Archive for the ‘attitude’ Category
Sunday, February 14th, 2010
In the foregoing articles we have seen that in the short run, the prices of financial instruments may deviate from their fundamental value on account of microstructure frictions such as bid–ask bounce, inventory control and order imbalances. Previous article introduced empirical models for estimating transaction costs and the price impact of a trade. These models were quite simple: they assumed that the price impact of a trade was immediate. In reality, this is not always so, and there may be lagged effects or slow adjustments. We therefore need a richer dynamic structure in order to model prices and trades on financial markets. In this chapter, we introduce dynamic timeseries models for prices and trades, and show how they can be used to describe the market’s convergence on the new equilibrium price after a shock.
This article extends the simple empirical models of Chapter 6 to a full dynamic setting. We show how time-series models for prices and trades can be used to study these questions. Throughout the chapter, we focus more on the structure and interpretation of the models than on the econometric and sampling issues that often arise in estimating dynamic time series using microstructure data. Section 9.1 introduces a dynamic model for prices and order flow, with lagged effects of order flow on prices and order-flow dynamics. Section 9.2 generalizes that model to the vector autoregressive model, which was introduced into microstructure by Hasbrouck (1988, 1991, 1993, 1995) and has since become the standard reference model in the literature. We then turn to a formal decomposition of prices into permanent and transitory components, where the permanent component is interpreted as the equilibrium value of the
asset, or the efficient price. Section 9.3 examines price discovery, i.e. the process of convergence on the efficient price, and the role of order flow in this process. Section 9.4 studies price discovery for securities that are traded in multiple market-places. The appendix gives some tools for dealing with dynamic econometric models and lag polynomials.
Tags: bad debt, car loans, compare credit, currency trading, debt settlement, forex, funds, home equity, portfolio
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Wednesday, November 11th, 2009
A correlation between total returns of high yield and treasury bonds shows that interest rate risk can certainly not be neglected by high-yield investors. The mid-1990s serve as a good example. High yield and treasury returns had a quite high correlation in an environment of low default rates and tight credit spreads. In 2003 an increased correlation could be observed again when spreads were approaching historical lows and default rates were falling.
High-yield sensitivity to interest rates is a function of credit risk. This means that the high-yield upper tier (BB/BB) segment’s correlation to 10-year treasuries is higher than for lower tier credit (B and below). Duration management in high-yield portfolios will have a positive performance contribution. Particularly crossover credits and BB’s total returns will be also determined by the movements of interest rates.
During times of low default rates, historically tight spreads and low interest rates it is worthwhile to analyze the duration contribution of various sectors to the high-yield index. In a scenario of rising interest rates, sectors with tight spreads and a high average duration should be watched closely due to a high underperformance potential.
Tags: business competition, business objectives, cash reserves, CEO, investment opportunities, loans guide, merger, money guide, pricing policy, shareholders, shares
Posted in accounting, attitude, banking, budget analysis, business goals, business patterns, business publications | Comments Off
Wednesday, October 28th, 2009
The rapid growth of the European corporate bond market since 1997 has promoted the acceptance of corporate bonds as a separate asset class. Therefore, identifying relative value not only between equities and government bonds, but also relative to corporate bonds, has become a central task of asset allocators. But, of course, this analysis is also relevant from the perspective of a pure fixed income investor. Not only does it help to assess the outlook for credit spreads in general, but also to decide on the beta or, in other words, the aggressiveness of a pure corporate bond portfolio relative to its benchmark. Although it has been common use to compare equities and government bonds, it is far less common to compare equities and corporate bonds.
Tags: credit score, get out of debt, income, international markets, making money, merger, money issues, money tips, personal finances, revenue, shares
Posted in accounting, attitude, banking, equity, expenses, finances, merchandise, money spending, negotiationg | Comments Off
Wednesday, October 21st, 2009
Clearly credit and equity investors tend to look at the corporate sector from different angles. While the focus of equity markets is primarily on earnings growth, credit investors rely on debt-related factors to make their decisions. However, if one combines both perspectives the result is a stylized debt–equity cycle that may support both parties in the process of decision-making. The four phases of the cycle depend on the degree of earnings growth (high or low) and changes in leverage (rising or falling). Changes in leverage reflect the companies’ efforts to change their capital structure as well as their ability to generate cash flows. As an example we will examine the last complete debt–equity cycle that reached from 1991 to 2003.
Tags: annuitant, Annuities, banking, banks, Bearish Patterns, Budgeting, cash, company costs, currency cycles, Debt
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Friday, August 28th, 2009
In every margin scenario, you may note, the broker collects larger commissions and more spreads than in a simple purchase-and-hold scenario. More shares are used in the transaction, plus the transaction inevitably involves a purchase, a sale, and margin interest.
Overconfidence in your investment ability is the main cause of margin investing. It is not a coincidence that the highest margin on record, $279 billion dollars, occurred at the peak of the NASDAQ in March 2000. Five years of 20 percent plus returns led investors to believe they could handle margin. Margin investing is best left to speculators or those with an admitted desire to lose their fortune. Optimists will be happier with a buy-andhold strategy. Even after the worst bear market, they will still own their stocks, assuming no bankruptcies, and have the opportunity to again hope for a great rise.
Tags: business plans, cash dynamics, credit score, executives, interests
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Monday, August 3rd, 2009
The business plan offers general and specific guidance on reaching company goals. It outlines actions. It also separates the dreamers from the doers. It is often the great equalizer between the enthusiastic idea generators and the serious business people who will accomplish their dreams.
Business plans are usually annual, based on the fiscal year. But there also are multiple-year plans—the most common of which is the five-year plan.
An annual plan is operational and necessary to manage the company’s economic needs for the coming year. A five-year plan is more strategic and designed to chart the firm’s direction. In addition, five-year plans should be rolling plans.
The thinking behind a rolling five-year plan can be applied to other cyclical planning, such as the annual budget process or the marketing schedule. When May ends, for example, the managers can study the forecasts for that month and the results, determine the reasons behind the variances, then use their findings to shape a budget for the following May. Rolling plans allow managers to make the most of their budget analyses, provide greater continuity, and ease the burden of annual planning.
Tags: benchmark, business plans, economy, marketing schedule, sales
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Monday, August 3rd, 2009
A wiling plan is a perpetual motion engine for your business vehicle. Once you finish the first year in your plan, you add another year to the end of the plan, so the company always is looking five years ahead. Not only does this ensure greater continuity of vision, but it also spares managers the enormous task of creating subsequent five-year plans.
Defining a sound strategy is vital preparation for success. But even the best strategy will fail without a good business plan to put it to work. The strategy is the idea behind the business, but the business plan is the first of many tools by which that idea will turn into actions.
The business plan is the where, when, how, and why of what a company must do to implement its strategy. It’s just that simple—and that difficult.
Tags: benchmark, business plans, economy, sales
Posted in attitude, business goals, business publications, innovative marketing | Comments Off
Sunday, August 2nd, 2009
Except in the movies, nobody has ever made the leap from start-up to success in one jump. The company needs a well-thought out plan built on steps, strategies, and benchmarks to reach its financial goal.
If your financial goal, for example, is a profit of $12 million, you might decide on the following steps:
- Increase sales
- Cut expenses
- Develop new products
- Innovate marketing
- Improve efficiency
Tags: benchmark, CEO, company, economy
Posted in attitude, innovative marketing, payments, profitability, strategy elements | Comments Off
Sunday, August 2nd, 2009
It’s possible to plan on the low side, of course, to set a financial goal that your company can reach easily. That may be a good idea for some new companies, allowing them to focus on building a solid foundation rather than stretching to meet a higher goal. But if the economy is generally good, easy goals can promote lax attitudes, keeping your company from becoming truly competitive. Then, if the economy starts to decline…
The bottom line here: Know your company and then set an appropriate financial goal.
Tags: CEO, company, economy, executives
Posted in accounting, attitude, business patterns, business publications, profitability | Comments Off