CFS Working Papers Series
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The Center published working papers on current issues in finance from 2003-2009.
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Item The behavior of the Consumer Price Index : 1913 to 2003(Southern New Hampshire University, 2005) Hamid, Shaikh A.; Dhakar, Tej S.This paper analyzes the seasonality in the monthly consumer price index (CPI) over the period January 1913 to December 2003. We examine three types of month effects: if the mean of monthly CPI changes of the entire data set, and of a given month were significantly different from zero; if the mean of monthly CPI changes of a given month was different from the mean of the other months; and if the variance of the monthly CPI changes for a given month was different from the variance of the other months. The mean of monthly CPI changes for the entire data set (0.27%) was found to be significantly greater than zero. The means of monthly changes show a downward trend from September to December. When the data are sliced into three sub-periods, we find an increasing trend in the means and medians of monthly changes but a decreasing trend in the standard deviations of the monthly changes. The mean of monthly CPI changes during the Republican presidencies (0.15%) was significantly lower than during the Democratic presidencies (0.38%). A revised version of this paper has since been published in the journal Applied Economics. Please use this version in your citations.Item Primer on using neural networks for forecasting market variables(Southern New Hampshire University, 2004) Hamid, Shaikh A.Ability to forecast market variables is critical to analysts, economists and investors. Among other uses, neural networks are gaining in popularity in forecasting market variables. They are used in various disciplines and issues to map complex relationships. We present a primer for using neural networks for forecasting market variables in general, and in particular, forecasting volatility of the S&P 500 Index futures prices. We compare volatility forecasts from neural networks with implied volatility from S&P 500 Index futures options using the Barone-Adesi and Whaley (BAW) model for pricing American options on futures. Forecasts from neural networks outperform implied volatility forecasts. Volatility forecasts from neural networks are not found to be significantly different from realized volatility. Implied volatility forecasts are found to be significantly different from realized volatility in two of three cases. A revised version of this paper has since been published in the Journal of Business Research. Please use this version in your citations.Item Introducing students to the real option approach to capital budgeting(Southern New Hampshire University, 2003) Lander, Diane M.; Pettengill, Glenn N.The real option approach to capital budgeting has gained acceptance in the business community and is now addressed in Financial Management textbooks and Corporate Finance courses. Real option valuation can be a challenge for both students and instructors. Using two real options examples, a Black-Scholes growth (call) option and a binomial abandonment (put) option, we discuss possible student questions and areas of confusion, potential teaching issues, and basic connections the instructor may need to help students make. We conclude by providing suggestions and a list of resources for facilitating student learning. A revised version of this paper has since been published in the Journal of the Academy of Business Education. Please use this version in your citations.Item The adoption of specialized high school level financial literacy curriculum modules(Southern New Hampshire University, 2007) Fehr, DavidThe purpose of this research paper is to explore issues in the implementation, at the high school level, of sophisticated financial literacy teaching materials developed specifically for delivery in a high technology environment for a high school audience. Considerable research has been devoted to both understanding generally why innovation does or does not get adopted by the target population and, specifically, aspects in the implementation of new curriculum materials at the high school level. This paper looks at recent work evaluating the successes and failures in the implementation of new curriculum for foreign languages, mathematics, physics and general science. Can inferences be drawn from this work to assist in an implementation program for the financial literacy modules? Questions of the following types are addressed: Are there risks to the teacher in adopting novel curricula? Does extensive professional development need to accompany new curriculum adoption? Are there psychological hurdles that teachers need to address before adoption? Could there be institutional impediments present? How does the teacher work environment affect adoption? A revised version of this paper has since been published in the Journal for Economic Educators. Please use this version in your citations.Item Finance certification preparation and "teaching to the test" - the NASAD Series 7 General Securities Registered Representative examination(Southern New Hampshire University, 2007) Fehr, DavidThis paper addresses two aspects of offering finance certification training programs at the university level. During the spring term 2006, Southern New Hampshire University offered (in conjunction with a large, diversified financial services company) a finance elective course to prepare students to sit for the NASD Series 7 General Securities Registered Representative Examination. Firstly, the paper provides the background on developing a specialized academic course working in cooperation with a corporate entity. Secondly, the paper explores the academic ramifications of delivering the course in a “teaching to the test” format instead of a more typical academic course delivery. A revised version of this paper has since been published in the Journal of Economics and Finance Education. Please use this version in your citations.Item Hiccups in the adoption of innovation for complex financial models(Southern New Hampshire University, 2004) Fehr, David; Bristol, KristinThere exists a vast and growing body of literature that describes the mechanisms by which innovations diffuse through a population, as well as factors that affect the speed of adoption of an innovation. This body of literature tends to focus on incidences of successful innovations. However, study of innovations that fail to diffuse widely may be equally valuable. Furthermore, major diffusion research has not addressed financial innovation in a meaningful way (Rogers, 2003). This paper focuses on complex state-of-the-art financial innovations, developed and proposed by academicians as solutions to real-world problems. This paper (1) discusses a novel financial strategy based on the use of sophisticated financial engineering products; (2) the adoption (or lack thereof) of complicated real option evaluation models to augment capital budgeting decisions; and (3) a case study to highlight implementation issues for a highly complex fixed income option model. A revised version of this paper has since been published in the journal Advances in Financial Education. Please use this version in your citations.Item Financial literacy training in an academic trading room : expanding practical education in finance(Southern New Hampshire University, 2003) Bristol, Kristin; Fehr, David; Johnson, R. LarryA nationwide awareness of the need to raise students’ financial literacy levels has surfaced recently as a result of a number of studies throughout the United States focusing on financial literacy. The need to examine this issue in more detail is evidenced by the widespread lack of parental personal finance instruction, limited personal finance instruction in both primary and secondary schools and the overall difficulty experienced by many individuals in grasping and applying the basic concepts of personal finance (Mandell, 1998, 2001; American Institutes for Research, National Council on Economic Education, and Council of Chief State School Officers, 2002; Carvahal, 2002). The purpose of this paper is to provide an overview of the development and implementation of a financial literacy program at Southern New Hampshire University (SNHU) including: (1) A brief overview of the literature in financial literacy; (2) The pedagogical opportunities made available to both SNHU and the community by the development of the “Center for Financial Studies” and its high technology trading room; (3) A brief outline of the SNHU mission and how financial literacy is integrated; and (4) The development and administration of financial literacy curriculum modules as a part of the Freshman Experience Course (FEX) at SNHU. Both the challenges and results are explored in this paper. A revised version of this paper has since been published in the journal Advances in Financial Education. Please use this version in your citations.Item Does franchising create value? An analysis of the financial performance of US public restaurant firms(Southern New Hampshire University, 2005) Aliouche, E. Hachemi; Schlentrich, UdoIt is commonly believed that the franchising method of distribution provides strategic and operational benefits to the companies that adopt it. These benefits should result in superior financial performance as compared to that of firms that do not use franchising. Yet, the empirical evidence of the effects of franchising on financial performance is sparse and mixed. The purpose of this paper is to further examine the empirical evidence of the impact of franchising on a firm’s financial performance by using performance metrics (Economic Value Added and Market Value Added) that are extensively used in corporate finance. This study focuses on the US public restaurant sector. The results provide some evidence that franchising firms create more market and economic value than do non-franchising firms. A revised version of this paper has since been published in the International Journal of Hospitality and Tourism Administration. Please use this version in your citations.Item Strategic implications of valuation methods(Southern New Hampshire University, 2003) Alessandri, Todd M.; Lander, Diane M.; Bettis, Richard A.Strategy is ultimately aimed at creating shareholder value, placing valuation in a central role linking finance and strategy. Focusing on growth options, this paper uses a unique "perfect information" model to examine, from a strategy point of view, the relationship between the market value of the firm and its intrinsic, or DCF, value. Although the research is at the level of the firm, the results have implications at the level of individual strategies and projects, since a firm can be conceptualized as a collection of projects. The findings highlight the relationship between the value of growth options and macroeconomic conditions, industry characteristics, and firm-specific factors. A revised version of this paper has since been published in the journal Advances in Strategic Management. Please use this version in your citations.Item Price transmission between DJIA, S&P 500 Index, PPI and CPI(Southern New Hampshire University, 2006) Hamid, Shaikh A.; Thirunavukkarasu, Arul; Rajamanickam, MohanaOur previous work on month effect in the DJIA, CPI and PPI led us to hypothesize that significant negative September effect that we found for the DJIA might have been caused by changes in the CPI and PPI. This led us to explore the nature of price transmission between the three (we add S&P 500 Index as well). Using VAR analysis and Granger causality analysis we find that the DJIA had a 2-month lagged impact on the CPI in the first two periods (1926-1945 and 1946-1972), and on the PPI in the second period (1946-1972); but in none of the three periods was the DJIA significantly impacted by the PPI or the CPI. For the period 1972-2003, the CPI and PPI were significantly unaffected by the DJIA and the S&P500 Index and also the DJIA and the S&P500 were also not affected significantly by the CPI and PPI. These results follow from both the VAR analysis and Granger causality tests.Item The behavior of U.S. Producer Price Index : 1913 to 2004(Southern New Hampshire University, 2006) Hamid, Shaikh A.; Dhakar, Tej S.; Thirunavukkarasu, ArulThis paper analyzes the behavior of U.S. PPI over the period January 1913 to March 2004 using monthly “all commodities index” values. The mean of monthly percentage index changes for the entire data set (0.23%) was significantly greater than zero. January, July and November had mean monthly percentage changes which were significantly greater than the mean changes of the other months over the entire period. March, May and September had mean percentage changes significantly lower than the other months. We find that there is some periodicity to all commodities index. The mean of monthly commodities index changes during the Republican presidencies (0.08%) was significantly lower than the mean changes during the Democratic presidencies (0.38%) and so were the medians. We slice the entire data into three sub-periods. We find that though the means and medians have significantly increased over the three sub-periods, the standard deviations of the means have decreased. Granger causality tests reveal that while oil prices affected the all commodities index and the finished goods index, the causal relationship is not true the other way at the 99% significance level. The findings have implications for policy makers, analysts, investors, and manufacturers.Item Anomalous behavior of the volatility of DJIA over the last century(Southern New Hampshire University, 2006) Hamid, Shaikh A.; Dhakar, Tej S.This study explores month effects in terms of standard deviations of monthly and daily percentage changes of the Dow Jones Industrial Average. During the last century, the standard deviation of the monthly percentage changes of April (6.63%) is significantly higher than the standard deviations for the other months. The monthly standard deviations of daily percentage changes as a measure of volatility exhibit a slightly rising trend, peaking in October and are all significantly different from zero. The mean monthly standard deviation of daily percentage changes for October (1.08%) was the maximum and also significantly higher than the means of the other months. The DJIA became less volatile in terms of monthly as well as daily percentage changes during the second half of the last century compared to the first half. If we divide the data for the last century into decades, the thirties stand out as the most volatile period in terms of monthly as well as daily percentage changes. Based on both dimensions, the decades prior to 1940 experienced higher standard deviations compared to the subsequent decades. So it appeared that the stock market became more volatile in recent times – but that was in points, not in percentage terms.Item Philosophy and practice of Islamic economics and finance(Southern New Hampshire University, 2006) Hamid, Shaikh A.An introductory paper intended for those who are uninitiated about Islamic economics and finance. (Library-derived description)Item Can neural networks learn the Black-Scholes model? A simplified approach(Southern New Hampshire University, 2005) Hamid, Shaikh A.; Habib, AbrahamNeural networks have been shown to learn complex relationships. It would be interesting to see if the networks can be trained to learn the nonlinear relationship underlying Black-Scholes type models. Interesting hypothetical questions that can be raised are: If option pricing model had not been developed, could a technique like neural networks have learnt the nonlinear form of the Black-Scholes type model to yield the fair value of an option? Could the networks have learnt to produce efficient implied volatility estimates? Our results from a simplified neural networks approach are rather encouraging, but more for volatility outputs than for call prices.Item A new perspective on the anomalies in the monthly closings of the Dow Jones Industrial Average(Southern New Hampshire University, 2003) Hamid, Shaikh A.; Dhakar, Tej S.This study explores three types of month effects in the Dow Jones Industrial Average: (a) for a given period, if the mean of monthly percentage changes of each month was different from zero, (b) for a given period, if the mean of monthly percentage changes for a month was different from the means of all the other months, and (c) for a given period, if the variance of the monthly percentage changes for a month was different from the variances of all the other months. For our entire data set (May 1896 to December 2002) we find that the means of monthly percentage changes of only July, August, January and December were significantly greater than zero (months put in descending order). But the means of none of these three months were significantly higher compared to the means of all the other months. With a mean percentage change of -1.25%, only September appears with significant negative returns. And this mean is significantly lower compared to the means of all the other months. In other words, for the entire data set, we have a negative September effect. Month effect with respect to variance (variance of monthly percentage changes for a month being significantly different from all the other months) was found for January, February and December (lower variances), and April (higher variance). When we look at the first half of the twentieth century versus the second half, we see more pronounced month effects in the second half - considering all three types of effects we analyze. December exhibited all three types of effects in this period. When we sub-divide the last century into four 25-year periods, we find more pronounced month effects in the last quarter than in the previous three quarters. When we sub-divide the data into 10-year periods, we do not find any consistent and discernible pattern. The month effect varies with the time period we consider and the type of effect we analyze. Though one would expect the DJIA stocks to be free from seasonal patterns since each one of them are closely followed by a large number of analysts, the existence of any type of month effect is surprising. However, given that no discernible pattern is detectable is a reflection of efficiency of the DJIA stocks to a large degree.Item Licensing intellectual property : computer software in the bioinformatics industry - a case study(Southern New Hampshire University, 2009) Fehr, DavidThis entrepreneurial case is a disguised, real world case. It is appropriate for use in executive training, for graduate students and/or for undergraduates in small business, entrepreneurship, finance, marketing, management, or strategy courses. A revised version of this paper has since been published in the Journal for Journal of Business Cases and Applications. Please use this version in your citations.Item Selecting a strategic partner : a value maximization approach(Southern New Hampshire University, 2008) Fehr, DavidThe purpose of this paper is to explore strategic partnership opportunities using an economic value maximizing approach. This paper was inspired by the symposium "Nonprofit Marketing and Distribution Strategies for Investor Education," held in Hanover, New Hampshire, in May 2007. (Library-derived description)Item Dominated assets, the expected utility maxim, and mean-variance portfolio selection(Southern New Hampshire University, 2006) Fehr, DavidThe purpose of this paper is to consider optimal portfolio selection when a dominated asset is included in the menu of investment opportunities. We will explore whether mean-variance portfolio selection (MV) and expected utility of terminal wealth maximization maxim (EU) make compatible portfolio selection decisions in the presence of a dominating asset. A three asset, three state model is presented to highlight the inconsistency between MV and EU when a dominated asset is present. (Library-derived description)Item Raising capital for microfinance : sources of funding and opportunities for equity financing(Southern New Hampshire University, 2004) Fehr, David; Hishigsuren, GaamaaMicrofinance has been spread around the world as a popular poverty reduction strategy. This paper examines how microfinance institutions can communicate their prospects to investors, examines typical sources of financing, and reviews classic finance techniques that could be use to approach mainstream equity investors. (Library-derived description)Item Optimal management of research projects in the not-for-profit sector(Southern New Hampshire University, 2003) Fehr, DavidAs stated in the working paper: "In recent years, most not-for-profits have set up an office of technology transfer to handle those R&D projects which may potentially have commercial value. In fact, in the current environment in which medical reimbursement rates to hospitals have fallen and traditional sources of research grants have dried up, most not-for-profits view the technology transfer office as a potential “profit” center for the institution. As a consequence, the objective function of the technology transfer office is to monetize its R&D projects in an optimal way. We would like to study questions of the following sort. What is the appropriate level of funding by the hospital? Does it make sense for the hospital to partially develop the technology and then sell it? If so, at what point in the development process is it "optimal" to sell the technology?" (Library-derived description)