Zero Beta

Blog Post of the Day - 6/13/2007

Title:

Celluloid Arb

Blog:

All About Alpha

Author:

N/A

Comments:

All About Alpha looks at what else but alpha, this time taking a look at the recent flood of film industry related deals and hedge funds.  Looking at a recent study, he shows how inefficiencies in the film market reduce arbitrage opportunities and increase the opportunity to capture alpha through active management.  He goes on to present a multi-factor model predicting the profitability of a movie. 

I find this interesting because last week I became interested and read up on the rapidly expanding markets for intellectual capital.  Recently, Ocean Tomo completed its first live Pan-European Intellectual Capital Auction.  On top of this securitization of IP assets is becoming a popular structured finance vehicle.  It will be interesting to see how this

Technorati Tags: alpha, film investments, hedge funds, IP securization, intellectual capital

all plays out.  The recent trend in finance has been a shift from securitizing the broad to more specific deals.  As the industry drills down further, the nature of the deals becomes more esoteric and difficult to price (insurance risk, sub-prime credit risk, etc.).  Does this signal a new market forming or a inflection point leading us back towards more broad based deals?  Time will tell. 

Excerpt:

"If alpha results from market inefficiency, then movie funds have alpha written all over them. As Ferrari and Rudd point out:

'Movie projects are priced in an incomplete and inefficient market where valuation and arbitrage are difficult if not impossible, suggesting an opportunity for active management.'

But they warn of 4 challenges: Few opportunities (approx. 100/year), low transparency, little historical research and basically no liquidity."

Blog Post of the Day - 6/12

Title:

Waking up to Risk Redux: Is Nassim Taleb the Regulatory Rock Star?

Site:

Information Arbitrage

Author:

Roger Ehrenberg

Comments:

Ehrenberg, who always has a unique view on the markets and the world of hedge funds and private equity in particular, serves up a post detailing how Taleb's vew of "fat tails" is becoming much more accepted by regulators and people of power in the financial industry.  If you have not read Fooled by Randomness or The Black Swan, you should. Ehrenberg includes an excerpt from Anthony Ryan's speech at the Managed Funds Association conference in Chicago. 

I find this particularly interesting as this week - before the big investment banks report earnings - the story was about a "new" rule that essentially gives investment banks the opportunity to use more leverage in their prop trading.  They say that a new capital requirement rule will allow them to go more on margin and "increase earnings" - however, as we saw with Long Term Capital, when a "black swan" occurs - leverage is not your friend.  Good article an

Technorati Tags: leverage, information arbitrage, ehrenberg, blog, markets, black swan

d very timely. 

Excerpt

"...he and his colleagues are now internalizing the risks long understood by Mr. Taleb, risk managers and traders at every major financial institution: the risk of long-tail ruin is real and it occurs far more frequently than normally-distributed models would predict. Tails in the financial markets are fat - very fat - and the best we can do is to make sure the system can withstand significant and unpredicted shocks, because they will happen. And we have history as our witness."

Apologies and Updates

I apologize for the unannounced absence, however, months of studying combined with work and this blog had me worn out so I pledged to take a break from everything for a week or so and have "me" time.  The exam had me put my life on hold and contrary to what you may believe I do have a life outside of complaining about market bubbles, baby boomers, and inflation. 

Since I've been gone we have seen a huge rally in bond yields, a market reversal, and most importantly a change in sentiment.  I guess for all the bears out there my absence was a good thing.  The urge to get on here and write "Errr Duhh" was strong but this market in the past year or so has taught me humility among other things. 

Anyway, I am back and am looking to really get this site going now that the exam is behind me.  The time away gave me a chance to reflect on how to bring this site to the next level.  Below are a list of additions that I have planned for the next month:

1. Regular Columns - Instead of completely randomly distributing ideas that have no organization.  I plan on posting these regular columns that I hope you will find interesting.
• "Zero Beta Bios" - Examining Individuals whose ideas are not mainstream but should be.
• "ZB After Market Hours" - Every Thursday I will try to post weekend events or new clubs, restaurants, or bars in New York that would appeal to the younger Zero Beta fan base.
• "Long/Short Society" - looking at relative value relationships in society, and presenting them in financial context.  For example, "Going long Sin and short Virtue"
• "People and Stuff" - a look into demographics, its role in the past, and its implication for the future.
• "The Bull Sh*t Chronicles" - Fictional diary entries from a male and female (Blake Edwards and Kelly Diamond)  born during the early 80's and its bull market- presenting a satirical look at my generation. 
• "Metaphorical Analysis" - Presenting market ideas in metaphorical context.
• "Long/Short News Portfolio" - Every weekend in addition to my "Weekly Round Up", I will delve through the week's news stories and assemble a portfolio of news releases I am long (i.e believe are undervalued) and that I am short (overvalued).
• "Blog Post of the Day" - Each day I plan on linking to a blog post I believe was great and providing a few comments and congratulatory remarks.
• "Adjusted R-squared" - A look into events that the media assesses causation or correlation and exposing any sort of error that they may have made.
• "Ear Food" - As a writer of music reviews for my college newspaper, I have always enjoyed listening and sharing music.  So whether it be a new or old release I plan on sharing a regular review. 
2. Blogger's Roundtable - I plan on organizing an online chat session for sometime in late June or early July as a roundtable discussion on the markets by a variety of bloggers. 
3. Zero Beta Forum - I am looking into putting together an online message board for people to discuss ideas, markets, media, politics, and culture with other open minded people.  

That's it for now.  It's good to be back and I look forward to the next level of Zero Beta - hope you do as well. 

 

-β