According to this BloombergBusinessWeek article dated June 22, 2017, the best paid, most vulnerable occupations include “… accountants, benefits managers, credit analysts, and various insurance professionals”… (the y axis measures average annual wage for various occupations, and the x axis measures the likelihood of these occupations going away due to automation.
Great article about market volatility and how volatility has become an asset class unto itself.
Princeton professor Burton Malkiel (author of “A Random Walk Down Wall Street“, now in its 11th edition, and chief investment officer for Wealthfront) explains why indexed investment is by far and away the best strategy for preserving and growing one’s savings. For a very compelling and more in-depth treatment of this topic, I highly recommend also listening to Barry Ritholtz’s recent interview of Professor Malkiel @ https://www.bloomberg.com/news/audio/2017-03-31/replay-interview-with-burt-malkiel-masters-in-business-audio.
In this week’s installment of “Fifty Things That Made the Modern Economy”, Tim Harford features the index fund. This 9 minute long podcast lays out the history of the development of the index fund in particular and the evolution of so-called of passive portfolio strategies in general. Much of the content of this podcast is sourced from Vanguard founder Jack Bogle’s September 2011 WSJ article entitled “How the Index Fund Was Born” (available at https://www.wsj.com/articles/SB10001424053111904583204576544681577401622). Here’s the description of this podcast:
“Warren Buffett is the world’s most successful investor. In a letter he wrote to his wife, advising her how to invest after he dies, he offers some clear advice: put almost everything into “a very low-cost S&P 500 index fund”. Index funds passively track the market as a whole by buying a little of everything, rather than trying to beat the market with clever stock picks – the kind of clever stock picks that Warren Buffett himself has been making for more than half a century. Index funds now seem completely natural. But as recently as 1976 they didn’t exist. And, as Tim Harford explains, they have become very important indeed – and not only to Mrs Buffett.”
Interesting WSJ article about the dangers of “p-hacking” in financial economics…
Tie together an algorithm, an exchange-traded fund and an academic study finding an anomaly in the markets, and you have a formula for making money. Trouble is, it turns out that most of the supposed anomalies academics have identified don’t exist, or are too small to matter.
We cover VIX in the introductory lecture in Finance 4366. VIX measures expected short-term (30 day) stock market volatility. Changes in VIX are strongly negatively correlated with contemporaneous changes in the S&P 500 index; 80% of the time, when VIX closes up (down) on any given trading day, the S&P 500 index closes down (up) – see for yourself by clicking this link.
The long-run correlation (since 1990) between daily changes in VIX and the S&P 500 index is around -.7. VIX is commonly referred to as the “fear index”; when volatility is high, investors have to pay much more for options than when volatility is low. Since 1990, the average closing value of VIX stands at around 20; this past Monday, it closed at 9.77. The last time VIX was this low was back in December 1993; it’s lowest closing value ever recorded was 9.31 on December 12, 1993. The highest ever recorded closing value of VIX occurred during the throes of the Financial Crisis, hitting 80.86 on November 20, 2008.
Falling volumes, spiraling costs and regulation are pushing trading firms out of U.S. options, raising concerns about fragility in a market that investors rely on to protect portfolios.
For all intents and purposes, the (page 1, 4/13/2017 WSJ) article referenced below drives an empirical stake into the heart of the “case” for active versus passive portfolio management. Twenty-six years ago, William F. Sharpe (one of the inventors of the Capital Asset Pricing Model) drove a conceptual stake into the heart of the “case” for active versus passive portfolio management in his famous Financial Analysts Journal essay entitled “The Arithmetic of Active Management”, available at http://www.cfapubs.org/doi/pdf/10.2469/faj.v47.n1.7.
Most actively managed U.S. stock funds were beaten by their market benchmarks over the past decade and a half, a record of underperformance that helps explain why stock pickers are losing billions of dollars in assets each month to low-cost passive investments that track indexes.
A subscription to the Wall Street Journal is required for Finance 4366. In order to subscribe to the Wall Street Journal (WSJ) for the Fall 2017 semester, go to http://wsj.com/studentoffer just prior to the start of class this coming August. You can subscribe for 15 weeks for $1 per week, or for an entire year for slightly less than $1 per week (i.e., for $49). You also have a choice between getting the digital version of WSJ or the digital and paper versions for these same prices. Whatever options you select, please also reference my name (James R. Garven) as your referring professor.
Throughout the semester, I will often reference specific WSJ articles in class and on the course blog. Finance 4366 topics (as well as topics in most of the rest of your classes) come to life in the world outside the Baylor bubble when you read make a habit of reading the WSJ on a regular basis. Furthermore, if you expect to interview for jobs or internships anytime soon, reading the WSJ will give you a leg up on your competition in the job market, since you will be better informed and have more compelling ideas and insights to share with recruiters.
In closing, the following (2 minute) video provides a helpful introduction to the WSJ, providing time-saving tips to help you get the most from WSJ and succeed not only in Finance 4366, but also your other classes and career:
The required textbook for the Options, Futures, and Other Derivatives (Finance 4366) course at Baylor University (coincidentally) shares the same title as the course. Authored by University of Toronto finance professor John Hull, the “Options, Futures and Other Derivatives” textbook is now in its 10th edition, and it is quite expensive; on Amazon, it costs around $290 to purchase, and around $125 to rent.
An important marketing “scheme” (or less charitably, “scam”) in the world of textbook publishing involves frequently publishing “new” editions of textbooks. Often, new editions are not all that different from earlier editions. This is certainly the case with Hull’s textbook. For example, I found that by comparing chapter titles and numbers in tables of contents for the 9th and 10th editions, that the 10th edition has a new ninth chapter that I would not cover anyway; also, two chapter titles were slightly renamed but chapter contents in both cases remain completely unchanged. Compared with the 10th edition, the 9th edition is a “steal” on Amazon – new copies of the 9th edition are less than half the cost of new copies of the 10th edition.
Although I list the 10th (US) edition as “required” for Finance 4366 in the course syllabus, you are welcome to rely upon earlier (and considerably less expensive) editions of this book; e.g., the 6th, 7th, 8th, and 9th (US and international) editions are completely acceptable substitutes, since the chapters that we cover in Finance 4366 are virtually identical across the 6th through 10th editions. For example, if you go to http://www.ebay.com/bhp/options-futures-and-other-derivatives, you will find an array of various editions of Hull’s textbooks available for less than $30 (make sure you are buying the textbook, not the solutions manual). You may be able to find even better deals elsewhere; just make sure that the book author (John C. Hull) and title (Options, Futures, and Other Derivatives) are the same, and that the edition of the book is no earlier than the 6th edition.
Finally, don’t worry about whether the book you buy has the CD; the software on the CD (called “Derivagem”) is a rather simple Excel spreadsheet that you can download directly from Hull”‘s website at the following address: http://www.rotman.utoronto.ca/~hull/software/DG200.01.xls.