The Finance Professionals' Post

Majority of US Finance Professionals Expect the Global Economy to Stagnate or Deteriorate

Is it time to stop thinking globally, and to start focusing locally? That’s more or less the consensus among more than 3,700 professional accountants who believe not only has international trade continued to dry up, but that the global economy will continue to erode while those industries that focus domestically will inspire greater confidence.

Wall Street in Widescreen: The Financial Crisis of '08 in Cinema

In the fall of 2008, as investment banks exploded and their debris cascaded upon the middle and lower classes, many Wall Street CEOs continued receiving bonuses worth millions. The Financial Crisis of 2008 fit Hollywood’s formula for profit—power, corruption, and lies equal ticket sales—so the recent spate of crisis-related films is not surprising. It is important to analyze the most noteworthy of the new films because they will, undoubtedly, become historical references in their own right in years to come as they help to define the Financial Crisis of 2008 for millions of moviegoers.

Book Review: The Hedge Fund Mirage

If you want the truth about hedge funds and how to invest in them, The Hedge Fund Mirage: The Illusion of Big Money and Why It's Too Good to Be True is a must read. An especially important picture of a major part of financial services, this book provides insight into a field of which little information is publicly available.

Despite the increased fortune hedge funds produce, their investors barely profit. As the book reads, “investors would have made more putting their money into treasury bills instead.” Currently risks and returns favor the hedge fund managers. Of course, this was not always the case. During the 1990s, there were fewer hedge fund investors, which, to some degree, allowed for greater profitability. Owing to this shocking truth, author and hedge fund expert Simon Lack provides an in-depth inside look into the world of hedge funds in an effort to help put the investors back on top.

Is the Quant Social Butterfly This Year’s Purple Squirrel?

Each year a new “super candidate” emerges among executive recruiters panning the streams for that next “gold” standard among employer expectations. Those of us in the business of connecting job seekers to job openings refer to these rare and often “too good to be true” candidates with the perfect combination of skills, personalities, and knowledge as a “purple squirrel”—representing that difficult-to-find person who may only exist in the imagination.

Talking to recruiters and hiring managers, it appears this year’s purple squirrel could be what one headhunter called the “Quant Social Butterfly”—that candidate who can excel both in the mathematically challenging world of quantitative analysis and in the “real world,” where he or she can be personable, likeable, and able to communicate and relate easily to others in a variety of social situations, such as client dinners and events.

Item Sets Define the Level II Exam

Multiple choice questions are used to test knowledge on both the Level I and II exams, but there is a significant difference in the formats of the two exams. The Level I exam is an onslaught of multiple choice questions grouped by subject, but not tied to another question in any way. Level II, on the other hand, groups questions in "item sets". This difference in exam format changes the way candidates need to prepare for the exam.

Nick Robins Provides Insight on the Climate Bonds Initiative

We spoke recently with HSBC’s Nick Robins to learn more about his participation as a member of the advisory panel to the Climate Bonds Initiative. In 2007 Robins launched HSBC’s Climate Change Center for Excellence, which analyzes the long-term commercial consequences of climate change for the HSBC Group and its clients.

The Climate Bonds Initiative is a not-for-profit collaboration among investors, policymakers, academics, and environmental NGOs seeking to support the development of a transparent global market for bonds issued to raise funding for climate-change mitigation and adaptation projects. This is the first in a series of articles about this rapidly evolving, critical initiative. Next month we will talk with Sean Kidney, Chair and co-founder of the Initiative, about standard setting and product development.

Book Review: The Growth Map

Ten years ago Jim O'Neill, chairman of Goldman Sachs Asset Management, changed the field of global investing by coining the now iconic phrase, “BRIC”—abbreviated for the four countries that he and his team predicted as the main emerging economies. Brazil, Russia, India, and China—countries that he said would eventually surpass the six largest Western economies, and changed the scope of emerging markets. In his new book, The Growth Map: Economic Opportunity in the BRICs and Beyond, O’Neill provides a firsthand account of the evolution of “BRIC,” and where these countries currently stand. He also introduces a new prediction: the "Next Eleven" countries: Bangladesh, Egypt, Indonesia, Iran, Mexico, Nigeria, Pakistan, Philippines, South Korea, Turkey, and Vietnam. These countries, according to O’Neill’s prediction, will offer great opportunities for investors over the next decade, similar to the BRICs.

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.

How Should I Study for the CFA Exam?

"How should I study for the CFA exams?"

-Anonymous

In my previous article, “When Should I Start Studying for the CFA® Exam?”, I outlined how a candidate should prepare for the CFA Level I, II, or III exams in June and the CFA Level I exam in December.

The most important point I raised in Part I is that you should have finished reading the curriculum readings and/or your prep provider’s materials by April 15th if studying for the June exam and October 15th if studying for the December exam.

This second article will help you understand what you should be doing from April 15th until the June exam day or from October 15th until the December exam day. If you have completed the CFAI curriculum readings or the prep provider’s materials by April 15th or October 15th, it is not time to kick back and relax. In my opinion, you have only completed 50% of the work if you are a Level I candidate, 40% of the work if you are a Level II candidate, and only 30% of the work if you are a Level III candidate that is needed to be prepared for the exam.

My CFA Experience: Vy Bui

No matter how prepared we are, we all tend to be nervous and worry a lot as the CFA exam day gets closer and closer. I remember a week before the exam; I was so stressed out from thinking that I didn’t have enough time to review all the material and about all the other things that could go wrong on exam day that I ended up getting sick. Being sick is never good and especially then, because that was the time I needed my energy and focus the most.

Even though I tried to go to bed early the night before the exam, somehow I couldn’t sleep. I slept about five hours and woke up at 5:30 a.m. That morning I did some exercise, stretched my body, and had a nutritious breakfast which helped me feel fresher after a night of little sleep. Many candidates I talked to had the same sort of experience. I think it's just because we worried too much about the exam.

Regaining Investor Confidence for US-Listed Chinese Companies

A number of high profile scandals such as Longtop Financial Technologies and Sino-Forest have given Chinese companies a bad name among US investors. Portfolio managers who previously held extensive investments in US-listed Chinese equities now avoid the sector and some of the previously largest underwriters of US-listed Chinese equities have exited this market.

Between 2006 and 2010, a total of 339 Chinese companies listed on the major US stock markets, 106 on NYSE and 233 on NASDAQ. During this period of high interest in investing in Chinese companies, few anticipated the coming scandals and delistings.

New Report Paints Optimistic Yet Challenging Picture for US Banks in 2012

CreditSights, an independent credit-focused research company, has issued a giant two-part report on what’s coming for US banks in 2012. Naturally, it’s credit-focused. Surprisingly, it’s also quite optimistic and suggests positive implications for jobs (in comparison to a more gloomy report also issued by JPMorgan Cazenove).

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.

Recent Research: Highlights from January 2012

"Optimal Hedge Fund Allocation with Improved Estimates for Coskewness and Cokurtosis Parameters"
The Journal of Alternative Investments (Winter 2012)
Asmerilda Hitaj, Lionel Martellini, and Giovanni Zambruno

Since hedge fund returns are not normally distributed, mean–variance optimization techniques are not appropriate and should be replaced by optimization procedures incorporating higher-order moments of portfolio returns. In this context, optimal portfolio decisions involving hedge funds require not only estimates for covariance parameters but also estimates for coskewness and cokurtosis parameters. This is a formidable challenge that severely exacerbates the dimensionality problem already present with mean–variance analysis. This article presents an application of the improved estimators for higher-order co-moment parameters, in the context of hedge fund portfolio optimization. The authors find that the use of these enhanced estimates generates a significant improvement for investors in hedge funds. The authors also find that it is only when improved estimators are used and the sample size is sufficiently large that portfolio selection with higher-order moments consistently dominates mean–variance analysis from an out-of-sample perspective. Their results have important potential implications for hedge fund investors and hedge fund of funds managers who routinely use portfolio optimization procedures incorporating higher moments.

Book Review: Grow Globally

An increasingly common company announcement is plans to expand in another part of the world. There are a variety of reasons given, including diversification and the seeking of additional resources. The most common, though, are lower costs and faster growth markets. Major companies like General Electric and Coca Cola are prime examples of successful globalization endeavors.