...years, your instructor has discussed the emerging field of behavioral finance with many colleagues. The most common reaction has been for those colleagues to smile and say, "Behavioral finance? That's an oxymoron." Oxymoron is defined as a combination of contradictory or incongruous words (e.g. cruel kindness). Explain this reaction using a) the concept of paradigm and b) attributes of the behavioral and rational paradigms. a) According to the concept of a paradigm, someone in finance would operate on a set of principles that their work is based upon. It is the method by which they analyze their data. Under this philosophy the statement is considered an oxymoron because under the colleagues point of view they view those that study finance one that does not act on behavior. They assume that anything that involves finance automatically dictates numbers and thinking ogically in steps. It is not until there is a shift in the paradigm and that they see it from a finance position do they see the possibility of a behavioral implications. b) According to the rational paradigm, one that is interested in finance is well educated, has some predisposition towards the acclimation of wealth and is focused on the market. By the definition this means that they are rational and not behavioral. 2. The Structure of Scientific Revolutions triggered diverse reactions. Most “hard” scientists shrugged and went about their business. But many in the soft, or social, sciences “loved”...
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...Republic of the Philippines BULACAN STATE UNIVERSITY COLLEGE OF EDUCATION Bustos Campus Bustos, Bulacan A TEACHING PORTFOLIO IN FIELD STUDY 1, 2 & 3 The Learner’s Development and Environment On Becoming a Teacher Experiencing the Teaching – Learning Process IN MATIAS A. FERNANDO MEMORIAL SCHOOL In Partial Fulfillment of the Requirements In FIELD STUDY 311a, 311b & 311c Submitted to: MR. ROMUALDO E. DIONISIO Supervisor, Student Teaching Submitted by: REGINA EDERWIL L. DE GUIA BEED – Generalist / III-I SEPTEMBER 2014 Republic of the Philippines BULACAN STATE UNIVERSITY COLLEGE OF EDUCATION Bustos Campus Bustos, Bulacan Vision A RECOGNIZED LEADER for excellence in institution, research and extension services; a KEY PLAYER in the education and formation of professionally competent, service – oriented, and productive citizen; and a PRIME MOVER of the nation’s sustainable growth and development. Mission The student shall primarily provide higher professional, technical and special institution for special purposes and promote research and extension services, advanced studies and progressive leadership in Agriculture, Commerce, Education, Fishery, Public Administration, Technical and other fields that may be relevant (RA 7665). Goals The College of Education ensures the attainment of empowered and competitive graduates through: 1. Provision of globally competitive skills for graduates. 2. Generation and transmission of knowledge...
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...Peter Joos, Steve Monahan and an anonymous referee for their helpful comments, suggestions and support. Analyst forecast data was generously provided by I/B/E/S. The financial support of the University of Chicago Graduate School of Business is greatly appreciated. Value Investing: The Use of Historical Financial Statement Information to Separate Winners from Losers Abstract: This paper examines whether a simple accounting-based fundamental analysis strategy, when applied to a broad portfolio of high book-to-market firms, can shift the distribution of returns earned by an investor. I show that the mean return earned by a high bookto-market investor can be increased by at least 7½ percent annually through the selection of financially strong high BM firms while the entire distribution of realized returns is shifted to the right. In addition, an investment strategy that buys expected winners and shorts expected losers generates a 23 percent annual return between 1976 and 1996 and the strategy appears to be robust across time and to controls for alternative investment strategies. Within the portfolio of high BM firms, the benefits to financial statement analysis are concentrated in small and medium sized firms, companies with low share turnover and firms with no analyst following, yet this superior performance is not dependent on purchasing firms with low share prices. A positive relationship between the sign of the initial historical information and both future firm performance...
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... Information should be managed in way that establishes best practices, and is based on core principles of Infrastructure Library (ITIL) standards and guidelines. ITIL is essentially a set of publications that together offers a framework of “best practices” management guidance for all aspects of IT services (Tan & Payton, 2010). This assignment will cover the ins and outs of when information technology fails within the health care organization. Research will be done to identify what the contributing factors are when failure occurs, and how it impacts the organization’s operations and the security of the information. Also the team’s reaction to the failure, as well as the measures taken by the leaders in dealing with the various stakeholders will be explored. Custom application and proprietary systems, along with project metrics and portfolio management for the insurance of operational efficiency and effectiveness will be discussed. Also a view of what the government has done to secure health care and patient information will be analyzed. Background story- A Florida health system experienced an IT network failure that rendered the organization’s $80 million Epic electronic medical record system to fail, the outage lasted nearly two days. The three-hospital Martin Health System (MHS) located in Stuart, Fla, reported a...
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...Hedge Funds: A liability for the economy? Sander van Bentum 362107 Max Wielitsch 385533 Dhr. B. Tims 17-10-2013 Table of Contents Introduction 3 Risks for the investors 4 The creation of risks to financial institutions 5 The excess volatility risk 6 Transparency 6 Unlevel playing field 7 Hedge funds and financial bubbles 7 The role of hedge funds in crises 8 Conclusion 10 Bibliografy 10 Introduction Everybody that is somewhat involved with finance has probably at some point heard of the term hedge fund. But what is it exactly? In simple words it can be described as, ‘’an actively managed, pooled investment vehicle that is open to only a limited group of investors and whose performance is measured in absolute return units’’ (Connor et al. 2003). This limited group of investors contain wealthy investors who would be able to cope with possible losses. Commonly hedge funds make use of arbitrages and price discrepancies, terms that are also known as inefficiencies within the market. By making small profits on a large scale by identifying these market inefficiencies and attempting to correct them these hedge funds claim to help the market become more efficient. Hedge Funds first made their appearance on to the global financial stage in 1949, when the first hedge fund was created by Alfred W. Jones. ‘’He raised $60,000 and invested $40,000 of his money to pursue a strategy of investing in common stocks and hedging the positions with short sales’’...
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...Table of Contents Availability Bias 2 Overreaction Bias 6 Research Report Analysis 8 Illustrations 12 Conclusion 14 Bibliography 15 Availability Bias Availability bias is a human cognitive bias that causes us to overestimate probabilities of events associated with memorable or dramatic occurrences. A cognitive bias is a pattern of deviation in judgment that occurs in particular situations. A cognitive bias can also be explained as a flaw in judgment which is caused by memory, social attribution, and statistical errors. Since, memorable events are further magnified by coverage in the media; the bias is compounded on the society level. Two well-known examples would be estimations of the probability of plane accidents and the kidnap of children. Both events are quite rare, but the huge majority of the population outrageously overestimates their probability, and behaves accordingly. In reality, one is more likely to die from an auto accident than from a plane accident, and a child has a higher risk of dying in an accident than the risk of getting kidnapped. Availability bias is at the root of many other human biases and culture-level effects. Availability bias is a cognitive illusion. The availability biasis a mental shortcut that occurs when people make judgments about the probability of events by how easy it is to think of examples. The availability bias operates on the notion that, "if you can think of it, it must be important...
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...What Explains the Stock Market’s Reaction to Federal Reserve Policy? Ben S. Bernanke Kenneth N. Kuttner∗ February 7, 2003 Abstract This paper analyzes the impact of unanticipated changes in the Federal funds target on equity prices, with the aim of both estimating the size of the typical reaction, and understanding the reasons for the market’s response. On average over the May 1989 to December 2001 sample, a “typical” unanticipated 25 basis point rate cut has been associated with a 1.3 percent increase in the S&P 500 composite index. The estimated response varies considerably across industries, with the greatest sensitivity observed in cyclical industries like construction, and the smallest in mining and utilities. Very little of the market’s reaction can be attributed to policy’s effects on the real rate of interest or future dividends, however. Instead, most of the response of the current excess return on equities can be traced to policy’s impact on expected future excess returns. JEL codes: E44, G12. 1 Introduction The reaction of the stock market to monetary policy is clearly a topic of intense interest both to market participants and policymakers. Those holding equities would obviously like to know how possible Federal Reserve actions might affect the value of their portfolios. Similarly, an estimate of the likely effect of policy on asset prices is an important ingredient in assessing the transmission of monetary policy through the “wealth effect.” The size of and ...
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...Kale(1985) & Black(1986) |If traders trade on “noise” signals, unrelated to fundamental data, then share price can deviate from intrinsic value. | | |Shleifer (2000) |Two major foundation of behavioral finance: | | |Limited arbitrage | | |Investor sentiment | |Shleifer (2000) |Investor sentiment is mainly driven by two phenomena: | | |The tendency of people to view events as representative of some specific | | |class and ignore the laws of probability in the process | | |And conservatism. | |Lee, Shleifer & Thaler (1991) |CEFD suggest that as the discount increase, retail investor sentiment | | |decrease. | |Barber, Odean and Zhu(2006)...
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...Stock Price Reaction to News and No-News: Drift and Reversal After Headlines Wesley S. Chan∗ M.I.T. First Draft: 8/28/2000 This Draft: 5/11/2001 Abstract I examine returns to a subset of stocks after public news about them is released. I compare them to other stocks with similar monthly returns, but no identifiable public news. There is a major difference between return patterns for the two sets. I find evidence of post-news drift, which supports the idea that investors underreact to information. This is strongest after bad news. I also find some evidence of reversal after extreme price movements that are unaccompanied by public news. The patterns are seen even after excluding earnings announcements, controlling for potential risk exposure, and other adjustments. They appear, however, to apply mainly to smaller stocks. I also find evidence that trading frictions, such as short-sale constraints, may play a role in the post-bad-news drift pattern. ∗ I wish to thank Kent Daniel, Ken French, Li Jin, S. P. Kothari, Jon Lewellen, Andrew Lo, Sendhil Mullainathan, Dimitri Vayanos, and Geoffrey Verter for many stimulating discussions, and the members of the MIT PhD Finance seminar for their helpful comments. Please address all correspondence to me at wschan@mit.edu. 1 1 INTRODUCTION 1 2 Introduction There is a large amount of evidence that stock prices are predictable. In the last decade, various studies have shown that stock returns exhibit reversal...
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...bonds in investment portfolios, and in the design and execution of fiscal and monetary policy, financial economists and macroeconomists need to understand the determinants of nominal bond risks. This is particularly challenging because the risk characteristics of nominal bonds are not stable over time. In this paper the authors ask how monetary policy has contributed to these changes in bond risks. They propose a model that integrates the building blocks of a New Keynesian model into an asset pricing framework in which risk and consequently risk premia can vary in response to macroeconomic conditions. The model is calibrated to US data between 1960 and 2011, a period in which macroeconomic conditions, monetary policy, and bond risks have experienced significant changes. Findings show that two elements of monetary policy have been especially important drivers of bond risks during the last half century. First, a strong reaction of monetary policy to inflation shocks increases both the beta of nominal bonds and the volatility of nominal bond returns. Positive inflation shocks depress bond prices, while the increase in the Fed funds rate depresses output and stock prices. Second, an accommodating monetary policy that smooths nominal interest rates over time implies that positive shocks to long-term target inflation cause real interest rates to fall, driving up output and equity prices, and nominal long-term interest rates to increase, decreasing bond prices. The paper shows empirical...
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...The Quarterly Review of Economics and Finance 45 (2005) 48–64 Contagion effects of the world’s largest bankruptcy: the case of WorldCom Aigbe Akhigbea,∗ , Anna D. Martinb , Ann Marie Whytec a Department of Finance, College of Business Administration, University of Akron, Akron, OH 44325, USA b Department of Finance, Charles F. Dolan School of Business, Fairfield University, USA c Department of Finance, School of Business, University of Central Florida, USA Received 16 June 2003; received in revised form 23 December 2003; accepted 27 July 2004 Available online 26 November 2004 Abstract On July 19, 2002 WorldCom sought protection from its creditors when it filed for Chapter 11 bankruptcy, earning the distinction as the largest bankruptcy filing in U.S. history. The events surrounding this history-making occurrence provide an important opportunity to examine the repercussions for WorldCom’s stakeholders. We especially focus on the valuation effects of the WorldCom failure on exposed financial institutions for their important monitoring roles as institutional investors and creditors. Despite the heightened uncertainty facing investors during this period, we find that the market is remarkably efficient in distinguishing among the various types of stakeholders. In particular, institutional investors and creditors are largely unaffected by the events, which is expected based on the benefit of diversification. In contrast, large and key competitors are adversely affected by the events...
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...American Finance Association Limited Arbitrage in Equity Markets Author(s): Mark Mitchell, Todd Pulvino, Erik Stafford Source: The Journal of Finance, Vol. 57, No. 2 (Apr., 2002), pp. 551-584 Published by: Blackwell Publishing for the American Finance Association Stable URL: http://www.jstor.org/stable/2697750 Accessed: 08/01/2010 15:26 Your use of the JSTOR archive indicates your acceptance of JSTOR's Terms and Conditions of Use, available at http://www.jstor.org/page/info/about/policies/terms.jsp. JSTOR's Terms and Conditions of Use provides, in part, that unless you have obtained prior permission, you may not download an entire issue of a journal or multiple copies of articles, and you may use content in the JSTOR archive only for your personal, non-commercial use. Please contact the publisher regarding any further use of this work. Publisher contact information may be obtained at http://www.jstor.org/action/showPublisher?publisherCode=black. Each copy of any part of a JSTOR transmission must contain the same copyright notice that appears on the screen or printed page of such transmission. JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of content in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms of scholarship. For more information about JSTOR, please contact support@jstor.org. Blackwell Publishing and American Finance Association...
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...© 2002 American Accounting Association Accounting Horizons Vol. 16 No. 3 September 2002 pp. 233–243 COMMENTARY The “Incomplete Revelation Hypothesis” and Financial Reporting Robert J. Bloomfield Robert J. Bloomfield is an Associate Professor at Cornell University. INTRODUCTION The most common form of the Efficient Markets Hypothesis (EMH) states that market prices fully reflect all publicly available information (Fama 1970). The EMH has been highly influential among academics, but practitioners and regulators appear unconvinced. Investors work hard to identify mispriced stocks on the basis of public data, or pay others to do so, even though the EMH asserts that such efforts are wasted. Managers seek to boost stock prices by hiding bad news in footnotes, and regulators work hard to defeat such efforts, even though the EMH asserts that information is reflected in prices no matter how obscure its presentation. Beliefs about inefficiency play a central role in the debate over recognizing expenses for incentive stock options. Opponents of expensing argue that the resulting lower net income will inappropriately reduce market prices, while proponents argue the market does not fully recognize compensation costs reported only in footnotes. In efficient markets, however, expensing these costs has no direct effect on prices, as long as the details of the compensation are included in footnotes. The decision to expense option costs could reduce stock price indirectly, even in efficient...
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...to drift for several weeks (even several months) following positive earnings announcement. It is an academically well-documented anomaly first discovered by Ball and Brown in 1968 (we present links to several related academic research papers). Since then it has been studied and confirmed by countless academics in many international markets. There are a number of ways to define an earnings surprise (or ways to filter stocks with positive response to earnings) - earnings higher than analysts estimates, earnings higher than some average earnings or stock’s price appreciation during earnings announcement period higher than expected. Each factor shows strong prediction ability for the stock’s future returns, and it is good to use some combination of factors just to enhance the PEAD effect. We present one such strategy from the source paper related to this anomaly. This strategy is presented in its long-short form, but most of the returns come from the long side so it is not a problem to implement it as long only. Research also shows that the main perfmorance contributors are small capitalization stocks therefore caution is recommended during the strategy’s implementation. The most widely accepted explanation for this effect is investors' under-reaction to earnings announcements. It is also...
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... 1/28/04 4:00 PM Page W-129 What Is a Student Portfolio? A Student Portfolio is a paper or electronic collection of documents that summarizes your academic and personal accomplishments in a way that effectively communicates with academic advisors and potential employers.1 At a minimum, your portfolio should include the following: Minimum components of a Student Portfolio • an up-to-date professional résumé. • a listing of courses in your major and related fields of study. • a listing of your extra-curricular activities and any leadership positions. • documentation of your career readiness in terms of skills and learning outcomes. The purpose of a Student Portfolio is twofold — academic assessment and career readiness. 1. Academic Assessment Goal The Student Portfolio serves as an ongoing academic assessment tool that documents your learning and academic accomplishments. As you progress through a curriculum, the portfolio depicts the progress you are making in acquiring the skills and competencies necessary to be successful in lifelong career pursuits. Over time, your portfolio will become increasingly sophisticated in the range and depth of learning and accomplishments that are documented. A well-prepared Student Portfolio is a very effective way of summarizing your academic achievements in consultation with both faculty advisors and professors. 2. Career Readiness Goal The Student Portfolio serves as an important means of communicating your résumé...
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