Jim Simons, the great investor and philanthropist of math and computer science, died yesterday.
Here's the announcement from the Simons Foundation.
Simons Foundation Co-Founder, Mathematician and Investor Jim Simons Dies at 86
And here's the NYT:
Jim Simons, Math Genius Who Conquered Wall Street, Dies at 86. Using advanced computers, he went from M.I.T. professor to multibillionaire. His Medallion fund had 66 percent average annual returns for decades.
The WSJ has the latest:
Hectic Private-Equity Recruitment Process Leaves Firms Looking for Alternatives. July talent-grab leaves some firms frustrated with process for hiring entry-level workers. by Chris Cumming, Aug. 30, 2023
"Private-equity firms are recruiting workers with less and less Wall Street experience every year, hoping to beat out their competitors to hire the most impressive recent college graduates.
...
"Over about 48 hours every year, hundreds of first-year investment bankers file through private-equity offices for a battery of interviews and tests, hoping to land an offer in one of the world’s most highly paid industries.
...
"This year’s recruitment process kicked off July 21—the earliest date ever—for positions starting in 2025. Firms hired candidates who have mostly just graduated from college and are beginning two-year bank-analyst programs, making offers that kick in after their programs end.
Harry Markowitz, who invented modern portfolio theory, and did much beside, has died.
Here's his NYT obituary, which was apparently prepared long in advance.
Harry Markowitz, Nobel-Winning Pioneer of Modern Portfolio Theory, Dies at 95. He overturned the traditional approach to buying stocks by examining the relationship between risk and reward. By Robert D. Hershey Jr.
“I’m not a one-shot Nobel laureate — only doing one thing,” Dr. Markowitz said in an interview for this obituary in 2014. Although he was 87 at the time, he was embarked on a monumental analysis of securities risk and return."
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PORTFOLIO SELECTION, by Harry Markowitz, The Journal of Finance Volume 7, Issue 1 p. 77-91 First published: March 1952 https://doi.org/10.1111/j.1540-6261.1952.tb01525.x
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Here's the beginning of the 1990 Nobel Prize press release:
16 October 1990
THIS YEAR’S LAUREATES ARE PIONEERS IN THE THEORY OF FINANCIAL ECONOMICS AND CORPORATE FINANCE
The Royal Swedish Academy of Sciences has decided to award the 1990 Alfred Nobel Memorial Prize in Economic Sciences with one third each, to
Professor Harry Markowitz, City University of New York, USA,
Professor Merton Miller, University of Chicago, USA,
Professor William Sharpe, Stanford University, USA,
for their pioneering work in the theory of financial economics.
Harry Markowitz is awarded the Prize for having developed the theory of portfolio choice;
William Sharpe, for his contributions to the theory of price formation for financial assets, the so-called, Capital Asset Pricing Model (CAPM); and
Merton Miller, for his fundamental contributions to the theory of corporate finance.
********
Here's the citation for the 1989 von Neumann theory prize in operations research:
"1989 John von Neumann Theory Prize:
"Harry M. Markowitz received the 1989 John von Neumann Theory Prize. Dr. Markowitz, presenter Ellis Johnson noted, contributed ground-breaking work in three areas: portfolio selection, mathematical programming, and simulation.
"Harry Markowitz is the Marvin Speiser Distinguished Professor of Finance and Economics at Baruch College, NYC. He developed the portfolio selection model in his Ph.D. thesis at the University of Chicago. First published in 1952, today his model is one of the most widely used quantitative tools for investment analysis.
"During the late 50s Markowitz worked on mathematical programming at the RAND Corp. and also did his ground-breaking work on factoring bases and maintaining sparsity in the course of solving linear programs, in effect introducing the triangularization or LU factorization in place of inversion of the basis. His selection criterion for reducing fill-in when forming basis factors is the well-known Markowitz criterion and is still used in state-of-the-art codes for both LU and Cholesky factorizations. Markowitz's third main area of activity involved codifying the underlying notions of simulation by defining a world view composed of entities having attributes and belonging to sets that have defined relationships with each other. The state of the world changes through events, which are triggered by time. Based on this, in the 60s he developed a high-level simulation language, SIMSCRIPT, and in the 80s has collaborated with IBM researchers to develop EAS-E, an integrated data base, modeling and applications development language.
Dr. Markowitz told OR/MS Today that the award was a great honor and a reflection of the influence of von Neumann on portfolio theory."
Here's some news and history on the
Private Equity On-Cycle Recruiting Timeline
by Matt Ting (Peak Frameworks)
"The sheer absurdity of the private equity recruiting process is perhaps best illustrated by the recruiting timeline.
"In recent years, private equity recruiting has kicked off within months of people graduating. Private equity firms commonly interview and hire people that have fewer than 6 months of work experience. And the thing is, private equity firms are hiring people who won’t actually start their jobs for another 2 years.
"Every single year, the recruiting timeline inches forward by a month or so. There was a brief stretch for the 2012 – 2016 associate classes where the start time held relatively constant at around 1.5 years in advance.
"Over the past five years, the recruiting timeline has consistently moved up a month or two at a time. Every single year, many firms get caught off-guard or unprepared because of how accelerated things have become. It’s at the point where it seems like there’s no further it can move forward.
"The only time over the last 15 years that recruiting has moved backwards in time was during the Great Recession (recruiting during July 2009). And even then, recruiting only moved back by a couple of months."
HT: Mike Ostrovsky
The WSJ has the story:
SEC Proposes Rules That Would Squeeze Stock-Market Middlemen. Agency is formally considering biggest overhaul of stock-market structure since mid-2000s By Paul Kiernan and Alexander Osipovich
"The Securities and Exchange Commission voted Wednesday to advance the biggest changes to U.S. stock-market rules since the mid-2000s, aiming to give small investors better prices on their trades and reduce some advantages enjoyed by high-speed trading firms.... Voting to advance the rules opens them to public comment until at least March 31 before the agency can decide whether to finalize them.
...
"The broad idea motivating the proposals is to use greater competition for investors’ orders to deliver better prices, while stepping up regulations of the firms that profit from handling retail stock trades.
...
"The centerpiece of the SEC’s plans is a proposal for brokers to send many small-investor stock orders into auctions. This would enable a mix of high-speed traders and institutional investors such as hedge funds or pension funds to compete to fill the orders, with the idea that investors would get better prices as a result—higher prices if they are selling shares, or lower prices if they are buying.
"The auctions would apply to so-called marketable orders—in which investors buy or sell stocks at the currently available price—less than $200,000 in size and placed by investors who average fewer than 40 trades a day. They would be required to last between one-tenth and three-tenths of a second, roughly the duration of a blink of an eye, and would likely be run by exchanges.
Requiring such auctions would be a big change. The SEC says brokers send more than 90% of marketable orders to wholesalers. Unlike exchanges, which display price quotes publicly and allow a variety of market players to attempt to fill orders, wholesalers trade directly against the incoming retail flow, an arrangement that effectively prevents other market players such as institutional investors from interacting with individual investors’ orders."
HT: Eric Budish
Zoom is changing interview practices, and there's concern that academic markets for new Ph.D grads could unravel. The AFA is on the case for the finance market with these guidelines:
The AFA rookie job market cycle of 2021-2022 created uncertainty, confusion, and unneeded stress for job market candidates and for recruiters. In the interest of developing a more coordinated job market that benefits all involved, the AFA Board has the following suggested guidelines.
Initial interviews can be virtual or in person, but the AFA recommends that the initial interviews should not begin before December 15, 2022, and that the timing of the “campus visit” should occur after the AFA meeting.
In order to facilitate the best matching between candidates and positions, the AFA Board believes strongly that job offers should remain open until at least February 20. The AFA Board also encourages employers to abstain from giving exploding offers with too short of a time frame, since they are unfair to the candidates. Consequently, the AFA promotes the following professional norm: If a job candidate receives and accepts a coercive exploding offer (i.e., one that expires before February 20), the AFA does not consider such an acceptance to be binding.
These guidelines are designed for the AFA rookie recruiting cycle and do not pertain to recruiting cycles for other job markets such as the FMA or European job markets.
HT: Alex Chan
The July AER has a number of experiments that speak to market design:
Online,
How to Avoid Black Markets for Appointments with Online Booking Systems By Rustamdjan Hakimov, C.-Philipp Heller, Dorothea Kübler, and Morimitsu Kurino*
Abstract: Allocating appointment slots is presented as a new application for market design. Online booking systems are commonly used by public authorities to allocate appointments for visa interviews, driver’s licenses, passport renewals, etc. We document that black markets for appointments have developed in many parts of the world. Scalpers book the appointments that are offered for free and sell the slots to appointment seekers. We model the existing first-come-first-served booking system and propose an alternative batch system. The batch system collects applications for slots over a certain time period and then randomly allocates slots to applicants. The theory predicts and lab experiments confirm that scalpers profitably book and sell slots under the current system with sufficiently high demand, but that they are not active in the proposed batch system. We discuss practical issues for the implementation of the batch system and its applicability to other markets with scalping.
***********
In rural Malawi,
Pay Me Later: Savings Constraints and the Demand for Deferred Payments By Lasse Brune, Eric Chyn, and Jason Kerwin*
Abrstract: We study a simple savings scheme that allows workers to defer receipt of part of their wages for three months at zero interest. The scheme significantly increases savings during the deferral period, leading to higher postdisbursement spending on lumpy goods. Two years later, after two additional rounds of the savings scheme, we find that treated workers have made permanent improvements to their homes. The popularity of the scheme implies a lack of good alternative savings options. The results of a follow-up experiment suggest that demand for the scheme is partly due to its ability to address self-control issues.
************
In Rwanda,
Recruitment, Effort, and Retention Effects of Performance Contracts for Civil Servants: Experimental Evidence from Rwandan Primary Schools by Clare Leaver, Owen Ozier, Pieter Serneels and Andrew Zeitlin
Abstract: This paper reports on a two-tiered experiment designed to separately identify the selection and effort margins of pay for performance (P4P). At the recruitment stage, teacher labor markets were randomly assigned to a "pay-for-percentile" or fixed-wage contract. Once recruits were placed, an unexpected, incentive-compatible, school-level re-randomization was performed so that some teachers who applied for a fixed-wage contract ended up being paid by P4P, and vice versa. By the second year of the study, the within-year effort effect of P4P was 0.16 standard deviations of pupil learning, with the total effect rising to 0.20 standard deviations after allowing for selection.
*************
and in India,
On Her Own Account: How Strengthening Women's Financial Control Impacts Labor Supply and Gender Norms By Erica Field, Rohini Pande, Natalia Rigol, Simone Schaner and Charity Troyer Moore
Abstract: Can increasing control over earnings incentivize a woman to work, and thereby influence norms around gender roles? We randomly varied whether rural Indian women received bank accounts, training in account use, and direct deposit of public sector wages into their own (versus husbands') accounts. Relative to the accounts only group, women who also received direct deposit and training worked more in public and private sector jobs. The private sector result suggests gender norms initially constrained female employment. Three years later, direct deposit and training broadly liberalized women's own work-related norms, and shifted perceptions of community norms.
What looks like privacy to some looks like secrecy to others.
The NY Times has the story:
"Billions of dollars of art changes hands every year with little or no public scrutiny. Buyers typically have no idea where the work they are purchasing is coming from. Sellers are similarly in the dark about where a work is going. And none of the purchasing requires the filing of paperwork that would allow regulators to easily track art sales or profits, a distinct difference from the way the government can review the transfer of other substantial assets, like stocks or real estate.
...
"In January, Congress extended federal anti-money laundering regulations, designed to govern the banking industry, to antiquities dealers. The legislation required the Department of the Treasury to join with other agencies to study whether the stricter regulations should be imposed on the wider art market as well. The U.S. effort follows laws recently adopted in Europe, where dealers and auction houses must now determine the identity of their clients and check the source of their wealth.
“Secrecy, anonymity and a lack of regulation create an environment ripe for laundering money and evading sanctions,” the U.S. Senate’s Permanent Subcommittee on Investigations said in a report last July in support of increased scrutiny.
"To art world veterans, who associate anonymity with discretion, tradition and class, not duplicity, this siege on secrecy is an overreaction that will damage the market. They worry about alienating customers with probing questions when they say there is scant evidence of abuse.
...
"What is the origin of such secrecy? Experts say it likely dates to the earliest days of the art market in the 15th and 16th centuries when the Guilds of St. Luke, professional trade organizations, began to regulate the production and sale of art in Europe. Until then, art was not so much sold as commissioned by aristocratic or clerical patrons. But as a merchant class expanded, so did an art market, operating from workshops and public stalls in cities like Antwerp. To thwart competitors, it made sense to conceal the identity of one’s clients so they could not be stolen, or to keep secret what they charged one customer so they could charge another client a different price, incentives to guard information that persist today.
...
"Auction catalogs say works are from “a private collection,” often nothing more. Paintings are at times brought to market by representatives of owners whose identities are unknown, even to the galleries arranging the sale, experts and officials say. Purchasers use surrogates, too.
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Here's a related State Department report on how art sales have been used to circumvent U.S. sanctions on Russian oligarchs:
Here's the relevant part (with links) of the PNAS Table of Contents for June 29, 2021; Vol. 118, No. 26
Evolutionary Models of
Financial Markets Special Feature
Introduction
Introduction to PNAS special issue on evolutionary models
of financial markets
Simon A. Levin and
Andrew W. Lo
Social
Sciences — Economic Sciences
How market ecology explains market malfunction
Maarten P. Scholl,
Anisoara Calinescu, and J. Doyne Farmer
Moonshots, investment booms, and selection bias in the
transmission of cultural traits
David Hirshleifer and
Joshua B. Plotkin
Social
Sciences — Economic Sciences - Biological Sciences — Evolution
Rabah Amir, Igor V.
Evstigneev, Thorsten Hens, Valeriya Potapova, and Klaus R. Schenk-Hoppé
Nihal Koduri and
Andrew W. Lo
Evolved attitudes to risk and the demand for equity
Arthur J. Robson and
H. Allen Orr
Social
Sciences — Economic Sciences - Physical Sciences — Statistics
High-frequency trading and networked markets
Federico Musciotto,
Jyrki Piilo, and Rosario N. Mantegna
Perspectives
Social finance as cultural evolution, transmission bias,
and market dynamics
Erol Akçay and David
Hirshleifer
The landscape of innovation in bacteria, battleships, and
beyond
Terence C. Burnham and
Michael Travisano
Sunsetting as an adaptive strategy
Roberta Romano and
Simon A. Levin
Can the wholesale food market come to resemble the modern retail financial market? The WSJ has the story.
Trading Chicken Feet Is Going Digital. For giants like Tyson, moving millions of pounds of meat from farmers to vendors still requires phone calls, spreadsheets and middlemen By Julia-Ambra Verlaine
"For agricultural giants like Tyson Foods Inc., moving millions of pounds daily of meat and poultry products from farmers to vendors world-wide still requires phone calls, spreadsheets and personal relationships with middlemen who take a cut. Brokers fees can add up, and it is hard to get reliable up-to-the-minute pricing information. Unlike other markets, inventory and supply aren’t available on a centralized database.
...
"Scott Spradley, chief technology officer at Tyson, the second-largest processor of chicken, beef and pork in the U.S., said large transactions with some external partners still require a fax machine. To fill a supermarket order for chicken, salespeople need to call warehouses peppered across the country. Improving the technology could ultimately bring down the cost of processing and distributing food across the country.
...
"The more middlemen involved, the higher the cost. Before a steak ends up on an American dinner table, it goes through slaughterhouses that process and package the meat. While large retailers like Costco Wholesale Corp. or food chains like McDonald’s Corp. have direct contracts with producers at fixed rates, small restaurants and local suppliers have to go through protein brokers including Louis Dreyfus Co., or redistributors such as NebraskaLand.
“It’s an archaic industry that relies on an old-boy network, a bit like foreign exchange in the 1980s,” said Mr. Honey. “We are trying to cut the fat out that brings the price up.”
...
"Companies like Nui, populated with former traders, are seeking to build streaming platforms that centralize supply and give access to smaller players at better prices. Industry publisher Urner Barry is like a Bloomberg in the meat, fish poultry industry—providing data, news and market pricing on lamb, pork, turkey, eggs and more.
"Urner Barry, founded in 1858, upgraded its electronic platform called COMTELL over a year ago. It supplies brokers, restaurateurs and supermarkets with prices on over 15,000 products ranging from chuck roll to West Coast chicken drumsticks.
“Unlike the past, people are coming into this industry that have a finance background,” said Russell Barton, a COMTELL director at Urner Barry. “They are treating the meat and poultry markets like analysts treat the stock market. They aren’t content with a static price sheet.”
***********
One of the companies mentioned in the WSJ story is the New Zealand based Nui (https://www.nuimarkets.com/our-platform/)
The Chronicle of Higher Education has a surprisingly moving long story about the fact that applying for financial aid is not only time consuming, difficult and even expensive for the people who need it most, but can also be emotionally costly, especially for students from broken families, since the form requires input from both parents.
The Most Onerous Form in College Admissions. The Fafsa is tough, but the CSS Profile is grueling. There’s a human cost. By Eric Hoover
Bloomberg has a nice story about financial innovation in funding drug discovery startups:
"The main factor in the dearth of financing, Lo realized, was the lack of diversification. Let’s say a drug costs $200 million to develop and has only a 5% chance of success. If it does succeed after 10 years of development, it could earn $2 billion a year annually for 10 years. Intriguing, but too much of a lottery ticket for most investors.
"But what if you could raise $30 billion to fund 150 startups at once? If the success of each was independent—that is, uncorrelated with the success of any other drug in the portfolio—then the chance of at least three becoming blockbusters was 98% and the chance of at least five becoming blockbusters was 87%. Those odds were so attractive, Lo realized, that even conservative fixed-income investors who like single-A-rated bonds would be willing to finance such a fund.
"Lo had been lecturing and publishing papers along these lines for several years when a former student, Neil Kumar, told him he wanted to put Lo’s ideas into practice in a company that would focus on treatments for orphan diseases caused by single-gene defects and cancers with clear genetic drivers. It was a perfect test of the concept because each rare disease was unique; their causes were uncorrelated, as in Lo’s thought experiment.
"Lo made a small investment and was listed as a co-founder of what became BridgeBio Pharma Inc. in Palo Alto, Calif. According to Bloomberg data, the company had a market value of $9.3 billion as of Feb. 4, making Kumar’s 5.6% stake worth more than $500 million. In the webinar, Lo said, “I’m most proud of the fact that they have 20 projects of which four are in Phase 3 trials.” The company anticipates approval of one by the end of 2021 and another by the end of 2022, he said, adding, “These are therapies that would not have been developed” if not for BridgeBio."
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