

You can take the numeracy test as well. It's not very long.

Note to my MBA students - if you didn't score 5/5 then I don't want to know.

How are corporations taxed?

I'm teaching Financial Management to MBAs for the next 5 weeks. Last night we talked a little about corporate tax rates. This graphic shows nicely the taxes paid by some well known corporations.

Germany expanding short sale ban?

Germany is thinking of expanding its short sale ban to include all stocks.

Personally, I don't think short sellers are the problem here.

Thursday, May 20, 2010

What happens if you ban short selling?

Common wisdom is that stock prices should rise. But this doesn't always happen as Felix Salmon notes.

Wednesday, May 19, 2010

Germany cracks down on shorting

Germany bans naked shorting. Rather than go after the root cause of the euro problem - they go after the hedge funds.

On a related note, my co-authors and I are just putting the finishing touches to a paper that shows that short sale restrictions in one country lead to more shorting elsewhere, and cause prices to deviate from fundamentals more often. Perhaps I'll send Merkel a copy.

Are stocks overvalued?

Fortune seems to think so.

I have no crystal ball, but it seems reasonable to assume that stocks are not going to earn returns of 5-6% over long treasuries in the future. Somewhere in the 2-4% range seems more reasonable.

Thursday, May 13, 2010

Friday, May 7, 2010

Bennis and O'Toole - wrong about B Schools then, still wrong now.

Bennis and O'Toole wrote a paper a few years back arguing that Business Schools had lost their way and were too focussed on quant methods and not enough on real world issues. Their article was widely criticized when it was published in the Harvard Business Review (a sort of B-school magazine).

I blogged about this a month or two back here.

Well, like a bad penny, they are back with an article in Businessweek updating us on the progress that has been made towards their vision.

But nothing has changed really, they were wrong 5 years ago and they are still wrong.

A great rebuttal of their argument is to be found here in an article by DeAngelo, DeAngelo and Zimmerman.

Wednesday, May 5, 2010

The psychological bias song

Behavioral finance has documented how psychological biases influence investing decisions. Turns out there are many types of bias. Here's a fun little ditty to help you remember them.

HT Freakonomics

A few interesting posts from the blogosphere

Rolf Winkler talks about last night's frontline documentary on for profit education.
The frontline documentary is well worth a look.

Greg Mankiw posts a graphic of what the federal budget will look like in 2020.
Bottom line, after you take out defense, social security, medicare, medicaid and interest expense you're left with 23% that goes to "other". The clear reality, that perhaps the tea party crowd have not appreciated is that if you want to cut the government debt you need to make cuts in these four areas.

Mankiw also talks about price gouging. http://gregmankiw.blogspot.com/2010/05/in-defense-of-price-gouging.html
Apparently there has been a water shortage in New England leading to spikes in the prices of bottled water. Politicians are crying foul and accusing vendors of price gouging. Further evidence of how clueless politicians are when it comes to Econ 101.

Finally, Steve Allen talks about how GM paid back its TARP to the government by borrowing money from the government. Ultimately tax payers are likely to take a $30bn hit on GM. http://stevenallenblog.blogspot.com/2010/05/truth-about-gm-repaying-its-tarp-loan.html