19 November 2007
Applying Earnings Quality Analysis to Your Process
Tim Gaumer, Director of Research, Starmine
Earning quality has been identified in academic research as an important indicator for future stock performance. This presentation discussed the findings of research undertaken by Starmine on earnings quality. Findings included that combining cash flows with accruals provided a stronger indicator of earnings sustainability. Also, long term accruals were found to be at least as predictive of future earnings sustainability as current accruals but tend to be less scrutinised by practitioners.
31 November 2007
The Risks You Know and the Risks You Don’t – The End of the Affair
Dr John Blin
This presentation analysed the impact of a sudden change in the US market “fabric” and the implications of this for quant funds. The presentation looked at whether an agnostic risk model can react fast enough to sound the alarms. Reviewing the evidence, the presentation showed how a new factor wreaks havoc with dogmatic risk views and exposes the conflation of systematic tilts with stock selection discipline.
6 December 2007
Non-Price Based Indexing
Jason Hsu, Director of Research, Research Affiliates LLC and Professor, Anderson School of Business, UCLA and Visiting Professor, Merage School of Business, UC Irvine
This presentation compared traditional indexing with fundamental or non-price based indexing. Problems of traditional indexing include the fact it overweights overvalued stocks and sectors. If prices are inefficient, traditional indexing or market cap weighted indexing will also be inefficient. Alternatives using non-price based factors include equal weighting, fundamental weighting, ratio based weighting and liquidity weighting. Each of these has its shortcomings. The weighting scheme used by Research Affiliates uses a range of non-price based measures of size to weight stocks. This approach aims to have low correlation with price movements, be slower moving than price and hence have lower turnover, and lead to investment in larger companies.
25 February 2008
What Volatility is Really About
Ron Bewley, Chief Investment Officer, Private Client Services, CBA
In this presentation, Ron highlighted the problems with normality assumptions and the central limit theorem with respect to Australian data due to autocorrelation and switchbacks. Switchbacks are when an unusually large increase or decrease is followed by a correction over 1 or 2 days. There are a number of methods for estimating volatility each with their own issues. Choices include rolling standard deviation (lagged), exponential smoothing (parameter choice), GARCH (instability) and realised volatilities (adjustments for autocorrelation, outliers and skewness needed). Ron’s preferred method is realised volatility as no parameters need to be estimated and it can easily allow for breaks in levels. Choice of volatility measure depends on the analyst’s purpose. For long term volatility estimates, the analyst needs to make appropriate adjustments of autocorrelation, outliers, skewness and regime breaks to their volatility measure. For short term measures, it is necessary to decompose volatility and monitor irrational volatility.
28 February 2008
The Sub-Prime Crisis: A Personal Perspective from a Central Banker
Ian Nield, Special Advisor, Reserve Bank of New Zealand
This presentation presented a different view of the sub-prime crisis – that of a central banker. In the presentation, Ian discussed the origins of the crisis and emphasised the role of incentive structures and ethical deficiency in the crisis. Ian also discussed central bank responses to this and other crises outlining the importance of liquidity provision. In the case of the RBNZ, this is conducted via the swaps market.
11 March 2008
Microfinance – Outgrowing Charitable Donors
David Fitzherbert, Grassroots Capital, Shawn Murphy, Morgan Stanley
David and Shawn provided an overview of the Microfinance industry and the opportunities for investors. Microfinance aims to provide financial services to small scale entrepreneurs in developing countries who would otherwise not have access to the formal financial system. This is attractive from an investment perspective due high growth potential, commercial returns and low correlation with other asset classes. David shared insights from his long experience in the industry including the importance of a local partner, the importance of due diligence, and the large variance in quality between investment propositions.
13 March 2008
Reading the Tea Leaves in a Very Risky Environment
Woody Brock, SED Inc
This presentation examined the current economic conditions and their implications for investment returns. In particular, Woody focused on the implications of the sub-prime crises and credit markets dislocation. Woody highlighted the role of endogenous risk in the current crisis which has increased as a result of a “perfect storm” of events including poor economic theory, misguided theories of market deregulation, pathological incentive structures and excess leverage. Woody forecast depressed investment returns going forward as corporations and individuals deleverage and wealth reversion takes effect.
8 April 2008
What Happens when Correlations go to 1?
Sykes Wilford, EQA Partners
This presentation examined the question of how portfolios perform from a risk perspective when correlations and/or volatility rises. The key insight was that the risk of a long only portfolio increases sharply if stock and market volatilities rise and correlations move to zero regardless of the initial diversification of the portfolio. In contrast, the impact on the risk of a long/short portfolio will be less pronounced. If the portfolio’s cross-correlation was initially high, total portfolio risk may actually fall when volatility rises and correlations move to 1.
23 May 2008
Behavioural Finance: Professionals are Human Too
Gerhard Van de Venter, Corporate Finance Lecturer, UTS and Paul Brunker, Australian Equity Strategist, JP Morgan
This seminar featured two leading speakers on the topic of Behavioural Finance, covering two different groups of financial services professionals. Gerhard Van de Venter discussed the "overconfidence" trait within the financial advisory profession. Paul Brunker provided his diagnosis of behavioural traits in the forecasting of sell-side analysts.
4 June 2008
Private Equity Market – Overview and Insights
Erik Hirsch, Chief Investment Officer, Hamilton Lane
