Volume 32 CONTENTS Winter 2006
#1 - A Survey of Value-at-Risk and its Role in the Banking Industry
Jason Ball and Victor Fang
This paper discusses the various aspects of Value-at-Risk (VaR) and the VaR-based risk management process as it pertains to the banking industry. Since its inception in the 1990ís, VaR has become the industry standard by which market risk is both measured and managed by financial institutions today. However, there has been much debate regarding VaRís validity and the extent of its role within the banking industry. Yet, now that it is an integral part of the regulatory framework, establishing VaRís legitimacy is more important than ever. Therefore, this paper examines the recent literature on VaRís use as a market risk management tool within the banking environment in an attempt to clarify some of the more contentious issues which have been raised by researchers. The discussion begins by highlighting the underlying theory on which VaR is based, specific aspects which have proven controversial and its use from a regulatory perspective. The focus then turns to what little literature exists on the subject of VaR and asset returns in an attempt to provide some direction for future research.
#2 - Bringing Financial Analysis into the Classroom: The Kogod Equity Research and Analysis (KERA) Project
H. Kent Baker and David Post
This paper describes a clinical-style course in financial analysis designed to comply with some of the new AACSB Accreditation Standards. These standards, among other things, mandate business schools to innovate in instructional processes. In addition, faculty members must actively involve students in the learning process and encourage collaboration and cooperation among participants. The Kogod Equity Research and Analysis (KERA) Project gives students a real life "hands on" experience while circumventing some problems related to traditional cases and field studies. In small teams, students analyze under-reported local companies, interact with company executives, and post their analysis on the Internet.
#3 - Teaching Excel VBA to Finance Students
Richard J. Bauer, Jr.
This article presents seven major arguments for teaching finance students how to write simple programs in Excel Visual Basic for Applications (VBA). If we assume that finance students are not trying to become programmers, writing programs for others, the list of concepts that they need to master in order to use VBA is reasonably short. The author discusses 3 introductory lectures (given as PowerPoint presentations) that provide students with everything they need to know to write a simple VBA program and 1 optional lecture. Next, several examples of classroom-tested assignments are described. Finally, various resources for instructors are listed. These include books on VBA, and websites with VBA-related information and/or tutorials.
#4 - Implications for Enhanced Portfolio Performance Based on the Information Content of Short Interest
Glen A. Larsen, Jr. and Steven L. Jones
In this paper, we review the mean-variance portfolio theory literature that supports short selling as an active portfolio management tool and the empirical literature that provides evidence of active short sellers having superior information about overpriced securities. What may not be clear is exactly how that information can be detected and analyzed. We, therefore, review the theoretical and empirical literature that investigates the information content of short interest. Finally, we document several methods used by portfolio managers to target short sale candidates.
#5 - A Fresh Look at the Evaluation of Credit Policy Changes
Frederick C. Scherr
Many popular finance textbooks contain a methodology for analyzing a proposed change in credit policy. While actual cash flows from the collection of accounts receivable occur on a daily basis, this methodology generally treats the cash flows as yearly, utilizing an "opportunity cost" approach to capture the initial effects of such a change. We show that this approach does not accurately capture these initial effects and that the difference in NPV that results can be substantial. We propose two alternative methodologies for use in future textbooks, one that is reasonably exact and the other a simpler approximation to the first.
#6 - Wood-Tech Inc: Valuation of a Privately Held Firm
Janet Hamilton, Mike Martyn and Patricia Ryan
This case involves the valuation of a small, privately-held manufacturing concern, Wood-Tech, Inc. The company must assess the attractiveness of a recently made offer of purchase. Recent changes in operations and management reduce the reliability of historical cash flow drivers, and the choice and appropriateness of valuation method must be considered. Finally, the issue of whether the firmís precarious financial position can be reversed with a change in operating strategy is at the heart of the valuation assessment.