I just completed a substantial rewrite and updating of Tuesday’s assigned reading, entitled “Portfolio and Capital Market Theory”. This version is much more succinct and better written (in terms of clarity) than the version it replaced a few minutes ago. Enjoy!
Today’s dynamic adverse selection class problem and solutions
The class problem is available at http://fin4335.garven.com/fall2020/adverseselection.pdf, and the solutions to the class problem are available at http://fin4335.garven.com/fall2020/adverseselectionsolutions.pdf.
Solutions for the Moral Hazard Class Problem…
… are available at http://fin4335.garven.com/fall2020/moralhazardsolutions.pdf.
Moral Hazard Class Problem
I plan to devote part of tomorrow’s class meeting for Finance 4335 to solving the “Moral Hazard Class Problem” linked below.
In a nutshell, this problem looks carefully at how to go about designing a so-called “incentive compatible contract” between a corporate owner (the principal) and manager (the agent). The trick involves making sure that both the principal and the agent have “skin in the game”; here, this pertains to offering the corporate manager an incentive compensation scheme involving a cut in salary that is supplemented by a bonus if certain profit targets are met.
See y’all tomorrow!
To Serve the Public, Seek Profits
Former hedge fund manager Andy Kessler provides a compelling application of Milton Friedman’s thesis (that the social responsibility of business is to seek profits) by comparing and contrasting so-called “stakeholder capitalism” with “shareholder capitalism” in today’s Wall Street Journal. Students who plan to take advantage of this Wednesday’s (extra credit) UT-Austin panel discussion should also consider reading Kessler’s WSJ op-ed alongside Friedman’s famous essay in preparation for the panel discussion.
wsj.com
Opinion | To Serve the Public, Seek Profits
“Producers capture only 4% of the value they create, and all of society enjoys the rest.”
Extra-credit opportunity: “The Social Responsibility of Business Is to Increase Its Profits”
This fall marks the 50th anniversary of the publication of (Economics Nobel Laureate) Milton Friedman’s famous essay on the social role of corporations, entitled “The Social Responsibility of Business Is to Increase Its Profits”. The ideas in Professor Friedman’s essay provide a critically important conceptual framework for contemporary discussions of stakeholder vs. shareholder capitalism.
On Wednesday, October 14 starting at 4 p.m. CT, the Salem Center at UT-Austin’s McCombs School of Business will feature a panel discussion about Friedman’s ideas and implications for the future of capitalism. The panel will be moderated by Sheridan Titman (Professor of Finance at McCombs), and feature Tom Gilligan (senior fellow at the Hoover Institution and former McCombs School dean), along with McCombs professors Laura Starks (Finance), Raji Srinivasan (Marketing), and Willie Fuchs (Finance).
Since this panel discussion has the makings of an extra-credit opportunity for Finance 4335, let’s have it! You can earn extra credit by attending (via Zoom) and reporting on what you learn. If you decide to take advantage of this extra-credit opportunity, I will use the grade you earn on your report to replace your lowest quiz grade in Finance 4335 (assuming that your grade on the extra credit is higher than your lowest quiz grade). The report should be in the form of a (PDF formatted) 1-2 page executive summary. In order to receive credit, the report must be uploaded to the Assignments section of the Course Canvas page by no later than 5 pm CT on Monday, October 19 (Click on the Assignment entitled “UT-Austin Salem Center Extra Credit”).
Zoom webinar link (no prior registration required).
Friedman, M. (1970), The Social Responsibility of Business Is to Increase Its Profits. New York Times Magazine, 13 September 1970, 122-126.
Correction of typo in the “Insurance Economics Class Problem solutions…
I have corrected a typo pertaining to the equation for calculating the indemnity schedule for a deductible insurance contract in section B1 of that document; get your copy of the corrected version of this document at Insurance Economics Class Problem Solutions.
Solutions for today’s Insurance Economics Class Problem…
… are available at the link below:
Hands-on Large-Cap Investment Course: Practicum in Portfolio Management
About the Class and How to Apply for the Spring 2021 Semester
Overview:
Baylor has a student-managed investment fund comprised of large capitalization (large-cap) stocks which is now valued at approximately $10.5 million. Students in the class are directly responsible for managing the portfolio, while learning the techniques used by professionals to analyze and select individual stocks. Each student will also learn how to use Bloomberg, FactSet, Thomson Eikon and other resources commonly used in the investment management industry.
The Class:
Time: Mondays, 5:00-7:30pm
Location: Hodges Financial Markets Center when the University allows, otherwise via Zoom sessions.
Structure: Designed in the format of a funds management firm and built around student participation
The course primarily consists of market sector teams preparing and presenting to the class detailed reports on stocks in their sector. Every class member is involved in the discussion of each stock. Following the presentation and discussion, the team makes a recommendation on the stocks they presented. The class votes and the decisions of the class are implemented.
For a better understanding of the course, you may attend a Zoom class session any of the following Monday evenings from 5:00 pm: October 12th, 19th or 26th. To attend, contact Professor Troegle at Brandon_Troegle. Provide your name, email address and the date you want to attend, and he will provide you with a link to Zoom for the class that evening,
Professors:
- Brandon Troegle, CFA®, CAIA® is a Managing Director and portfolio manager with Hillcrest Asset Management, focusing on the firm’s securities selections across various strategies. Before joining Hillcrest, Brandon was an equity analyst at Morningstar. Prior to Morningstar, he worked for Luther King Capital Management and Bank of America.
- David Morehead, CFA®, currently serves as Baylor’s Co-Chief Investment Officer. Previously, he spent nearly 20 years investing across a wide range of securities including bank loans and high yield/distressed investments, equity and equity-linked products, commodities, and derivatives. His experience includes time on the sell-side as well as the buy-side with both long-only and hedged portfolio experience at Highview Capital, Ritchie Capital, William Blair, Bank of America, and First Trust Advisors.
How to Apply:
Complete the online application at https://www.baylor.edu/business/financialmarkets/apply.
In addition to the usual contact and background information you will need to provide:
- Statements of why you wish to take the course and your career plans/goals
- Description(s) of any investment and/or finance-related experience
- A description of a significant academic and/or personal achievement you would like the selection committee to consider
- Uploaded copies of your current resume and current unofficial transcript
The online application will be available 10am Monday, October 12th until midnight Wednesday, October 28. Enrollment is limited to 15 graduate and/or undergraduate students, with a minimum 3.2 GPA, a strong academic record, and an interest in investments. Applicants will be evaluated by a Finance faculty committee.
For More Information go to: http://www.baylor.edu/business/financial_markets
Insurance Economics Class Problem for tomorrow’s Finance 4335 class meeting
During tomorrow’s class, we will complete our coverage of the Insurance Economics topic. We’ll devote part of our time together to solving the “Insurance Economics Class Problem” linked below. Please be sure to have this class problem queued up for tomorrow’s class!