sannikov

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    Prize to Sannikov: Scholar of Friction and Moral Hazard In a fascinating review article, Sannikov and his co-authors distinguished among the sorts of liquidity, and thus identified the precise sort of liquidity mismatch likely to lead to market shocks. In a working paper last year, Sannikov took on the issue of executive pay, incentives, and claw-backs.

    The American Finance Association has awarded its 2015 Fischer Black Prize to Yuliy Sannikov, of the Princeton University Benheim Center for Finance. Fischer Black, of course, was one of the founders of modern finance theory, and a namesake of the Black-Scholes Theorem. The AFA says that their Black Prize is for work in Black’s spirit, that is, original research relevant to finance practitioners, from an individual under 40. So … what has Sannikov done? Among much else, he has studied the macroeconomic significance of financial frictions, that is, of the fact that funds aren’t always liquid, and don’t always flow where they “should” according to classical economic theory. Differences in patience, risk aversion, and optimism affect fund flows from one contracting party to another, although in abstract theoretical terms what matters would be “the most profitable project or … the person who values the funds most.” Academic Balkanization I can hear you yawning already, in the third row there. Yes, the presence of friction in real-world economic situations is very old news, even in ...

Featured Post


The Skorina Report: Another try at herding Gotham’s five-headed fund

Guest columnist Charles Skorina looks at the five-headed NYC pension system with its new leader, Scott Evans.

By Charles Skorina In July, Scott Evans reported for duty as Chief Investment Officer in New York City's Bureau of Asset Management, where he'll manage $160 billion in employee pension funds. Traditionally the city's CIO is replaced when the political wheel turns, which it did last fall. Retiring Mayor Michael Bloomberg was succeeded by William De Blasio; and Comptroller John Liu, the independently-elected custodian of the city's pension funds, was replaced by Scott Stringer. Mr. Stringer beat back a last-minute primary challenge from disgraced ...


One Ordinary Week in the Life of Climate Change


We thought it would be instructive to share with you links and the odd quote from recent press reports on the subject of climate change.  As a professional investor,  you no doubt want to be ahead of trends in the investment world.   Investment opportunities arise when there is a divergence of opinion, as is uniquely the case in the United States (unlike the other nations on Earth) on the subject of climate change.  The headlines of a few days tell ...

Guest Posts


Swiss National Bank Abandons Its Commitment to Support the Euro
John Brynjolfsson on Switzerland's slightly less than neutral stand on the Euro.

By John Brynjolfsson 1)      This morning's surprise announcement the Swiss National Bank (SNB) is first and foremost a SNB declaration of independence. Renounces ties to Euro explicitly. Implicitly renounces ties to ECB, Eurozone, European Court of Justice (which Rule yesterday in support of the ECB’s OMT, that is buying, of periphery debt), and Greek elections. Obviously Switzerland has a long history of remaining fiercely independent, whereas the 2 year old announcement of a floor had unwittingly become an unwelcome alliance of the country’s central ...


Private Equity

Competing Bankruptcy Filings for Caesar’s: Third-Party Releases
A legal donnybrook has begun for control of Caesar's assets. An important side issue involves bankruptcy court treatment of non-debtors seeking release from alleged liabilities of their own, and a split amongst the appeals court circuits over such treatment.

On Monday, January 12th, second lien noteholders, notably including David Tepper’s hedge fund Appaloosa, filed an involuntary bankruptcy petition in Delaware bankruptcy court targeting Caesars Entertainment Operating Company, a subsidiary of Caesars Entertainment. On Tuesday, Appaloosa asked Delaware’s bankruptcy court to prevent that subsidiary from filing for bankruptcy anywhere else while the involuntary proceeding was pending. On Thursday, January 15th, two things happened: a larger group of Caesar’s entities, inclusive of the operating company, jointly filed a voluntary petition in the Northern District of Illinois. The debtors in that case indicate that ...

Indexes

Low Energy Prices: Crude and Refined Consequences
Eurekahedge tells us that hedge funds were in the black 4.57% in 2014. That's hardly cause for celebration, since the MSCI World Index returned 6.79% over the same year. But all eyes now turn to the still-sliding price of oil.

A recent statement by the energy minister of the UAE suggests ‘more of the same.’ Oil prices in early 2015 seem likely to continue the story they were telling in late 2015. On Tuesday, January 13, the minister, Suhail bin Mohammed al-Mazrouei said that the Organization of the Petroleum Exporting Countries isn’t going to shore up “a certain price” by cutting production. Crude oil slides on and on and is now (mid-January 2015) below $50 a barrel. The broader investment consequences of this, both the obvious and the obscure, continue to unfold. Reading ...

Currencies

ECB Beats SNB in race for the Bottom
An SNB announcement caused wild market moves Jan. 15th, not only in Forex but in commodity and equity prices as well. In the wake of the commotion, one key question has to be: why the announcement? Why this sudden change in the policy of Switzerland's central bankers?

It must be something in the water, or maybe in the chocolate. The Swiss National Bank shocked markets on January 15th, suddenly lifting a cap on the value of that country’s currency vis-à-vis the euro, a cap it had defended since September 2011. Indeed, this seemed to some to be a rare case when a central bank’s interventionist policy worked. The cap, imposed originally after an alarming fall in the value of the Euro versus the CHF [from a high of 1.68 in 2007 to a low near parity just before the ...

Macroeconomics

Swiss National Bank Abandons Its Commitment to Support the Euro
John Brynjolfsson on Switzerland's slightly less than neutral stand on the Euro.

By John Brynjolfsson 1)      This morning's surprise announcement the Swiss National Bank (SNB) is first and foremost a SNB declaration of independence. Renounces ties to Euro explicitly. Implicitly renounces ties to ECB, Eurozone, European Court of Justice (which Rule yesterday in support of the ECB’s OMT, that is buying, of periphery debt), and Greek elections. Obviously Switzerland has a long history of remaining fiercely independent, whereas the 2 year old announcement of a floor had unwittingly become an unwelcome alliance of the country’s central bank. 2)      It is neither an easing nor tightening, as announcement ...

Real Estate

How Bad is the Cash Drag on Open-End Private Equity Real Estate Funds?
Guest columnist Brad Case, Ph.D., CFA, CAIA, examines the effects of cash drag on open-end private equity funds.

By Brad Case, Ph.D., CFA, CAIA More than 46 basis points per year on average. That’s a pretty hefty drag, nearly 7% of the average net total return on equity. Here’s how to estimate the drag from cash reserves:           Since 2000Q1 the National Council of Real Estate Investment Fiduciaries (NCREIF, as part of its ODCE data base) has published quarterly data on three of the four items necessary to estimate the effect of leverage on gross total returns ...

Risk management

Explaining Why the Portfolio-Barbell Works
Most efforts to introduce "entropy" into finance have seen it as a quantity to be minimized. A new paper, which begins as an effort to explain barbell portfolios, uses entropy in a different manner. Unfortunately, it doesn't really end up clarifying those barbells.

One classic (liability-driven) portfolio strategy, known for obvious reasons as the “barbell,” entails a lot of very defensive low-beta assets on the one side, and a lot of aggressive high-beta assets on the other. Practitioners follow the advice of Mr. Bing Crosby: they don’t “mess with Mr. In-between.” For the most part, this is a practitioners’ strategy, not a theorists’ strategy. There’s been little reason in theory to think that it should work. After all. if ...

Risk management

The Quant Conundrum: Perfectly Repeatable or Repeatedly Imperfect?
Guest columnist Diane Harrison looks at both sides of the quantitative investment debate.

By Diane Harrison The ongoing debate between friends and foes of quantitative strategies centers on which approach is superior: a fundamental quantitative strategy or a discretionary strategy developed and managed by human decision-making? The truth is neither—like people, some ‘quants’ are better than others, some more accurate, some more sensitive—but both strategies are vulnerable to the unknown. And while neither systematic nor discretionary approaches are 100% accurate, each offers compelling investment advantages for investors willing to ...

CAPM / Alpha Theory

If You’re So Smart, Why Aren’t You Rich?
A new paper by a senior market economist at BNP Paribas celebrates the invention of Learning Vector Quantization (LVQ), a machine-learning algorithm that could enable some smart economists to get very rich indeed.

The title of this entry is a cliché, one either used or attributed to the wealthy uneducated at the expense of their college-trained but not-so-wealthy brethren. It is akin to asking, “How is all the book learning working out for you?” For the academic economist, the jibe has a special point. For economists are thought to be experts precisely in the operation of markets: the one subject you might want to be an expert in if ...