Sunday, October 12, 2014

The cosy between investment banking and private equity

The cosy between investment banking and private equity: Epicurean Dealmaker: The Privy Counselor:

"But most importantly, having M&A and industry bankers gives integrated investment banks an excuse to deliver ideas, industry and client insight, and all-important deal flow to the biggest-paying class of clients on Wall Street: private equity firms. While it is well known that private equity firms do not like paying M&A advisors for advice—usually because, rightly or wrongly, they think they know at least as much or more as bankers do about companies, deal-doing, and opportunities—they absolutely love paying investment banks to supply and arrange leveraged loans and high yield debt to finance buyouts of target companies. And banks love this too, because it is both huge and hugely profitable business. PE firms are usually happy to hire investment banks to sell their portfolio companies or take them public upon exit, too, although they tend to favor the banks which brought them the investment in the first place, financed it, and or smothered them with loving attention and juicy new buyout opportunities in the meantime."

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M&A synergies

M&A synergies and negative synergies Epicurean Dealmaker: The Privy Counselor:

"The point, in other words, is that Blackstone divesting its advisory business has nothing to do with bucking a nonexistent trend on Wall Street to add business lines like barnacles on a freighter. Instead, it has everything to do with dumping business lines that add no value, subtract value, or fail to realize their own value due to inherent negative synergies resulting from persistent structural conflicts of interest with the parent company. In other words, it is business as usual."

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Tuesday, October 07, 2014

Sorry, But Disruptive Technology WILL Kill Banks

Sorry, But Disruptive Technology WILL Kill Banks: "Allegedly, John Authers recently wrote an article in the Financial Times entitled “Disruptive technology will not kill banks“. I say allegedly because despite the article being cited and commented on by two people whose analysis and opinion I respect (Chris Skinner and Jeff Marsico), I cannot get through the FT’s phalanx of pop-up ads and paywalls to actually read it with my own eyes. By trying to open the link multiple times, I was able to spy a few words at a time before the ads obscured the subheading that read “Banking is too heavily regulated to be threatened by newcomers”"

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Sunday, September 14, 2014

Volatility concepts and the risk premium

An interesting overview of risk and volatility from the BIS.  Volatility concepts and the risk premium:

"Statistical measures of volatility are based on observed asset returns over a given time interval. This can be done in various ways. A simple, model-free approach is to compute the standard deviation of the actual returns on a given asset over a particular time window, so-called realised (or "historical") volatility. Model-based approaches have also been proposed: ARCH (autoregressive conditional heteroscedasticity) models, for example, assume that the variance of returns fluctuates over time according to a specific time series model.


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Friday, August 15, 2014

Expectations of Returns and Expected Returns

Expectations of Returns and Expected Returns: "We analyze time-series of investor expectations of future stock market returns from six data sources between 1963 and 2011. The six measures of expectations are highly positively correlated with each other, as well as with past stock returns and with the level of the stock market. However, investor expectations are strongly negatively correlated with model-based expected returns. We reconcile the evidence by calibrating a simple behavioral model, in which fundamental traders require a premium to accommodate expectations shocks from extrapolative traders, but markets are not efficient."

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Monday, July 21, 2014

Learning means that behaviour is not stationary

Stationary processes | The Leisure of the Theory Class:

"I said earlier that in stationarity environment, the point in time which we denote by does not correspond to anything about the process itself but only reflect the point in time in which we start observing the process. In this example this is indeed the case with Craig, who starts observing the coin process at time . It is not true for us. Our subject matter is not the coin, but Craig. And time has a special meaning for Craig. Bottom line: Rational agent in a stationary environment will typically not behave in a stationary way."

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Saturday, July 19, 2014


CONVERSABLE ECONOMIST: Evidence on the Samuelson Conjecture: "For a useful starting point to thinking about how the rise of emerging economies like China affect global trade, I recommend a symposium in the Spring 2012 issue of JEP. Gordon H. Hanson starts with "The Rise of Middle Kingdoms: Emerging Economies in Global Trade."  "Gains from Trade when Firms Matter," by Marc J. Melitz and Daniel Trefler, looks at the benefits of trade offers introduction to modern models of trade driven from variety, shifts toward more efficient firms, and technological gains. For an introduction to models of international trade based on by differences in relative productivity across countries--like the model used by di Giovanni, Levchenko, and Zhang--that same has a useful article called "Putting Ricardo to Work," by Jonathan Eaton and Samuel Kortum. Finally, Jonathan Haskel, Robert Z. Lawrence, Edward E.  Leamer, and Matthew J. Slaughter look at "Globalization and U.S. Wages: Modifying  Classic Theory to Explain Recent Facts." "

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Thursday, July 17, 2014

Money and Entropy — Design Matters — Medium

Money and Entropy — Design Matters — Medium: "This all sounds terribly wonkish and academic, but understanding money in a scientific sense is important given what you can do with it (and the problems a lack of it create)."

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