Knowledge@Wharton -- Finance and Investment

Investing in Gold: Does It Stack Up?

Wed, 22 May 2013 14:21:54 EST

Gold has a timeless allure -- especially if you worry about stock market volatility, inflation, a decay of ordinary currency or the collapse of civilization. Yet not everyone agrees that gold offers the safe haven its promoters describe. How reliable can demand be for a commodity that very few people actually need? What is the proper role for gold in an investment portfolio? Why has its price been falling?

Research Roundup: Foreign Diversification, Social Comparisons and Consumer Identity

Wed, 08 May 2013 15:54:10 EST

Is investing in foreign stocks still a good strategy for offsetting risk and boosting returns in your portfolio? How do social comparisons impact the different dimensions of trust that people can have for each other? How can companies use emotional cues to convey a particular identity to consumers? Wharton professors Karen Lewis, Maurice Schweitzer and Patti Williams, respectively, examined these issues -- and what they mean for business and consumers -- in recent research papers.

Still an Elusive Goal: Measuring the Impact and Success of Microfinance

Wed, 24 Apr 2013 15:21:13 EST

Is microfinance an effective tool for bringing people out of poverty? Despite initial success, microfinance institutions have been criticized by many studies for not delivering on their earlier promise. David Roodman, keynote speaker at the 2013 Penn Microfinance Conference, took a rigorous look at some of these studies, and concluded that the yardsticks for measuring success in the microfinance sector are more complex than people realize.

The Mysterious World of Bitcoin: Does It Have Staying Power?

Wed, 24 Apr 2013 15:21:13 EST

Just what exactly should we make of Bitcoin? The once-obscure digital currency has had quite a ride, with the value of a single Bitcoin soaring from $13 in January to a peak of $237 by mid-April before collapsing to $83 in a day and then recovering to around $134. The roller-coaster ride has raised many questions. Is Bitcoin a legitimate alternative currency -- an online replacement for dollars and euros, as backers claim? Or are we witnessing a giant bubble waiting to burst?

CDOs Are Back: Will They Lead to Another Financial Crisis?

Wed, 10 Apr 2013 15:19:46 EST

Collateralized debt obligations (CDOs), the bad boys of the financial crisis of 2008, are coming back. With the Federal Reserve committed to keeping interest rates low, investors are driving demand once again for these structured securities, which are riskier but provide more bang for the buck than safer bets such as Treasuries and investment-grade corporate bonds. Could CDOs wreak havoc again? According to Wharton faculty, the CDO is not an inherently flawed security, so long as it is priced correctly and properly diversifies risk.

How VCs Are Driving a Tech-valuation 'Feeding Frenzy'

Wed, 10 Apr 2013 15:19:46 EST

The impressive user bases and buzz that have quickly built around some social media sites are sending the firms' valuations sky-rocketing into the billions of dollars, despite the fact that many of the businesses have yet to completely monetize themselves. But are the high valuations for Pinterest, Spotify, Airbnb and other sites a sign of a building tech bubble? Wharton experts say no, but note that a VC-led "feeding frenzy" for all things tech is creating a bull market for a certain type of start-up.

When Dividends Pay Dividends -- and When They Don't

Wed, 27 Mar 2013 14:31:41 EST

January's fiscal cliff deal in Washington removed a cloud of uncertainty that has hovered over the tax rate on dividend payments for years. For that and other reasons -- including pressure from shareholders that companies stop sitting on record piles of cash -- U.S. firms are stepping up their dividend payments. But there is no clear answer to what role dividends should play in an investor's portfolio, or whether they are really the best use of company profits.

Global Currency Battles: A Waiting Disaster or a Win for All?

Wed, 13 Mar 2013 14:11:21 EST

To many, Japan's recent moves to devalue the yen looked like the spark that could ignite a global currency war -- a series of competitive devaluations that, last century, helped plunge the world into the Great Depression. Until now, central bankers have been resisting the urge to politicize exchange rates. However, while currency skirmishes can be dangerous and require monitoring, they are also necessary for establishing equilibrium in markets and will help in the global economic recovery, some experts say.

Tightening the Noose: Can the SEC and Its New Chairman Be Tougher on Wall Street?

Wed, 13 Mar 2013 14:11:21 EST

Although the SEC has always been the federal government's chief guardian of integrity in the financial markets, critics have a long list of grievances, including claims that the agency is too unsophisticated and too soft on wrongdoers. Assuming she is confirmed as the new SEC chairman, Mary Jo White will need almost superhuman skills to make the SEC more effective, some observers suggest.

Edible Economics: Making Food Choices Through an Economic Lens

Wed, 06 Mar 2013 12:51:13 EST

Like other necessities of life, food is subject to the subtle and sometimes inscrutable workings of market forces. Yet food is also much more: Our experience of it is both sensual and symbolic, a rich crossroads of history, culture, family and memory. Tyler Cowen's new book, An Economist Gets Lunch: New Rules for Everyday Foodies, brings a set of simple economic principles to the everyday choices made by people who care about food. It presents a clear-eyed picture of how to go about finding good food value, often approaching the topic in a way that is highly personal and frequently anecdotal.

Michael Mauboussin on the 'Success Equation'

Wed, 06 Mar 2013 12:48:51 EST

How do we know which of our successes and failures can be attributed to either skill or luck? That is the question that investment strategist Michael J. Mauboussin explores in his book The Success Equation: Untangling Skill and Luck in Business, Sports, and Investing. Wharton management professor Adam M. Grant recently sat down with Mauboussin to talk about the paradox of skill, the conditions for luck and how to avoid overconfidence. (Video with transcript)

Kilkenomics: A Festival Where the 'Dismal Science' Meets Comedy

Wed, 27 Feb 2013 15:13:57 EST

Economics is often called the "dismal science." For the past three years, though, an unusual event in Ireland has been trying in its own way to change that impression. Held in the scenic town of Kilkenny, Kilkenomics is an economic festival that brings economists, businesspeople and finance executives together with stand-up comics. The result is a highly irreverent but insightful dialog, according to the festival's co-founders, Richard Cook and David McWilliams. Knowledge@Wharton spoke with the people behind Kilkenomics to see what makes the festival tick.

Why Long-term Debt Solutions Require a Break from Sequestered Thinking

Wed, 27 Feb 2013 15:13:57 EST

With the spotlight on U.S. budget cuts, a timely book looks at the unique nature of the country's debt and the options available to avoid hitting the debt ceiling. Is U.S. Government Debt Different? -- a collection of 15 articles published by the Wharton Financial Institutions Center -- is co-edited by Wharton finance professor Franklin Allen, who shares insights from the book with Knowledge@Wharton. (Video with transcript)

Jeremy Siegel on Why Stocks Are -- and Will Remain -- the Best Bet

Wed, 27 Feb 2013 15:13:57 EST

Though stock market volatility continues to rattle investors' nerves, the future looks bright for equities in the U.S. and many emerging markets, according to Wharton finance professor Jeremy Siegel. In an interview with Knowledge@Wharton, Siegel says that investors should think about reducing their bond holdings, buying more stocks and keeping just enough cash for a rainy day and other liquidity needs. He also discusses the housing market and offers his take on where the stock market is headed for the rest of 2013. (Video with transcript)

Pressure Points: Where Tax Reform Can Be Most Effective

Wed, 13 Feb 2013 14:55:45 EST

The deficit deal that averted the fiscal cliff crisis at the start of the year raised taxes on the wealthiest and postponed -- for two months -- government spending cuts that threatened to derail the economic recovery. But the problem remains: Spending far exceeds revenue. So what's to be done? Five Wharton faculty members offer their views.

A Bold New Direction for Japan's Economy

Wed, 13 Feb 2013 14:55:45 EST

Newly elected Prime Minister Shinzo Abe wants to take Japan's economy in a daring new direction to end 20 years of stagnation and deflation. His policies resemble past efforts -- but with far more firepower behind them. That means even looser monetary policies and a sharp rise in government spending to boost demand. Some analysts say it's just the medicine Japan needs and, on the spending side at least, the opposite of what Europe and the U.S. are doing. But Wharton finance professor Franklin Allen, in an interview with Knowledge@Wharton, says the plan carries serious risks and could lead to a big meltdown. (Video with transcript)

High-speed Trading: Is It Time to Apply the Brakes?

Wed, 16 Jan 2013 15:25:48 EST

Costly glitches at some high-frequency trading firms have reignited a debate over the merits of computer-automated, high-speed stock transactions, in addition to inviting renewed scrutiny by regulators. Those in favor of high-frequency trading say it adds crucial liquidity to the market. But critics contend that the practice creates an uneven playing field for investors and poses a threat to the global financial system. Experts from Wharton and elsewhere weigh in.

Microfinance and Patriarchy: 'A Drift Away from Serving Women'

Wed, 16 Jan 2013 15:25:48 EST

Much of the research on microfinance focuses on the efficient delivery of loans and their effect on borrowers -- in other words, on the financial and economic aspects of the microfinance movement. But by ignoring microfinance's cultural aspects -- including the influence of patriarchal attitudes on lending practices -- the ability to make loans to the women whom microfinance was originally intended to serve can be seriously restricted, says Wharton management professor Tyler Wry, who has co-authored a paper exploring this topic.

The Private Equity Landscape in Colombia

Wed, 02 Jan 2013 12:42:42 EST

A decade ago, Colombia was struggling with political and social instability, a weak economy and widespread violence. With foreign direct investment (FDI) hovering around US$2 billion from 1999 until 2003, it was clear that the international financial community was not looking at the country as a favorable place in which to invest capital. However, with the election of President Álvaro Uribe in 2002, Colombia began to resolve the issues of violence and national security and lay the foundation for a 10-year economic boom .

Private Equity in Brazil: 'The Music Hasn't Stopped'

Wed, 02 Jan 2013 12:41:44 EST

Over the past decade, Brazil has become a success story among emerging market economies. This, in turn, has translated into increased consumer spending in a variety of areas, including basic goods, furniture and automobile sales. In addition, the government continues to invest money in offshore oil exploration. Not surprisingly, over the past decade the Brazilian private equity sector has thrived as well, with Brazilian PE funds helping to professionalize family-owned businesses, improve corporate governance and provide needed growth capital. What challenges and opportunities will PE see in the next 10 years?