tay's as good as cay: Reply

In a recent comment on our published work [Lettau, M., Ludvigson, S., 2001. Consumption, aggregate wealth, and expected stock returns. Journal of Finance 56, 815–850], Michael Brennan and Yihong Xia [2005. tay's as good as cay. Finance Research Letters 2, 1–14] advance the following argument: A “mechanistic” variable tay, where t is a linear time trend, forecasts stock returns. Since “t has no foresight,” the argument goes, the predictive power of this variable must be attributable to what they call “look-ahead bias.” The authors assert that cay is subject to the same look-ahead bias (generated because we use the full sample to estimate the cointegrating parameters in cay), implying that its forecasting power must be spurious. In this response, we explain why this critique is misplaced.     

Repurchases after being well known as good news

Using recent U.S. data, we find that long-horizon abnormal returns following repurchase announcements made after 2001 are much lower than those following earlier announcements. The equity-linked compensation of senior management of buyback firms exceeds that of matching firms, especially for repurchases announced after 2001. Transient institutional investors equity holdings of buyback firms are smaller than their holdings of matching firms following buyback announcements by repeat repurchasers during 2002–2006. The results suggest that many recent buybacks have not been motivated by fundamentals-based factors such as undervaluation, and that non-fundamentals-based factors such as managerial self-interest have become more important.     

Fatal attraction: Using distance to measure contagion in good times as well as bad

This paper proposes a new measure of contagion that is good at anticipating future vulnerabilities. Building on previous work, it uses correlations of equity markets across countries to measure contagion, but in a departure from previous practice measures contagion using the relationship of these correlations with distance. Also in contrast to previous work, our test is good at identifying periods of “positive contagion,” in which capital flows to emerging markets in a herd-like manner largely unrelated to fundamentals. Identifying such periods of “fatal attraction” is important as they provide the essential ingredients for subsequent crises and rapid outflows of capital.     

Why "good jobs" are good for retailers

Too many retail managers believe that they must offer bad jobs to keep prices low. As a result, almost one-fifth of American workers suffer low wages, poor benefits, constantly changing schedules, and few opportunitie for advancement. The author's research reveals, however, that the presumed trade-off between investment in employees and low prices is false. To meet short-term performance targets, many retailers cut labor. The unmotivated and poorly trained employees who remain often cannot keep up with their tasks in a complex operating environment. The result is a vicious cycle, in which lower sales and profits tempt managers to cut even more employees. Retailers such as QuikTrip, Mercadona, Trader Joe's, and Costco instead create a virtuous cycle of investment in employees, stellar operational execution, higher sales and profits, and larger labor budgets. They also make work more efficient and fulfilling for employees, improve customer service, and boost sales and profits through four practices: simplify operations by offering fewer products and promotions, train employees to perform multiple tasks, eliminate waste in everything but staffing, and let employees make some decisions.     

Why good projects fail anyway

Big projects fail at an astonishing rate--more than half the time, by some estimates. It's not hard to understand why. Complicated long-term projects are customarily developed by a series of teams working along parallel tracks. If managers fail to anticipate everything that might fall through the cracks, those tracks will not converge successfully at the end to reach the goal. Take a companywide CRM project. Traditionally, one team might analyze customers, another select the software, a third develop training programs, and so forth. When the project's finally complete, though, it may turn out that the salespeople won't enter in the requisite data because they don't understand why they need to. This very problem has, in fact, derailed many CRM programs at major organizations. There is a way to uncover unanticipated problems while the project is still in development. The key is to inject into the overall plan a series of miniprojects, or "rapid-results initiatives," which each have as their goal a miniature version of the overall goal. In the CRM project, a single team might be charged with increasing the revenues of one sales group in one region by 25% within four months. To reach that goal, team members would have to draw on the work of all the parallel teams. But in just four months, they would discover the salespeople's resistance and probably other unforeseen issues, such as, perhaps, the need to divvy up commissions for joint-selling efforts. The World Bank has used rapid-results initiatives to great effect to keep a sweeping 16-year project on track and deliver visible results years ahead of schedule. In taking an in-depth look at this project, and others, the authors show why this approach is so effective and how the initiatives are managed in conjunction with more traditional project activities.     

Banking for the public good

Bank shareholders cannot be expected to provide good stewardship to banks because there is a conflict of interests between the shareholder owners and a non-mutually owned bank's depositors; who provide the bulk of the funds in traditional retail banks and are willing to accept a lower return on their savings than shareholders, in return for lower risk exposure. Regulation is required to protect depositors where deposit insurance schemes are at best partially funded and underwritten by taxpayers, who in turn need to be protected, and to deliver financial stability, a public good. Once some banks become ‘too big (to be allowed) to fail’ (TBTF), they enjoy additional implicit public (taxpayer) insurance that enables them to fund themselves more cheaply than smaller banks, which gives them a competitive advantage. The political influence of big banks in the US and the UK is such that they can be regarded as financial oligarchies that have hitherto successfully blocked far reaching structural reform in the wake of the ‘Global Financial Crisis’ and lobbied successfully for the financial sector liberalisation that preceded it. The TBTF problem and associated moral hazard have been worsened by mergers to save failing banks during the crisis and as a result competition within a number of national banking systems, notably the UK, has been significantly reduced. Solutions alternative to making the banks small enough to be allowed to fail are considered in this paper, but it is difficult to be convinced that they will deliver banks that promote the common or public good. It is argued that regulating retail banking as a utility and pooling insurance against financial instability using pre-funded deposit insurance schemes, with risk related premiums that can also serve as bank resolution funds, should be pursued; and that capital leverage ratios and/or Financial Activity Taxes might be used to ‘tax’ the size of banks.     

When no news is good news

For as long as can be remembered, BestBaby Corporation, a manufacturer of baby equipment and furniture, has enjoyed a solid reputation with retailers, a good track record with consumers, and a supportive relationship with stockholders. But then the child of a celebrity is injured when her stroller tips over because its brakes failed. The media go wild, and CEO Greg James finds himself in uncharted territory. The morning after the accident, Greg calls an emergency meeting of his executive staff. As he searches his memory to prepare for it, he thinks about Arzep Enterprises, BestBaby's main provider of parts and materials. He remembers his COO, Keith Sigismund, telling him that Arzep had switched suppliers at some point in order to cut its own costs. Nevertheless, Keith had assured Greg that the new material, although not quite as sturdy, hadn't affected the quality of Arzep's components. By the time the meeting is set to begin, several employees have threatened to quit, and stories are surfacing in the press and on the Web about other consumers who have had problems with their strollers. Then in the meeting, Keith drops a bombshell: he reads from a year-old memo sent to him by an employee in manufacturing stating that the new brake fittings delivered by Arzep don't grab the front brakes as well as the ones previously supplied. The same employee, and others, had complained in the past that Keith hadn't adequately attended to concerns they brought up to him. In this fictional case study, four commentators offer advice to Greg on how BestBaby should respond to the victim's family, the media, the public, and the company's own employees during this PR crisis.     

Why good accountants do bad audits

On July 30, President Bush signed into law the Sarbanes-Oxley Act addressing corporate accountability. A response to recent financial scandals, the law tightened federal controls over the accounting industry and imposed tough new criminal penalties for fraud. The president proclaimed, "The era of low standards and false profits is over." If only it were that easy. The authors don't think corruption is the main cause of bad audits. Rather, they claim, the problem is unconscious bias. Without knowing it, we all tend to discount facts that contradict the conclusions we want to reach, and we uncritically embrace evidence that supports our positions. Accountants might seem immune to such distortions because they work with seemingly hard numbers and clear-cut standards. But the corporate-auditing arena is particularly fertile ground for self-serving biases. Because of the often subjective nature of accounting and the close relationships between accounting firms and their corporate clients, even the most honest and meticulous of auditors can unintentionally massage the numbers in ways that mask a company's true financial status, thereby misleading investors, regulators, and even management. Solving this problem will require far more aggressive action than the U.S. government has taken thus far. What's needed are practices and regulations that recognize the existence of bias and moderate its effects. True auditor independence will entail fundamental changes to the way the accounting industry operates, including full divestiture of consulting and tax services, rotation of auditing firms, and fixed-term contracts that prohibit client companies from firing their auditors. Less tangibly, auditors must come to appreciate the profound impact of self-serving biases on their judgment.     

The good news in short interest

Stocks with relatively high short interest subsequently experience negative abnormal returns, but the effect can be transient and of debatable economic significance. In contrast, relatively heavily traded stocks with low short interest experience both statistically and economically significant positive abnormal returns. These positive returns are often larger (in absolute value) than the negative returns observed for heavily shorted stocks. Thus, the positive information associated with low short interest, which is publicly available, is only slowly incorporated into prices, which raises a broader market efficiency issue. Our results also cast doubt on existing theories of the impact of short sale constraints.     

A good pair: alternative pairs-trading strategies

This paper studies alternative techniques for identifying stock pairs in a pairs-trading strategy over 1980–2014. We consider two main techniques: the distance approach and the cointegration approach. We also consider a range of parameterizations of the trading system design. Parameterization of the trading system matters for the profitability of pairs trading. We find that the cointegration approach, despite using an optimal in-sample parameterization, yields significant returns only in the 1980s. The distance approach performs better, producing significantly positive risk-adjusted returns in all sub-periods. However, when transaction costs are properly taken into account, the returns largely disappear in recent years.     

投资香港值得选择

随着内地的不断开放,香港的竞争力究竟体现在何处,内地的企业怎样运用香港的优势更好地发展自己。带着这些问题,本刊记者采访了香港投资推广署助理署长胡达辉先生(JohnRutherford)     

走进李镇西"1、3、5"构想

近两年,包头市商业银行这样一家位处祖国西北边陲小城——包头的城商行,在我国银行圈内可谓名声鹊起。"国际化"、"微小贷款"、"风险管理一类行"、"七家二类城商行(一类行空缺)之一"……这些国内稀缺的概念资源无不与包商行有着密切关系,而所有这些又无不深深烙着这家银行的挂帅人——李镇西的印记。最近,这位西北硬汉型行长又提出了一个颇有意思的所谓"1、3、5"构想。带着兴趣和疑惑,本刊记者于日前对其进行了采访。     

投资斯洛伐克,一个不错的选择——访斯洛伐克驻华经济商务参赞拉斯基斯拉夫·舒拉

记者:您能否谈一谈目前中国企业在斯洛伐克投资的情况? 舒拉:目前在斯洛伐克投资的中国企业有两家:联想集团和中兴公司.联想集团除了已在斯洛伐克投资建厂外,未来还将在斯洛伐克建立研发中心.中兴公司目前正在申请在斯洛伐克建立办事处,并希望未来投资建厂,在斯洛伐克生产中兴公司的高端产品.其他如华为公司也正在积极准备进入斯洛伐克.     

海外上市前,做功课在"好"上下功夫

根据国际数据公司(IDC)提供的数据,中国网络游戏市场规模在2011年将达到30亿美元,而2006年该数字仅为8.16亿美元,因此市场前景广阔.     

学习宁波好榜样

小陈准备再买一个卡包,因为他那个能装下10张卡的卡包已经显得容量太小了.他手里卡的数量早已超过了10张,借记卡、信用卡、公交卡、储值卡、商场的打折卡和会员卡等等摞起来有汉堡那么厚.     

Teaching good systems design for spreadsheet projects

One of the greatest challenges facing any business is creating information and accounting systems that work, and one of the greatest challenges in accounting education is to teach effective systems design in the limited time available. Accountants need to be knowledgeable in systems principles, but often students' systems exposure is limited to a one semester course in Accounting Information Systems.This paper describes the application of structured design to spreadsheets. Spreadsheet construction projects can then be used in an Accounting Information Systems course to teach system design principles. The advantages of this approach are: (1) that systems with sufficient complexity to illustrate the principles and techniques of good design can be constructed in a few weeks, (2) the spreadsheet software neither forces good design not prohibits it, thus requiring good design to be built in by conscious choice, and (3) it is an active, hands-on approach, which greatly facilitates learning.     

金融危机是个好案例

关于这场金融危机，2009年值得关注的有两个方面，一个是全球协调应对，一个是全球反思。反思各有侧重，本文作者是国务院发展研究中心金融研究所副所长，他认为：就学术研究而言，危机的确给了我们很好的案例