01 introduction mrk 2010

Financial Markets (JEM 037) 5 October 2010

© Jiri Novak, IES UK 1

Lecture 1

Introduction

Jiri Novak

IES, UK

O l1.1 Course Outline

Lecturer

Background born in Zlin, lived in Ostrava

lived in Uppsala, Sweden for 7 years

Education

‐ 3 ‐

Uppsala University, Uppsala (Ph.D. in 2008)

Warwick Business School, Coventry

Columbia University, New York

Academic Position Assistant Professor at Charles University, Prague

McKinsey & Co. Corporate Chair

Research Interest

Research Area

empirical capital market based financial accounting research

Research Papers

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p

Hamberg, Novak (2010) “Accounting conservatism and transitory earnings in value and growth strategies”, Journal of Business Finance and Accounting

Hamberg, Novak, Paananen (2010)“The Adoption of IFRS 3: The Effects of Managerial Discretion & Stock Market Reactions”, European Accounting Review

Teaching

Courses

Financial Accounting (B.A., fall)

Financial Management (B.A., spring)

Theory of Financial Markets (M.A., fall)

‐ 5 ‐

y ( )

Company Valuation (M.A., spring)

Master’s Theses

written in English

ambition to yield a decent local publication after refinements following final submission

send 2‐page proposal, incl. min. 5 references

Interests

Academic Debate

secondary school and university debate clubs(www.dkuk.wz.cz)

Arts

‐ 6 ‐

Arts

modern theatre

world music

Sports

badminton

swimming



Contact

Jiri Novak

Office: 402

Phone: +420 222 112 314

Email: [email protected]

‐ 7 ‐

j

Web: ies.fsv.cuni.cz/en/staff/novakji

Available: Monday, 3:00 p.m. ‐ 5:00 p.m.

Adam Gersl

Phone: +420 224 412 062


Available: by appointment

Contact

Krenar Avdulaj



Ivona Hrusova

‐ 8 ‐

Ivona Hrusova



Milan Rippel Email: [email protected]


Announcement

Investment Research Challenge

Czech Certified Financial Analysts Society

one team of 3‐5 students per university

analyze a real life case; prepare an equity report

‐ 9 ‐

y p p q y pabout a company and present it to a panel of evaluators from Czech businesses

each team is assigned a mentor, CFA charter‐holder, with an extensive experience

winners proceed to regional round in Madrid, Spain and global round in Omaha, Nebraska

Objectives

Course Objectives

provide overview of contemporary financial markets research

provide opportunity for in‐depth analysis of key

‐ 10 ‐

prominent research papers

allow students to study thoroughly a chosen sub‐field and prepare their own thesis proposal

Prior Knowledge

basic knowledge of finance is useful but not required

Objectives

Motivation

the course undergoes a transition and refocusing towards a topic‐based M.A. course

we have eliminated the company valuation

‐ 11 ‐

project as there will be a specialized course in company valuation since the spring term 2010

the proposal should give you an opportunity to:

– dive deeper into a selected topic and reflect upon it

– practice thesis work that should be a useful exercise before writing for your Master’s Thesis

Literature

Readings

academic papers assigned as readings for individual lectures and seminars

students are required to study the assigned di i d (fi l lt i t )

‐ 12 ‐

readings in advance (final exam, penalty points)

detailed discussion of readings at seminars



Requirements

Thesis Proposal

teams of 3 students prepare a thesis proposal presenting an innovative research idea that is well rooted in existing research

i l di i d i li i

‐ 13 ‐

including: introduction, literature review, hypotheses, outline of methodology, min 15 relevant references

max 10 pages (font size 12; 1.5 spacing, excluding title page and list of references)

graded by 0 – 30 points (min 10 pts to pass)

deadline: November 30, 2010, – 2 points/day

Requirements

Presentation

in final two weeks each team will present their proposal to TAs and fellow students

use PowerPoint, all team members should i i i i h l

‐ 14 ‐

participate in presenting the proposal

points given for well focused (“read thread”), well structured presentation that clearly presents the research idea and motivates why it is innovative and interesting

max 8 minutes

graded by 0 – 20 points

Requirements

Opposition Report

each team will deliver an opposition report of some other thesis proposal, including an analysis and a grading suggestion (0 – 30 pts)

i i f i d h i i h f l l i

‐ 15 ‐

points given for in‐depth, insightful analysis (innovativeness?, interest?, feasibility?, problems?), well structured discussion of research proposal

max 2 pages (font size 12; 1.5 spacing)

graded by 0 – 10 points

deadline: December 7, 2010

Requirements

Exam

individual, closed‐book

10 – 20 multiple choice, or yes/no questions

3 – 4 open questions (1 page per question)

‐ 16 ‐

requiring an analysis of some specific aspect in one of the discussed research areas

graded by 0 – 40 points (min 20 pts to pass)

Grading

Passing Cutoffsthesis proposal 30 pts

presentation 20 pts

opposition 10 pts

final exam 40 pts

‐ 17 ‐

Bonus, Penalty

bonus – active participation in lectures and seminar discussions (quality matters)

penalty – lack of knowledge of assigned readings

final exam 40 pts

total 100 pts

bonus/penalty points +/– 10 pts min 55 pts

Grading

Final Grades

A 1 – excellent 85

B 2 – very good 70

C 3 – good 55

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g

F N – fail ‐‐‐

bonus points will be added to the overall score to determine the final grade



Schedule

Date 15:30 - 16:50 Who 17:00 - 18:20 Who

5OctoberIntroduction, Course Requirements Novák Lecture: Efficient markets Novák

12OctoberLecture: Behavioral Finance Novák Lecture: IPOs Novák

19OctoberGuest Lecture: IPOs - practical

experienceMejstřík

Tutorial to: Efficient Markets and Behavioral Finance

TAs

26OctoberLecture: Market Liquidity Geršl Tutorial to: IPOs TAs

M M k t d C t l B k

‐ 19 ‐

2NovemberMoney Markets and Central Bank

AuctionsGeršl Tutorial to: Market Liquidity TAs

9NovemberCross-Border Capital Flows, Contagion and Risk Aversion

GeršlTutorial to: Money Markets and

Central Bank AuctionsTAs

16NovemberStructured Products and Global

Financial CrisisGeršl

Tutorial to: Cross-Border Capital Flows, Contagion and Risk Aversion

TAs

23NovemberValue Relevance of Accounting

InformationNovák

Tutorial to: Structured Products and Global Financial Crisis

TAs

30NovemberValue Relevance of Earnings and

Cash Flows, Accrual AnomalyNovák

Tutorial to: Value Relevance of Accounting Information

TAs

7December

Guest Lecture: Trading Strategies and Systems - Practical Example of the CNB FX reserves management

Schimek(CNB)

Tutorial to: Value Relevance of Earnings and Cash Flows, Accrual

AnomalyTAs

14DecemberPresentations by Course Participants TAs Presentations by Course Participants TAs

21DecemberPresentations by Course Participants TAs Presentations by Course Participants TAs

h1.2 Thesis Writing

Thesis

Structure

introductionoutlining and motivating your topic setting it within the context (1 – 2 pages)

lit t i

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literature reviewoverview of the existing literature based on at least 10 academic references (3 – 4 pages)

hypothesesexplicit specification and motivation based on the existing literature (1 – 2 pages)

outline of methodology brief outline of methods and variables (2 – 3 pgs)

Thesis

Objective

you should demonstrate your capabilities to (fairly) independently complete all phases of a complex project

‐ 22 ‐

in contrast to the Bachelor’s Thesis your Master’s Thesis should put more emphasis on the independent analysis (contribution)

Process

Idea

What do we already know?

What do we want to investigate?

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Literature Review Hypotheses

How to test it?

Methodology, Data Sample

Do it!

Results, Conclusions

Thesis Proposal

Contents

Introductionresearch idea, motivated and set into the context of existing literature/knowledge

Literature Reviewstructured presentation of existing literature leading to the formulation of hypotheses

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leading to the formulation of hypotheses

Research Designmotivating the choice of methodology and specifying the data sample selection

Resultsdiscussing the major findings presented in tables and relating them to hypotheses

Conclusioninterpretation of the findings highlighting their implications



Idea

Specific

be as specific as possible, delimit your idea, go deep no broad, ideally a yes/no question

Feasible

‐ 25 ‐

Feasible

you must be able to examine it (very important!)

Interesting your idea should be relevant (it should “matter”)

original (not already examined by someone else)

… a good research idea is half of the success!

Idea

How to Get It?

skim through business press for current and controversial issues

read through the papers recommended for the

‐ 26 ‐

course focusing on topics you found interesting

go through additional research papers published in academic journals or on SSRN

brainstorm with your friends

… if I only knew!

Idea

Tips

association studies – examine an expected relationship between 2 factors, e.g. board independence firm performance

‐ 27 ‐

event studies – analyze market reaction for some kind of event, e.g. CEO leaving the company, company issuing executive stock options, announcements of compliance with ethical standards, etc.

replications with a twist – extend existing methodology and test in on other data

hot issues – IFRS adoption, market bubbles

Idea

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Literature Review

Purpose

compare and contrast the findings of different studies, let the references “communicate”

literature review should give a “picture” of the

‐ 29 ‐

current state of knowledge of the topic, i.e. conclude it with a synthesis of what we know

you should explain how your study “fits into the picture”, i.e. how it builds up an extends what we already know

motivation of your hypotheses should be based on the existing literature

Literature Review

Google Scholar scholar.google.com advanced search

Social Science Research Network www.ssrn.com

‐ 30 ‐

freely accessible database of fresh working papers in process of preparation for publication

Virtual Library recommended databases: “Business Source Premier”, “ScienceDirect Elsevier”, “JSTOR”

journals: Journal of Economic Perspectives (), Journal of Applied Corporate Finance



Literature Review

Reading Tips

read the abstract to find if the paper is relevant

read the introduction, go through all the tables and figures to see what information it contains

‐ 31 ‐

read the first sentence of each paragraph to get an overview of the paper

Notes

keep track of the references you use, make short notes not to get overwhelmed by the papers

Zotero (Firefox plug‐in) is a great software to keep track of your references

Hypotheses

Motivation

hypotheses should be based on the literature you have reviewed (deductive approach)

there should be a reason to expect what you

‐ 32 ‐

propose in your hypotheses

Testability

it is absolutely crucial that your hypotheses are testable, i.e. they must be simple yes or no statements that can be refuted (or confirmed) by the empirical evidence

Methodology

Methods Used

there is a myriad of research methods; your selection should be suitable for the problem at hand, i.e. for testing your hypotheses

‐ 33 ‐

be reasonably specific in describing how you select your variables, how you define them and what statistical methods you use

read the methodology section in similar research papers to get inspiration

Introduction

Function

introduction should make the reader read the rest of the paper

Contents

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Contents

context (what is the current state of discourse),

motivation (why is it interesting) positioning it within the context of existing research

overview of key results and a discussion of their implications and importance

disposition (contents of individual chapters)

Formalities

References

use one style in the whole paper

Zotero can help you greatly with formatting

include a list of references at the end

‐ 35 ‐

Footnotes do not use too many footnotes

try to either incorporate the idea in the major body of text or scrap it

Do Not Give Up!

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Extra

Completing the Thesis

Data Sample

Quantitative Studies

if you use database data, specify, how you selected your sample (time period, selection of companies)

‐ 38 ‐

“Descriptive Statistics” should give the reader an overview of the data you use, typically they are reported in Table 1 of the paper

Qualitative Studies

specify how you selected the target firms you are going to observe

describe their background

Data Sample

Databases

Thomson Datastream – accounting and capital market data for all major companies in the world, user‐friendly interface

‐ 39 ‐

Edgar – accounting data for companies US listed

IES Databases

– http://ies.fsv.cuni.cz/cs/node/158

– Reuters Wealth Manager

– Magnus

Results

Quantitative Studies

all important results should be presented in tables and figures that must be properly labeled (telling table descriptions are important)

‐ 40 ‐

highlight and comment on the most interesting results in the text

make sure your results provide an answer to your hypotheses!

distinguish clearly between what can objectively be said based on the data and what is your subjective interpretation

Results

Qualitative Studies

present your results in a clear, understandable way (possibly accompanied with figures)

present the most important findings first ( d t it d t ti t )

‐ 41 ‐

(you do not write a detective story)

there should be a clear link between your results and your hypotheses

discuss validity and reliability; triangulate your findings, discuss likely biases

distinguish clearly between what the data “objectively” show and how you interpret it (i.e. what you think it means)

Conclusion

Interpretations, Implications

while “results” should discuss the particular findings you present, in conclusion you should adopt a broader perspective (“bird’s eye view”)

‐ 42 ‐

conclusion should include your interpretation of the results, their implications for practice and your suggestions for further research

conclusion should be linked to the introduction and results should be linked to hypotheses



Abstract

Timing

even though abstract comes first in the paper, you typically finalize only when the whole paper is (essentially) finished

‐ 43 ‐

Content

it should state what you did and why, summarize major results and highlight their implications and importance

a good abstract is a strong selling point, make it as “dense” (rich in information) as possible

rewrite the abstract several times, it is worth it!

01 introduction mrk 2010

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