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Reality
  • Title: Hedge funds fight to save M&A arbitrage strategy
    Source: FT
    Comment: This is an amazing article from the standpoint of pedagogy. Hedge funds owners of shares in firms that get purchased have been suing to get higher payments than those agreed on in the merger. The courts are arguing about whether the price of the stock before the potential merger became public should be considered the fair price, as would be true in the efficient market's hypothesis. Alternatively, if the folks buying the firm have better information about value, then maybe the current shareholders ought to get a higher price than prevailed in the market. This is tied up in two key questions we've raised: Most of the time is there a "fair price" or for a company and is the market price near the "fair price" most of the time?
  • Title: Should risk-takers be required to have `skin in the game'?
    Source: FT
    Comment: This is a book review of a new book by Taleb, who wrote Black Swan. The book is contentious, but puts forward an argument worth considering. Indeed, it is a version of the sentiments of Adam Smith, J.S. Mill, and Shakespeare. Short version: don't trust anything anyone says unless they face serious consequences for being wrong. I'm not quite that jaded, but you need to decide for yourself.
  • Title: Lex in Depth: the case against share buybacks
    Source: FT
    Comment: The first two lectures focus heavily on the merits of debt vs. equity finance and how each serves or doesn't serve the interests of managers, share holders, and debt holders. Since the crisis, many firms have issued debt to buy back shares from shareholders. This article nicely touches on many of the incentive issues this raises. Read it looking for claims about how financing choices shape incentives and, thereby, firm performance.
  • Title: A down day on the markets? Analysts say blame the machines
    Source: WashingtonPost
    Comment: The market has been subject to large and rapidly reversed changes of late, and many analysts are blaming this on algorithmic trading in which buying and selling is controlled by a computer program. The idea is that sometimes, the programs is not very smart and does foolish things in large quantities, disrupting the market. The jury is still out on these claims and accusations.
  • Title: UK financial watchdogs launch coordinated push on algorithmic trading
    Source: FT
    Comment: Whenever folks suspect that some market practice, such as algorithmic trading, is threatening the function of secondary markets, government regulators are sure to get involved. There is no doubt that in many cases, this improves the situation. Or that in many cases it makes things worse. The net effect here is fiercely debated.