Uncertainty makes us free!

I am cur­rently read­ing the great book Against the Gods by Peter Bern­stein and we learn a lot about John May­nard Keynes and its view on risk. Like Karl Pop­per, Keynes believes that we have a very lim­ited knowl­edge. So much that there is no sci­en­tific basis on which to form any cal­cu­la­ble prob­a­bil­ity. In the words of Bern­stein “Keynes’s words bring great new: we are not pris­on­ers of an inevitable future. Uncer­tainty makes us free.”

Couldn’t agree more! Imag­ine if life was cer­tain… how bor­ing would that be!

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Guides and Tips for Researchers

I recently added a new page for my web­site titled “Guides and Tips”. You will find in this sec­tion the fol­low­ing: (1) How to con­duct great research, (2) write great research, (3) pub­li­ca­tion process, and (4) on the job mar­ket + becom­ing a junior fac­ulty + teach­ing tips.

All the doc­u­ments you will find under these four sec­tions have col­lected for the past months. Hope­fully this helps!

 

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Reviewing Less—Progressing More” by Matthew Spiegel — RFS Editor

The cur­rent Review of Finan­cial Stud­ies’ edi­tor Matthew Spiegel recently wrote a bril­liant piece for the recent RFS March 2012 edi­tion titled “Review­ing less — pro­gress­ing more”. This edi­to­r­ial piece con­cerns recent and wor­ry­ing trends in the pub­li­ca­tion process of aca­d­e­mic finance (and prob­a­bly other) studies.

abstract

Pre­sum­ably, aca­d­e­mic jour­nals exist and pub­lish arti­cles to dis­sem­i­nate new ideas. Some­how that sim­ple goal has been lost. Today, arti­cles appear in print only after a ref­eree is con­vinced that all other alter­na­tive expla­na­tions for its results have been ruled out. In real­ity, no arti­cle can exclude every pos­si­ble alter­na­tive, so this is basi­cally an exer­cise in futil­ity. The cri­te­rion for pub­li­ca­tion should be that once an arti­cle crosses some thresh­old it is good enough to pub­lish. The prob­lem seem­ingly lies in our
inabil­ity to say “good enough.” But this is a prob­lem we can fix.

This is a must read! (I par­tic­u­larly adore the last para­graph on page 8 and its fol­low­ing on page nine…“What if an arti­cle is important—that is, peo­ple read and cite it? In that case, aca­d­e­mics will dis­sect its every aspect. Some will exam­ine the article’s data fil­ters; oth­ers will check for cod­ing errors; still oth­ers will look for miss­ing fac­tors or reverse causal­ity expla­na­tions. The list is end­less. But, that is the point. The list is end­less. Authors, ref­er­ees, and edi­tors can­not even scratch the sur­face. Nor do they have to. The fact that our col­leagues will stress test any impor­tant pub­li­ca­tion means our profession’s received canon of knowl­edge has a self-correcting mech­a­nism built in. We have faith that impor­tant arti­cles are “right” because their results have been tested over and over again in myr­iad ways. Instead of try­ing to pre­empt this by demand­ing authors per­form ever more tests, we should instead just let the aca­d­e­mic process work by pub­lish­ing arti­cles if they are likely to be inter­est­ing. After that, let the pro­fes­sion deter­mine if the author’s con­clu­sions are accurate—or rather, that they are inter­est­ing enough to even make check­ing for prob­lems worthwhile”)

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Do Political Institutions Affect the Choice of the US Cross-Listing Venue?

My mas­ters research “Do Polit­i­cal Insti­tu­tions Affect the Choice of the US Cross-Listing Venue? is now avail­able on SSRN. I ended-up co-writing with my research with my the­sis direc­tor and co-director who did a lot of work on the data side.

Abstract:

We study the impact of polit­i­cal insti­tu­tions on for­eign firms’ choice of their U.S. cross-listing venue. Using two mea­sures of polit­i­cal insti­tu­tions (an index of polit­i­cal rights and a polit­i­cal con­straint index) and con­trol­ling for var­i­ous firm-level and country-level char­ac­ter­is­tics, we show that for­eign firms from coun­tries with weak polit­i­cal insti­tu­tions are more likely to cross-list in the U.S. via the over-the-counter mar­ket and less likely to opt for an exchange-listed pro­gram (i.e., New York, Nas­daq, and AMEX).

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Presentation tip #3: Follow John Cochrane’s advice to seminar presentations

John Cochrane of the Uni­ver­sity of Chicago wrote a bril­liant advice paper to PhD stu­dent few years ago. The paper should be read reli­giously by all PhD research stu­dents. The sec­tion on sem­i­nar pre­sen­ta­tions (sec­tion 4) cov­ers short and sweet guide­lines to increase the prob­a­bil­ity of suc­cess when it comes to pre­sen­ta­tions. It may be incom­plete on var­i­ous pre­sen­ta­tion aspects but nonethe­less one of the best place to start think­ing and struc­tur­ing your pre­sen­ta­tions. Below I copy/paste the sec­tion 4 of the paper (page 11–12). Read it care­fully… it is not long!

4 Sem­i­nar pre­sen­ta­tions
You will not believe how fast the time will go by.

Since time is lim­ited, it’s espe­cially impor­tant to get to the point. We can’t skim to the
impor­tant stuff in a seminar!

You don’t need any lit­er­a­ture review or moti­va­tion in a sem­i­nar. Just get to the point.
Gene Fama usu­ally starts his sem­i­nars with “Look at table 1.” That’s a good model to
emulate.

Don’t “pre­view” results. It wastes time; why say it twice rather than say it once, right?

Don’t make slides with a bul­let point for every word you intend to say. This forces you
into a pre­planned order, and then you can’t change on the fly when you figure out how fast
time is going by. Slides are fine that only con­tain equa­tions, tables and graphs — things
we really need to see. At most use words for the one or two really impor­tant things you
want peo­ple to know, e.g. “Identification: inter­est rates do not respond to fiscal shocks in the Ricar­dian model.” Also, you want peo­ple to remem­ber the struc­ture of the model, definitions of vari­ables, etc. If you have too much junk on the slides, peo­ple can’t see the util­ity func­tion while you’re talk­ing about the pro­duc­tion func­tion, so they get lost. Peo­ple don’t remem­ber equa­tions from one slide to the next.

You have to leave slides up for a decent amount of time in order for peo­ple to digest
them. That means you will not be able to put up 1 slide per minute!

As in writ­ing the paper, your main objec­tive is to get to the #1 impor­tant con­tri­bu­tion
as fast as possible.

Most sem­i­nars are a dis­as­ter. They start with point­less moti­va­tion and pol­icy impli­ca­tions, which the audi­ence can’t fol­low since we don’t know the result. Then we get a long
lit­er­a­ture review, which is even more bor­ing since we don’t know the point of this paper
much less what every­one else did. Then we get a results pre­view. Usu­ally, the pre­sen­ter says “I’ll pre­view the results now because I may not have time to get to them all,” a strangely self-fulfilling prophecy. Since show­ing the main results is the only rea­son you came, why not just start right now! Worse, the rea­son we run out of time is because we wasted half an hour on the stu­pid pre­view! The sem­i­nar then bogs down as peo­ple start ask­ing ques­tions about the pre­viewed results; most of the ques­tions are dumb (“I mea­sure the demand elas­tic­ity at 0.3.” “But how did you iden­tify sup­ply shifts?”) since they will be explained in a proper pre­sen­ta­tion of the results. But the ques­tions are totally rea­son­able since the claim with no doc­u­men­ta­tion is mean­ing­less. Next, we get (in empir­i­cal papers) some “theory” that is really beside the point and only serves to pro­voke more need­less argu­ment (no, there really is no way to dis­tin­guish the “behav­ioral” and “ratio­nal” expla­na­tion. Clever audi­ence mem­bers will come up with sto­ries that reverse all the signs.) Then we get some dis­tract­ing pre­lim­i­nary results and tables and graphs of unre­lated obser­va­tions. More point­less dis­cus­sion erupts; peo­ple don’t know what point the speaker is try­ing to make and the dis­cus­sion goes off in to tan­gents. Finally the speaker sees there is only 10 min­utes to go, tells peo­ple to be quiet, and the main results go by in a big rush. Every­one is tired and con­fused and doesn’t fol­low any­thing. I timed the finance work­shop last win­ter quar­ter and not one paper got to the main results in under an hour!

Lis­ten to the ques­tions, all the way to the end, then count to three before answer­ing.
Yes, you’re in a rush, and yes, you think you can guess what the ques­tion will be and you
know the answer. This isn’t a game show, and much of the time you actu­ally don’t know
what the ques­tion will be.

Keep a sheet of paper handy. You may not have a quick answer to every ques­tion, and
some ques­tions may point to good things to change in the paper.

You can­not make it too sim­ple. Most pre­sen­ters, espe­cially Ph. D. stu­dents over­es­ti­mate
dra­mat­i­cally how much the­ory peo­ple can digest in one sit­ting, and how quickly they can
mem­o­rize and digest mod­els and results.

Speak loudly, slowly and clearly.

There’s noth­ing wrong with end­ing early!*

* I bolded the last line… and not John Cochrane. Fin­ish­ing ear­lier does not kill anyone.

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Taking risks in Japan: maybe there is already too much to risk to cope with…

Many say that Japan’s strug­gling econ­omy of the last 20 years is result of the poor entre­pre­neur­ial risk-taking. We know that avoid­ing risk is some­thing that is cul­tur­ally embed­ded. It is known that when you fail once as an entre­pre­neur you will be known as a fail­ure for the rest of your life. Quite hard to get the moti­va­tion to take risk right?

I am cur­rently on my third to Japan (a place that I now call my sec­ond home) and every time I ques­tion how this econ­omy can get back on its feet again. We can always push the peo­ple to take more entre­pre­neur­ial risk but we must rec­og­nize some­thing… that coun­try lives in an envi­ron­ment where dan­gers and risks sur­rounds them day in and day out: tsunamis, every­day earth­quakes, the crazy North Kore­ans, typhoons, vol­canos that can erupt at any moment, and now nuclear risks. Maybe, cul­tur­ally, the indi­vid­u­als are fed up on tak­ing more risks — they have plenty to cope with already!

 

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Creative introduction to a paper

Andrew Lo of MIT has recently wrote a paper which reviews 21 books on the recent finan­cial cri­sis. I haven’t fully read the arti­cle yet but what struck me the most was the anal­ogy to a clas­sic 1950 Japan­ese movie Rashomon by Akira Kuro­sawa in the intro­duc­tion. Very cre­ative way to get the read­ers’ atten­tion right from the start!

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Presentation tip #2: Avoid the podium

Unless you have to do a speech of some­thing like 30min or more (with no slides), please but please avoid the podium! If you are pre­sent­ing with slides, the audi­ence expect you to move around. If you stay behind the podium, we have the impres­sion that you are hid­ing some­thing or you are just sim­ply uncom­fort­able to stand in front of people.

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Moneyball: Why money can definitely help out when you run after under-valued players

Story of Moneyball

I always wanted to read the book Mon­ey­ball by Michael Lewis but I never had the chance. In exchange, I just saw the movie on Lewis’ book (nonethe­less, I still intend to read the book). For those who don’t have a clue what Mon­ey­ball is all about just read the wiki page but roughly the story behind Mon­ey­ball is how a man, a base­ball team gen­eral man­ager, with lit­tle finan­cial resources can com­pete against big pow­er­ful teams with a lot of cash (i.e. Yan­kees and the Red Sox). The “poor” team in ques­tion was the Oak­land A’s and their Gen­eral Man­ager used some sim­i­lar con­cepts of value invest­ing to find play­ers that will give him the best bang for the bucks invested and remain com­pet­i­tive against teams that spend three times more on payroll.

Is it only about stats?

To get the best bang for your bucks invested in play­ers, the Gen­eral Man­ager heav­ily relied on stats (more than just RBI, hit­ting %, etc.) – in part, stats develop by Bill James. One of the goals of the GM was to line-up play­ers with sim­i­lar stats and pick the cheap­est one. Hence, you get the biggest bang for your bucks. More impor­tantly, if the player does not live up to its poten­tial, you will limit the finan­cial cost (sim­i­lar to the mar­gin of safety).

Here’s why money mat­ters and why it is not only about stats

Imag­ine you have two or more play­ers where the stats are almost iden­ti­cal. You will look for the cheap­est play­ers since you have a low salary cap. Here’s why money mat­ters — by that I mean why spend­ing more for some­one with sim­i­lar stats mat­ters. Stats don’t incor­po­rate all aspects of a player such as team lead­er­ship and sports­man­ship. These qual­i­ta­tive skills tend to be incor­po­rated into the salary some GM is will­ing to give to player – which are sig­nif­i­cant to win base­ball play­offs games. So, if a GM selects the cheap­est player among those with the iden­ti­cal stats, he is neglect­ing the qual­i­ta­tive aspect of a player and its unpre­dictable con­se­quences (i.e. there are some play­ers that carry with them a trouble-maker reputation).

Bot­tom line

The bot­tom line is that the more money you have, greater the pos­si­bil­ity to invest more on a player with qual­i­ta­tive or even tacit skills that is hard to quan­tify but how cru­cial in order to win cham­pi­onships. Don’t get me wrong, the stats of a player is fun­da­men­tal and I think what the GM in Mon­ey­ball did was bril­liant but if he had more money to shop around he would have been able to pay extra for play­ers with more qual­i­ta­tive skill. Nonethe­less, the stats deter­mine the price floor (i.e. the player that cost the less given the iden­ti­cal stats with other play­ers is the price floor).

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Favorite albums of 2011

(This is out of topic… but since I am a huge geeky fan of music…)

The time has come for me to share with you my favorites of 2011… Its been a weird year of music. I have the impres­sion that I missed a lot of good albums (have less time to dis­cover music). There was some very excel­lent music that I highly rec­om­mend and other many good albums. This time I have 4 cat­e­gories: (1) EXCELLENT, (2) UNDECIDED between Excel­lent and Good and (3) GOOD… and (4) Excel­lent EPs. Here they are:

(1) EXCELLENT

–Nujabes — Spir­i­tual State

http://www.youtube.com/watch?v=0tvcHbkp25

–Washed Out — Within and Without

–Cun­nin­lyn­guists — Oneirology

–Bon Iver — Bon Iver (I was quite late on this one…)

–Clams Casino — Instru­men­tal 2LP

(2) UNDECIDED between excel­lent and good

M83 — Hurry Up, We’re Dreaming

–The Roots — Undun

–The Week­ends — House of Bal­loons (this one might end up in 1)

–Gang Gang Dance — Eye Contact

–The Field — Loop­ing State of Mind (this one might even­tu­ally go to 1… time will tell)

–One­hotrix Point Never — Replica

 

(3) GOOD

–James Blake — James Blake

–Neon Indian — Era Extrana

–Ran­dom Axe — Ran­dom Axe

–Youth Lagoon — The Year of Hibernation

–Gretchen Par­lato — The Lost and Found

- A Winged Vic­tory for the Sullen

–Onra — Chi­nois­erie part II

–Grouper — Alien Observer

–Araab Muzik — Elec­tronic Dreams

–Cut Copy — Zonoscope

 

 

(4) Excel­lent EPs

–Nico­lay with the Hot at Nights — Shibuya Session

–Sarah MK — Worth It

–Bur­ial — Street Halo

–Onra — Edits (spe­cial for Japan)

…there you go…

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