Digital Musings

Vox Academia: And the Golden Palm goes to...

Vox Academia has been live for almost six months now. We want to thank all the contributors and readers who have made it a rising success. 29 contributors have registered so far and many of them do post chronicles on a regular basis.

Since the 2007 Cannes Festival is currently taking place, we have decided that we too can attribute "palms" :-)

As a matter of fact, we have decided to grant two sets of palms: a static one and a dynamic one.

The static "palm" ranking is based on the number of visits since the inception of Vox Academia. This ranking is of course only a partial picture as the old chronicles have, other things being equal, more chance to be in the ranking that brand new ones.

That's why we come up with the dynamic "palm" ranking. In a nutshell, this ranking is based on the observed trend of current consultations. It means that if the trend we observe now stays the same, this is the ranking we may reasonably expect in the near future.

So much for comments! Let's turn to the results.
 
VOX Academia / Cyberlibris Hall of Fame:

The SP (static palm) Ranking:

1. The Golden Palm goes to Olivier Germain for his chronicle: "M6: Une Petite Histoire de (la) Stratégie".
2. The Silver Palm goes to Didier Joos de ter Beerst for his chronicle"Réseaux et Guildes au Moyen-Age: Le Renvoi d'Ascenceur"
3. The Bronze Palm goes to Marianne Hauchecorne for her chronicle "La Symbolique des Couleurs Côté Web"

The DP (dynamic palm) Ranking:

1. The Golden Palm goes to Didier Joos de ter Beerst for his chronicle "Réseaux et Guildes au Moyen-Age: Le Renvoi d'Ascenceur"
2. The Silver Palm goes to Aïda N'Diaye for her chronicle "Travailler Moins Pour Gagner Plus?: Qu'est-ce qu'une Méritocratie?"
3. The Bronze Palm goes to Bernard Paranque for his chronicle "Valeur Travail - Valeur du Travail"

Congratulations to all of them! Congratulations to all of you and pass on the good word: Academic conversations are not boring! They are fun and informative.

Do yourself a favor: Become a chronicler on Vox Academia and/or convert friends to become both chroniclers and readers!

Who said academic conversation was boring!: Vox Academia is live!

We said we would do it. We've done it. Vox Academia is live! Vox Academia is the place for academic chronicles.

It is the place for starting academic conversations and, indeed, from what I've seen already these conversations are far from boring!

So, join Vox Academia and let's have a buoyant worldwide academic conversation!

Books: A Truly Bright Collective Future

Once upon a time there was a writer who was solitary at his desk. All his life had been dedicated to books. From dawn to twilight, his pen was chasing the right word, the definitive sentence. Days were passing by. Each new day was a step towards his Magnus Opus. Was he happy? Nobody knew, not even himself. Were King Arthur and his knights happy? They knew about one thing only: The Holy Grail was what their lives were all about. There was no place for sorrow or happiness. Pain for sure. Our writer believed in what they believed: Lonely perspiration will get you there, to your Magnus Opus. His publisher shared the same faith although, from times to times, he doubted the Magnus Opus would ever see the public light. The Magnus Opus seemed like a never ending story. No publisher, even the shrewdest, knew how not to lose money on a never ending Magnus Opus copyright.

Sometimes the publisher would hear some silly stories about books that were written online, crowdsourced, the product of multiple anonymous pens. How can it be? By what stretch of imagination could books end up as a collective knowledge factory, always at work, where you cannot distinguish between writers and readers. Why would the Magnus Opus be exposed to all eyes, to all brains while it should have been kept as a genuine secret until publishing time?

Are books dead? Should the writer give up his cherished solitary desk and strive for something else?

No, books are not dead. They are different. Why? Because we are different too. The Magnus Opus is not dead either: It will become even "more Magnus" simply because we are more and as a crowd we are able to transform perspiration into inspiration.

No, we won't pretend that each of us is a good as the solitary writer at his desk, only that we can make him or her even better should he or she and his or her publisher accept us in his or her writing cabinet. 

Writing and publishing should not remain solitary exercises. Otherwise they'll become a dry land of failed and lost opportunities, the opportunities many of us were willing to share thanks to the many digital tools our voices can embrace.

Life is not perspiration or inspiration, solitary or collaborative, closed or open, all rights reserved or no rights reserved. It is all of this. And, in all of this, books, writers and publishers have a bright future, the future of our collective collaborative wisdom.

Finance Vox

A new blog is born! I have started a new blog in French: Finance Vox. This is a blog that will be based upon my teaching at the University of French West Indies. As a matter of fact it is more than that. This is a blog where I am going to share my passion for finance and, indeed, convince you that finance is real fun!

Here is an abstract of my first Finance Vox post. Welcome and enjoy!

About blogs, tagging and averages

John Kay reminds us of John Keynes' useful remark:

"Keynes likened professional investment to a beauty contest, in which “it is not a case of choosing those which are really the prettiest, nor even those which average opinion genuinely thinks the prettiest. We have reached the third degree where we devote our intelligence to anticipating what average opinion expects the average opinion to be”. And it is so, to the power of 67."

Kay makes the point when he saw that the Bloomberg information service was carrying 67 different predictions of US GDP growth in the third quarter. Amazing indeed! Even more amazing once one knows how close they are. As always, "It is dangerous to be right, but safe to be conventional."

I am afraid the same averaging pattern is taking place on the web. Take the example of tags. What are tags? Well, according to Technorati:

"Tags: The real-time web, organized by you. Tag is like a subject or category. This page shows the most popular 250 tags in alphabetical order. The bigger the text, the more active it is. Currently tracking 3 million tags. Last updated 12:54 AM PST."

Everything goes as if everyone could declare himself or herself a professional indexer. Not a bad thing in itself after all. You want people to be able to better locate your piece of info. Good also for professional indexers who can update their practices by observing what people do.

But, there is a but! I am afraid people will be more interested in tagging their content not in absolute terms but more often than not in relative terms. For instance they will be tempted to go to Technorati, look at the most popular tags and use them even if they are not exactly relevant. One of the reason they may do so is advertising revenues. Having more visits and clicks is fostering the attractiveness for advertisers.

I am not sure what to expect from this tagging movement. Order may emerge from what seems to be chaos right now. Who knows?

Cyberlibris Blog is Sony PSP compatible!

If you belong to the PSP aficionados tribe and said to your kids that you bought it for work (I did!), here is a way to prove right. We made the Cyberlibris Blog fully PSP compatible!: Here is the link. As a matter of fact, I do not know yet how to simultaneously post on the "regular" blog and the PSP blog. Still exporting posts and/or copying/pasting. I'd love the process to be automatic. Maybe somebody knows how to do it.

As a matter of fact, we are wondering at Cyberlibris whether the PSP could become a device useful in pedagogical environments. The blog adaptation is a move in that direction. Still working on it! Ideas and suggestions are more than welcome.

Finance and the equity risk premium: A solved puzzle?

I am taking the opportunity of Professor Robert Barro's recent article entitled "Rare Events and the Equity Premium Puzzle" (pdf) to test a new service that I subscribed to.

First a few words on the so-called equity premium puzzle. In a nutshell, it says that the long run performance of equity markets exhibit a remuneration of the equity risk that is to high to be compatible with traditional pricing models such as the CAPM (you are the lucky one if your grand parents and parents were wise enough to have invested in the stock market!).

Numerous researchers have tried to modify the model to make it more complex: Habit formation (what I have for lunch does depend on what I had for breakfast and/or I want to keep up with the Joneses), labor income risk, generic background risk etc... Some others have suggested that the data that have been tortured until they confess are "biased": They mainly refer to the stock market that has indeed been the most successful, namely the US stock market, hence a survivor bias etc...

Here comes Barro who resurrects an old piece by University of Iowa Economist T A Rietz. In this paper Rietz suggests that the puzzle can be explained if one takes due consideration of low probability disasters. What are these disasters? In Barro's own terms:

"Well, “rare events” in this context are low probability, large disaster events. As a U.S. example, you think immediately about the Great Depression. However, war has been historically more important for most countries. I have in mind particularly the economic devastation of World Wars I and II for many countries, including much of Western Europe and Japan. From a U.S. perspective, one thinks about the world wars as times of good economic performance, but that outcome is unusual from a global perspective. For the U.S., one has to go back to the devastation of the Civil War in the South to find something comparable."

What are the consequences of such events? Again in Barro's terms:

"Suppose that you have potential events with, say, a 1 percent annual probability, where you lose half of your capital stock and GDP. This possibility seems to be enough to get something like the observed equity premium. Moreover, this mechanism has implications for a lot of other variables, not just for the excess of the average return on stocks over the return on government bills. For example, it can explain the very low “risk-free” rate and low expected real interest rates during most U.S. wars back to the Civil War. It can also explain some of the evolution of price-earnings ratios for the U.S. stock market."

Remember that the puzzle is about the equity risk premium being too high, in other words (for the CAPM aficionados) the empirical (observed) slope of the Security Market Line being too steep. The line starts at the risk-free rate where equity (beta) risk is zero and then goes linearly upward at a rate given by the equity premium (so that you get compensated for the extra equity risk you have to carry). The puzzle is also named the risk-free rate puzzle as the observed risk-free rate is low compared to the theoretical one. Well, according to Rietz and Barro, it could well be that people do not discard rare events that much or, more precisely, that their perceived disaster probabilities over time are higher than has been assumed in the literature (e.g. Mehra/Prescott). Hence the demand for the safe harbor investments is higher and the risk-free rate should indeed go down (Hint: How do you get to estimate these perceived disaster probabilities? Well, by looking at option prices and if you go deeper in the past at insurance prices).

So much for complex explanations! Two intertwined things worry me though. First, the Rietz/Barro argument sounds like the quantum leap debate in physics (disclosure: My field is not physics!). A lot of the literature in the economics of risk and uncertainty has provided evidence that people usually underestimate low probability events (from Howard Kunreuther to Nassim Taleb's famous Black Swan, click here for a video of Taleb). People have a hard time moving from the "normal" to the "rare" and back. How come that things (chief among them behaviors) are not the same in the small and in the large? So, who's right? Those who believe in the Black Swan or those who don't? More work is needed and it does not relate to finance only (think of climate events etc...).

Second, University of California Philippe Jorion and Yale University William N Goetzmann have shown that when you gather more data from more markets (outside the US) you get an empirical premium that is lower than the one that has been estimated on the US market only. Question: How do you reconcile the two sets of observations and arguments? In other words, is the premium too low or too high, is it vanishing and what kind of premium level should we expect in the future?

Maybe the real puzzle is with researchers themselves who seem to be as puzzled as the Equity Risk Premium itself!

Now for those who'd like to know where finance was in 1999 here is a piece entitled New facts in finance. by Cochrane, John H. source: Economic Perspectives, September 22, 1999.
via: HighBeam™ Research
COPYRIGHT 1999 Federal Reserve Bank of Chicago.

(This is the reason why I wrote this rather lengthy note to check how HighBeam research is working.)

If you need further bibliographies on the ERP puzzle here is one and another one.

Teaching, learning and blogging: Some further evidence

Readers of this blog know that we have advocated the use of blogs as a teaching and learning device for quite a while. Indeed, we have preached the blogging gospel and converted some Cyberlibris users who are now veteran bloggers.

If you're not convinced yet of the depth and scope blogs can bring to the process of teaching and learning, here is some further evidence coming from Australia.

Anne Bartlett Bragg is a part-time academic at the University of Technology in Sydney. She is currently writing a PhD on how digital media can enhance the learning experience of students. Of course, she could not miss blogs (being a blogger herself). What she says about blogs and learning in a recent ABC Science News interview fits very nicely with the experience we have at Cyberlibris with our users.

The most striking phenomenon when a professor starts to blog is that he or she becomes really a "primus inter pares". More specifically the teaching and learning processes switch from vertical to horizontal and that's what makes blogging very addictive to both the teacher and the learners. Moreover you don't need to be a computer cat to use a blog, you just need to feel like sharing with others!

Thanks to Corporate Engagement and Michael Specht for the link.

When B-School Deans start blogging

"BizDeansTalk" is a new blog run by two business school deans. This newcomer is interesting on many accounts. First, the two deans, Paul Danos and Santiago Iñiguez, are "deaning" praised b-school, namely Tuck School of Business and Instituto de Empresa. Second, the two deans are somehow paving the way for their faculties. Indeed, blogs by b-schools professors are more the exception than the rule. Frankly one wonders why. Third, the two deans have decided to co-write a blog instead of running their own respective blogs. This is by the way what University of Chicago Posner and Becker have done too. Fourth, the idea of co-writing is a well-taken one as one dean is American and the other Spanish. They'll share their views on Europe and the US, on b-schools on both sides of the ocean, on the future of business education and so on and so forth... Fifth, they invite some renowned journalists to debate with them. This is a smart idea as the relationships between b-schools and the press have not always been that good. Currently Della Bradshaw from the FT is steering the wheel.

In his last post, Paul Danos observes that while US b-schools are privately endowed with high tuition fees their European counterparts are more often than not state (or Chamber of Commerce) subsidized. This is indeed true (with some notable exceptions though like INSEAD, IMD, IESE etc...) and it has interesting implications in my view. I used to  have the same job as the two deans when I was deaning the MBA program at HEC . MBA students tend to view themselves as clients/consumers and less so as shareholders. My take is that this is more the case in Europe than in the US. This attitude may have some unfortunate results with students taking the myopic tuition fee view: "I pay hence I want my rights to be enforced". Nobody denies that the one who pays has rights. However, taking a longer term view is far more productive for the students and their institution. After all, each student is investing in an educational asset from which he or she expects a good return (this is the Beckerian note of this post!). This is what I kept telling my students. They are the shareholders, the deans are the managers and corporations are the clients. The good news with that view as Paul Danos surely knows is that as a manager the Dean can raise new equity from alumni and grow the endowment of the school. A lot more difficult in Europe where schools suffer from the wealkness of their networks of alumni who don't view themselves as "debtor" to their school but as "creditor". Hopefully this will change!

BtoB: Back to Blogging

I haven't been blogging for a while and, frankly, it's good not to blog, not to read blogs. Far too many bloggers feel compelled to post for the sake of posting.

Well they should meditate this sentence by Mies van der Rohe: "LESS IS MORE!"