Welcome to theshortrun.com finance section.  Here's the latest news from markets around the world

Outline

The Short Run Finance and Accounting Guide:  Ideal for brushing up on finance and accounting.  The guide is ideal for finance and accounting students as well as professionals who are looking to brush up their skills.  Written by Anoop Dave under the guidance of Dr. Torben Voetmann of the Wharton School.

Articles: Interesting articles related to topics in finance, accounting, or risk mitigation.

Book Reviews:  Reviews of fiction and non-fiction work.

Articles

This is an expose on risk and the components of risk.  It illustrates the characteristics of risk and possible mitigation techniques.

What is Financial Risk?
Contributed by Gaurav Choudhury- September 28, 2002

Risk has been know to man ever since he first faced adversity.  It is an integral part of the evolution of man.  Risk has been encountered primarily in his physical environment, later on in his social environment.  With time, risk has evolved alongwith man.  The main risk Neolithic man faced was an attack by a wild animal.  This was mitigated with the discovery of fire.  Note: Mitigated not eliminated.  Risk can rarely, if ever, be completely eliminated.  This mitigation has now take the form hedging sales of currencies in the future using forward contracts or options.  It is risk, but it has changed with man and his society.

 Risk is essentially, the probability that the outcome maybe damaging or result in a loss.  With risk, the outcomes of an event are thrown open to uncertainty.  Tossing a dice, is at a basic level a risky endeavor, that has uncertain outcomes.  If you were to be shot depending on the outcome of a dice roll (say prime number you live, non-prime number you die), you would have a 50% chance of survival.  A risky outcome with a level of uncertainty involved.

This article is a quick overview of the recent accounting scandals.  A good quick introduction for those that are trying to figure out what is going on.  Contributed by Nimalan Arasaratnam.

Accountable Accounting

Executive Summary:

“In the end, there is no capitalism without conscience, no wealth without character”

These valiant words seemed to raise Bush higher than the dais that he was standing on to deliver them would allow, but were they said a little too late? On July 9th President Bush, in an attempt to confront the accounting scandals that have sent Wall Street into the macabre world of negative profits, said much in an effort to appease the growing concerns. His proposals included, amongst others, the creation of a corporate fraud tax force, doubling the length of jail times for acts of corporate deception and the toughening of laws on document shredding. Admittedly, the President’s proposal did little, if anything, to quell the concerns of analysts who saw stock prices fall sharply to end a week that ranked rather dismally.

 

Dr. Subroto Roy has allowed The Short Run to post his article on the Origins of the 1991 Economic Reform in India.  The article is an insider's view of economic policy formation:

Encounter with Rajiv Gandhi

 

Subroto Roy: Dr. Subroto Roy, 43, studied science and literature in India and England, got a First at the LSE 1976, specializing in monetary economics, international economics and econometrics, PhD in economics Cambridge University 1982 "On liberty & economic growth: preface to a philosophy for India" (Supervisor: F. H. Hahn, Examiners: C. J. Bliss, T. W. Hutchison).

Main publications;

  1. Pricing, planning and politics: A study of economic distortions in India IEA Occasional Paper 1984, attracted the lead editorial of The Times of London May 29 1984;
  2. Philosophy of economics: On the scope of reason in economic inquiry (London & New York: Routledge, 1989, 1991);
  3. edited with W. E. James, Foundations of India's Political Economy: Towards an Agenda for the 1990s, Foundations of Pakistan's Poilitical Economy: Towards an Agenda for the 1990s (Sage New Delhi, OUP Karachi 1992), all quite widely reviewed at the time.

Worked with J. M. Buchanan at Virginia Tech 1980-1982; taught economics at various universities in the USA 1980-1990; appointed by Rajiv Gandhi, then Congress President and Leader of Opposition, on September 25 1990 along with V. Krishnamurthy, Sam Pitroda, Gen. V. Krishna Rao and M. K. Rasgotra to draft Congress Party agenda for 1991 elections; after Rajiv's assassination, worked for short periods with the World Bank and IMF India teams and in the US private sector before returning to India. Since 1996, Professor, Vinod Gupta School of Management, Indian Institute of Technology, Kharagpur 721 302 teaching economics and finance. Etc

 

This is a study contributed by Indroneel Chatterjee, Gaurav Choudhury, Anoop Dave, and Jeff Yarmouth.  It analyzes the impact of cheating and decreasing risk in gambling: 

    The Impact of Cheating on Volatility of Casino Games


Executive Summary

Casino gambling is an intriguing topic, because it attracts quite a large crowd despite the fact that the odds are stacked in its favor.  There are many reasons why people continue to gamble at casinos even though their probabilities of winning remain quite low, while their expected returns are negative.  In the long run, no one can defeat the casino, but one can hope for short-term gains.  Another reason people gamble is for entertainment purposes; they see the losses as compensation for entertainment that casino gambling provides.  Regardless, the fact is that casinos aim to make money, and short-term gains are not always guaranteed.  Because of this fact, there exists an incentive to cheat the casino.  Gamblers have many options open to them to cheat, and casinos have many loss control methods available to stop or deter cheating.  The purpose of this paper is to analyze all methods of cheating available to gamblers and the incentives casinos have to deter such activities using a cost-benefit analysis.  While our findings pertain to any casino, we will focus specifically on one of the largest owner of casinos, MGM Mirage.

 

Dr. Voetmann, professor of Finance at the Wharton Business School has allowed the release of his study on theshortrun.com:

Volatility-Adjusted Performance: An Alternative Approach to Interpret Long-Run Returns - December 1999 (posted May 29, 2000)
Jan Jakobsen (Department of Finance, Copenhagen Business School)
 Torben Voetmann (Department of Finance, The Wharton School)

This paper investigates long-run returns by utilizing log-normal distribution properties of cross-sectional buy-and-hold returns. We decompose expected cross-sectional buy-and-hold returns into transformed mean components and volatility components. This decomposition shows that the volatility component contributes positively to the right-skewed buy-and-hold returns due to Jensen's inequality. Given the log-normal distribution properties are fulfilled, the method can be applied to any type of long-horizon event study of security performance. We apply the method to IPO stocks and SEO stocks listed on the Copenhagen Stock Exchange. Using traditional standard techniques, we find that IPO stocks and SEO stocks under perform relative to the market after five years by 27.3 percent and 21.4 percent, respectively. However, the volatility-adjusted performance measure shows that the IPO stocks and SEO stocks under per-form relative to the market after five years by 43.7 percent and 38.1 percent, respectively.

 

Book Reviews

The Short Run's most recent reviews of financial novels:

   


Subscribe to our newsletter!  Enter your email address here:


HTML Text



Get Stock Quote: Enter Symbol(s)


Symbol Lookup
My Portfolio

Our Privacy Vow 


Like our intro movie?  Download the Short Run's screen saver.