N EWS F ROM T H E F I N AN C I A L E CONOM I C S I N S T I T U T E AT C L A R EMONT MCK ENNA CO L L E G E

In This Issue:PG 2 & 3: Fall 2015 FEI Research Analysts

PG 4 & 5: Summer 2015 FEI ResearchAnalysts

PG 5: Southern California FinanceConference

PG 6 & 7: Personal Finance – SIF

PG 7: 2015-2016 BMGI/Larson Fellows

PG 8: Fall 2015 FES Presentations

PG 9: Director’s Report Continued;Upcoming Events

TheExchangeTheExchange

THE SECOND half of 2015 has beena busy time at theFinancial EconomicsInstitute. In additionto our ongoingprogramming, wehave updated ourpublic face with ournew website, added

an important new database to our offerings,and we are integrating our activities withCMC’s Student Investment Fund (SIF) inseveral dimensions. Strong interest in theFEI and the Financial Economics Sequencecontinues, as evidenced by the 51 students,mostly first- and second-year students, inattendance at our annual fall informationsession held in early September. Based onexpressed interest, we believe the number ofSequence graduates will increase for thesecond year in a row. The FinancialEconomics Sequence meeting with thegraduating Sequence seniors was heldimmediately following the informationsession.

We thank Nina Kamath ’16 and MingdaLiu ’17, who did fine work during the Spring2015 semester and Summer 2015,respectively, to create our new website andadd other social media sites to our onlinepresence. The new website can be seen eithervia the link under the Experiences tab on theCMC site, or by going directly tohttp://financial-economics-institute.org/.Mingda is our webmaster for this year, andwe are working continuously on updating thecontent of the site.

During the summer we had 7 CMCresearch interns working at the FEI, thanks,as always, to BMGI for funding our summerinternship program. And this fall, we have 20

students employed at the Institute, includingtwo of the five 2015-2016 BMGI/MichaelLarson Asset Management Fellows, RachelDoehr ’16 and Albert Xu ’17, who are takingthe opportunity to work at the Institute viatheir Fellowships. Projects are describednearby. As part of the research analystprogram, the Institute provides student tutorsfor the Bloomberg Terminal, Cap IQ, Excel,Stata, and Python to assist students from anyof the Claremont Colleges in these areas.

As noted in our previous newsletter, weare creating stronger ties between the FEIand the SIF. This fall there were two majordevelopments in this direction. First, the FEIworked with the SIF to put on twoinformation sessions on financial literacy; thefirst one, in September, introduced personalfinance and investing; the second session,held in late October, focused on thefundamentals of accounting and valuation.These Saturday sessions included very welldone presentations by various members ofthe SIF, with sponsorship support from theFEI. Attendance was strong at both sessions.Brian Eckhardt ’16, the current CEO of

VOLUME 20, FALL 2015CMC PRESIDENTHiram E. Chodosh

RDS BOARD OF ADVISORSPeter K. Barker ’70 P’01 (Co-Chair)

JP Morgan Chase & Co. (Retired)

James B. McElwee ’74 P’12 (Co-Chair)Independent Venture Capitalist

Gary Birkenbeuel ’80 Ernst & Young

J. Baxter Brinkmann P’16 The Brinkmann Corporation

Jose Campos ’91 Deloitte & Touche LLP

Heidi Nelson Cruz ’94 Goldman Sachs & Co.

Nicholas P. Daifotis ’79 P’17 RBC Capital Markets, LLC (Retired)

Alan M. Delsman ’68 Deutsche Bank AG

Christopher Dodds P’13 P’15 The Carlyle Group

Maureen Downey ’93 Pantheon Ventures

Russell Greenberg ’79 Altus Capital Partners

Christopher D. Harris ’98 Damitz, Brooks, Nightingale, Turner, and Morrisset

Alan C. Heuberger ’96 BMGI

Stella Ho ’97 Moelis & Company

Andrew J. Kaiser P’13 Goldman Sachs Bank USA

Christine Huk Mann ’87 Goldman Sachs & Co.

I. Joseph M. Massoud ’89 Anholt Services (USA) Inc.

Susan Matteson-King ’85 Allianz Global Investors

Therese Mrozek P’15 Weston Presidio

Thomas B. Neff ’76 FibroGen, Inc.

John R. Shrewsberry ’87 Wells Fargo & Company

Robert P. Thomas ’99 The George Kaiser Family Foundation

Julius Wang P’14 P’15Samena Asia Managers

FEI DIRECTORJoshua Rosett

ASSISTANT TO THE DIRECTORTerri L. Van Eaton

Director’s Reportby Joshua Rosett

The Financial Economics Institute fosters education and research in financialeconomics by offering a unique undergraduate curricular program, theFinancial Economics Sequence, supporting state-of-the-art databases, andencouraging student-faculty interaction on research.

Joshua Rosett

See Director’s Report on page 9

2 THE F INANCIAL ECONOMICS INST ITUTE

Financial Economics InstituteFall 2015 Student Research Analysts

During the Fall 2015 semester, twenty student Research Analysts were hired to work at the FEI. The following is a list ofstudents, their faculty advisors, and a brief description of the research projects in which they were involved or the type oftutoring they provided:

u FARHAN ATTAMIMI ’17 is working to build an application forProfessor Ananda Ganguly to be used in accounting researchexperiments to evaluate how investment decisions are influenced byrelevance and reliability in accounting reports.

u GABRIEL AYALA ’16 is the tutor for the Bloomberg and Capital IQat the FEI. He is also working with Professor Joshua Rosett onconstructing regional stock indices including a Los Angeles indexand Inland Empire index.

u BHAVIKA BOORAGADDA ’18 is working with Professor AngelaVossmeyer on a paper that investigates the origins of too-big-to-failby examining banks’ requests for recapitalization submitted to theRFC in Illinois and New York, focusing on the money centers ofManhattan and Chicago’s loop. The results offer importantimplications for lender of last resort policies and the effect ofpreferentially treating the nation’s largest banks.

u AVIV CASPI ’16 is the Python tutor at the FEI and is also workingwith Professor Joshua Rosett on a project on Building Regional andIndustry Segment Equity Indices for California.

u RACHEL DOEHR ’16 is the Stata tutor at the FEI.

u JACK GERSTENBERGER ’17 is working with Professor DarrenFilson and Brian Dennis in which he is helping them examinevariables that impact the tenure length of college presidents. Byidentifying personal characteristics, executive compensation, andinstitutional performance metrics, they will use this information toconduct statistical analyses that will enable them to predict collegepresident tenure length.

uMATTHIEU HAFEMEISTER ’17 is working on a project withProfessor Andrew Finley researching the significance and impact ofsettlements with IRS on companies’ effective tax rate. He is alsoworking with Professor Joshua Rosett on a project involvingreporting and analyzing Mergers and Acquisitions, specifically inSouthern California.

uMICHAEL IRVINE ’16 is working with Professor Darren Filson tocreate a new way of analyzing and ranking economics journals,including by examining median citations and time-based changes incitation counts.

u CHRISTOPHER JACKSON ’17 is working with CGU Professor PaulZak analyzing physiological data comparing two different types ofpersuasion styles: (1) The promotion and betterment of one’s ownlife vs. (2) The promotion and betterment of people’s lives aroundyou. These differences in persuasion tactics should influence theamount of money ultimately given in microfinance loans.

u KANISHK KAPUR ’18 is working on a project with ProfessorGeorge Batta to determine the effect of a subsidiary initiating CDStrading on a diversified firm’s internal capital market.

u KAITLYN KELLEHER ’17 is working with Professor Eric Helland toresearch the difference in the SEC’s success rate when they bring acase to their own administrative judges versus when they must filethe case in a criminal court of law.

u SHENGYUE “LISY” LI ’18 is working with Professor AngelaVossmeyer on a project investigating the stigma caused by rescueprograms during the financial downturns and analyzing how itaffects a bank’s ability to operate as a financial intermediary using anovel data set from the Reconstruction Finance Corporation in theGreat Depression.

uMINGDA LIU ’17 is working with Professor Richard Burdekin on aproject researching the monetary and fiscal policymaking in SouthPacific countries by compiling and analyzing data using Stata andExcel. He also oversees the content and the maintenance of the FEIwebsite.

u SEAN SAKAGUCHI ’16 is working as the Excel tutor at the FEI,providing training on Excel and spreadsheet utilization, and heanswers students’ basic and more accelerated questions in the use ofthis program as they apply to school projects, personal interests, orprofessional projects.

u ABIGAIL SCHANTZ ’18 is working on a project with Professor EricHelland to research the difference in the SEC’s success rate whenthey bring a case to their own administrative judges versus whenthey must file the case in a criminal court of law.

u ANDREW SHEETS ’17 is working to build an application forProfessor Ananda Ganguly to be used in accounting researchexperiments to evaluate how investment decisions are influenced byrelevance and reliability in accounting reports.

u GEORGE VOJTA ’17 is working on a project with Professor EricHelland to research the difference in the SEC’s success rate whenthey bring a case to their own administrative judges versus whenthey must file the case in a criminal court of law.

u ALBERT XU ’17 is working with Professor Sven Arndt on severalprojects, one of which is titled, “Economic Stability in aContemporary Setting.”

u ANDREW YEH ’17 is working with Professor Eric Hughson on aproject looking at momentum as a factor cause of idiosyncraticequity returns and examining its properties and return distribution.

u YI “NORA” ZHANG ’17 is working with Professor Mitch Warachkaon two projects. The first one investigates the impacts of insurancepolicies on religious activities by portfolio analysis at county level.The second one is a study on the cost of inattention throughinvestigation of Airbnb prices during major sports events.

CLAREMONT MCKENNA COLLEGE 3

RACHEL DOEHR ’16 JACK GERSTENBERGER ’17 MATTHIEU HAFEMEISTER ’17 MICHAEL IRVINE ’16

CHRISTOPHER JACKSON ’17 KANISHK KAPUR ’18 KAITLYN KELLEHER ’17 SHENGYUE “LISY” LI ’18

FARHAN ATTAMIMI ’17 GABRIEL AYALA ’16 BHAVIKA BOORAGADDA ’18 AVIV CASPI ’16

GEORGE VOJTA ’17 ALBERT XU ’17 ANDREW YEH ’17 YI “NORA” ZHANG ’17

MINGDA LIU ’17 SEAN SAKAGUCHI ’16 ABIGAIL SCHANTZ ’18 ANDREW SHEETS ’17

4 THE F INANCIAL ECONOMICS INST ITUTE

RISH CHITRE ’18 Faculty Advisor: Professor Eric HellandProject: Admissibility of Expert Witness Testimony through theApplication of Daubert Standards• Coded data into spreadsheets that outlines frequency and length ofDaubert arguments in expert witness testimony related to theWyeth Pharmaceuticals dispute over the use of the drug, Prempro

• Used key words generated from a Python program analyzing largequantities of text to improve argument tracking in Excel

• Compared the accuracy of key word coding by looking at argumentscoded by hand and comparing them to the accuracy of the Pythonprogram

QIANYUN “CAROLE” GAO ’17Faculty Advisor: Professor Sven ArndtProject 1: Balance-of-Payments Adjustment in a Dual Exchange-RateRegime • Collected data on exchange rates for various countries from 1980 to2014 from IMF

• Ran regressions using Stata to determine the relationship betweenexchange rate and national account variables

• Created figures representing the theoretical variations in therelationship between interest rate and income for countries withdifferent exchange rate regimes

Faculty Advisor: Professor Mitch WarachkaProject 2: Relationship between Financial and Religious Activities• Created a system for religion identification and cleaned data from1980 to 2010

• Classified counties into a portfolio of 4*4 matrix based on

agricultural and religious activities• Analyzed portfolio-specific impact of insurance on increase incongregation, using Stata

PHILLIP JAUREGUI ’17Faculty Advisor: Professor Paul Zak (CGU)Project 1: Projecting Movie Revenues Using Economics Modeling• Gathered data on over 150 movies for variables such as budget,opening weekend gross, and lifetime gross (domestic and worldwide)

• Examined month of release as a factor in predicting movie revenuesusing an economic model

• Ran multiple regressions to see statistical significance of anyrelations between movie variables and revenue

Project 2: Analysis of Socially Responsible Mutual Funds• Compiled list of over 150 socially responsible mutual funds• Compared annualized and total trailing returns to those of indexfunds such as the S&P 500 and NADAQ to identify the top 10 bestand worst SRI (socially responsible investing) funds ranked byperformance relative to indices

• Examined extreme funds to identify what factors, if any, explain theeconomics success or failure of mutual funds

KANISHK KAPUR ’18Faculty Advisor: Professor George BattaProject: Effect of a subsidiary initiating CDS trading on a diversifiedfirm’s internal capital market• Identified the ultimate parent if a firm with a trading CDS is asubsidiary, then identified the relevant segment and used Compustatto gather the rest of the information

Financial Economics Institute2015 Summer Research Analyst Internship Projects

Left to right: Mingda Liu ’17, Kanishk Kapur ’18, Qianyun “Carole” Gao ’17, Yi “Nora” Zhang ’17, Phillip Jauregui ’17, Chengwu “Harris”Xuan ’17, and Amberish “Rish” Chitre ’18.

CLAREMONT MCKENNA COLLEGE 5

• Summarized academic papers from related research. Identified andfollowed precedent for ratio construction

• Used Stata to construct a unified dataset spanning 18 years usingdata from CRSP, Compustat and Markit

MINGDA LIU ’17 Faculty Advisor: Professor Richard BurdekinProject 1: Fiscal policymaking and central bank institutional constraintin Latin America• Collected, cleaned, and managed data spanning 20 years and 14countries on Excel and Stata platforms

• Interpreted the data series by performing correlation and regressionanalyses

Project 2: Fiscal policy in South Pacific island countries• Compiled and sorted relevant literature• Sorted datasets and plotted data series for different researchpurposes using Excel

• Conducted correlation analyses and created correlation matrices ofvariables on Stata

CHENGWU “HARRIS” XUAN ’17Faculty Advisor: Professor Ananda GangulyProject 1: Fantasy & Dread: The Demand for Information and theConsumption Utility of the Future• Programmed in Stata to output publication-quality Excel tablesProject 2: Relevance versus Reliability: Experimental Evidence on anAccounting Debate

• Programmed in Qualtrics and Javascript to amend and improveolder program to run an accounting/economics laboratoryexperiment

• Organized and improved manual to distribute Qualtrics program viaAmazon Mechanical Turk

YI “NORA” ZHANG ’17Faculty Advisors: Professors Mitch Warachka and Marc Weidenmier(joint work with Professor Barbara Bliss, UC San Diego)Project 1: Predicative Power of Stock Return in the World Market• Collected and organized data on stock price, foreign exchange rateand economic indicators of 71 countries from 1950 to present

• Computed exchange rate volatility and classified them usingReinhart and Rogoff regime

• Conducted general, area-specific and time-specific panel analysis toinvestigate in relationship between stock return and standardizedexport in multiple time periods, present and future, through variousregressions

Project 2: Relationship between Financial and Religious Activities• Created a system for religion identification and cleaned data from1980 to 2010

• Classified counties into a portfolio of 4*4 matrix based onagricultural and religious activities

• Analyzed portfolio-specific impact of insurance on increase incongregations using Stata

ON FRIDAY, SEPTEMBER 25TH and Saturday, September 26th, theFinancial Economics Institute sponsoredthe third annual Southern CaliforniaFinance Conference at ClaremontMcKenna College. Organized by CMCProfessors Mitch Warachka and EricHughson, the purpose of the conferencewas to further interactions betweenmembers of the Claremont Collegescommunity with interests in finance andrespected finance academics fromuniversities throughout SouthernCalifornia. There were about twentyconference participants who attended thetwo-day conference. In the three two-hour sessions, six papers on a variety oftopics in academic finance were presentedand discussed by participants from CMC,Loyola Marymount, UC Irvine, UCLA,UC Riverside, UC San Diego and USC.

This year, for the first time, theconference featured a paper in neuro-finance. Cary Frydman, of USC,presented his paper “Testing Salience

Theory of Risky Choice using Eye-Tracking Data,” co-authored with MilicaMormann. The question addressed in thepaper was whether salient attributes of analternative affect its weight in thedecision-making process. In this case, theauthors comparing a lottery with apotential positive outcome to a certainpayoff, fixing the expected value of thelottery. The subjects were more likely totake the gamble when the positive payoffwas made more salient. Indeed, theauthors found a tradeoff between salienceand the expected value of the lottery – afinding that might not be surprising tomarketers. Further, when the negativepayoffs of the lottery were highlighted,subjects not surprisingly were more likelyto opt for the certain payoff instead. Thebehavioral findings were furtherreinforced with eye-tracking data thatshowed that subjects’ eyes lingered moreon the salient information, whether on theupside or the downside of the lottery.

In addition to the sessions, the

conference featured a lunchtime talk atthe Marian Miner Cook Athenaeum(which also doubled as an FEI SeminarSeries talk) featuring Gordon Phillipsfrom USC. In his talk, “The Need forIndustrial Organizational Foundations inCorporate Finance and Asset Pricing,”Professor Phillips began by explainingthat although a firm’s competitors areoften characterized as benchmarks to beevaluated against, they are really morethan that, and the difference is important.In particular, there is an interactionbetween financial policy and the nature ofcompetition. For example, firms choosefinancial policies to influence interactionwith each other. This kind of interactionmeans that the nature of competition caninfluence a firm’s governance,compensation systems, and financialstructure. Indeed, fundamental corporatedecisions such as the decision to mergeare influenced by competition. ▲

2015 Southern California Finance Conference

6 THE F INANCIAL ECONOMICS INST ITUTE

THIS FALL, THE FINANCIALEconomics Institute (FEI) and the StudentInvestment Fund (SIF) co-hosted a series offinancial literacy seminars for students fromthe five Claremont Colleges. The seminarswere designed to educate students across allacademic disciplines about personal finance,money management, investing and basicaccounting.

The program came to inception lastspring as the FEI and SIF leadershipdiscussed CMC’s already extensive academicand co-curricular resources. The Economicsand Economics-Accounting majors throughthe Robert Day School and the FinancialEconomics Sequence through the FEIprovide the theoretical foundations andtechnical skills necessary for future careers inbusiness, finance, government and not-for-profit organizations; networking trips toNew York, San Francisco, Chicago and LosAngeles enable students to build relationshipswith firms and alumni and identify potentialcareer paths; and the FEI research positionsand SIF analyst positions allow students towork closely with faculty and applycoursework to real-world research andproblem-solving.

Absent from these offerings, though, wasa program directed at preparing students forthe personal financial decisions that awaitthem after graduation. Just as finance helpsbusinesses build factories and hire employees,personal finance helps individuals buy homes,save for higher education and plan forretirement. Learning about the availabletools to accomplish life’s goals is importantfor everyone, not just Economics majors.With this objective in mind and programfunding provided by the FEI, the SIF beganto plan two fall seminars.

The first seminar took place onSaturday, September 19 and introducedpersonal finance and investing. While theseminar was initially scheduled for atraditional lecture hall, high student demandprompted relocation to Bauer Forum whichseats 141.

The afternoon program was broken intofour focus areas: personal finance, investingtheory, practical investing and an exampleinvestment pitch. Beginning with personalfinance, Sean Sakaguchi ’16 spoke about the

power of compounding interest, in which theearlier an individual saves and invests thehigher are the long-term accruals. He alsocompared checking, savings and brokerageaccounts and contrasted online and retailcommercial banks. Arya Nakhjavani ’18reviewed debit and credit cards and outlinedsteps that an individual can take to boost hisor her credit rating. He also reminded thatmost landlords check a potential renter’scredit score before confirming a lease,reinforcing the importance of building goodcredit during college. Chris Cziesla ’18explored insurance categories including life,health, auto, renters and disability.

Transitioning to investing theory, DanielFallon-Cyr ’17 compared stocks and bonds,their risk and return profiles and their rolesin a company’s capital structure. After, hespoke about the growth and value investingtheories as well as the template profiles forcompanies targeted by those investingstrategies. Daniel closed his remarks bynoting the efficient market hypothesis, whichstates that stocks incorporate all availableinformation. As such, “beating the market” isimpossible because prices respond only tonew information, which by definition israndom.

In the practical investing section, Seanspoke about certificates of deposit and thebenefits and risks of CD laddering. He alsoreviewed other forms of tax advantagedvehicles including individual retirementaccounts (IRA), employer-sponsored plans(401k) and educational savings accounts(ESA). Sean then contrasted traditional andRoth IRAs before Victor Chan ’16transitioned to explaining how students cango about analyzing stocks and othersecurities. He deconstructed buzzwords suchas “strong fundamentals,” “intrinsic value”and “discounted cash flow” and enumeratedseveral resources for financial informationincluding the Wall Street Journal, TheEconomist, annual and quarterly reports withthe Securities and Exchange Commission,Bloomberg, Capital IQ and Wall Streetbroker research.

Andrew Clary ’16 and Alex Brenner ’17ended the afternoon by presenting Naspers,which is a former SIF investment pitch andcurrent holding in the fund’s portfolio.

Through Naspers, students learned how tocreate an investment thesis, support it withevidence and weave the presentation togetherwith warrants. Andrew and Alex alsoexpounded on the sum-of-the-parts analysisthat the SIF used to value Naspers. Thistechnique is appropriate for conglomeratebusinesses with diverse business operations,allowing investors to value each divisionseparately before summing the componentsinto the whole.

The second seminar on Saturday,October 24 presented on the fundamentals ofaccounting and valuation. Sean and AndrewYeh ’17 walked students through the majorcomponents of the income statementincluding revenue, cost of goods sold, sellinggeneral and administrative, depreciation,interest, taxes and net income. Later, theysketched how a company can manipulate itsincome statement by engaging in “channelstuffing,” a business practice in which acompany pushes excess product into thedistribution channel in order to inflaterevenue.

Christian Kelly ’18 taught studentsabout the balance sheet and the “law” ofaccounting that assets equal liabilities plusshareholders’ equity. Andrew Clary andNaina Mullick ’17 presented the cash flowstatement and how it serves as the compositeof the other income statement and balancesheet. They described the indirect and directaccounting methods as well as the operating,investing and financing sections of thestatement.

After students were familiar with basicaccounting, Nick Lillie ’17 and Dennis Gu’17 demonstrated how the three statementscould be used to value a company. Adiscounted cash flow model (DCF) is basedon the theory that a company is worth thepresent value of its future cash generation.The concept of time value of money assertsthat a dollar today is worth more than adollar tomorrow due to its earning potentialbetween the two dates, so future dollars mustbe discounted to reflect their present value.Nick and Dennis presented the three DCFinputs of free cash flow forecasts, a discountrate and terminal value before leading

Personal Finance at CMCBy Brian Eckhardt ’16

Current SIF CEO and BMGI/Michael Larson Asset Management Fellow

See Personal Finance on page 7

students through a valuation exercise. Gabby Ayala ’16, Amanda Lin ’16 and

Jon Shaw ’18 concluded the seminar andseries with a discussion of relative valuation.To illustrate the technique, students learnedhow the unknown price of a Honda Civiccould be determined based on the value of a

horse-drawn carriage. If a horse and buggytravels at an average speed of 5 miles perhour and costs $1,000, a Honda Civic thattravels 15 times faster could by extension bevalued at $15,000. Financial ratios are core torelative valuations, with Enterprise Value-to-Earnings before Interest Tax Depreciationand Amortization and Price-to-Earnings astwo of the most common multiples.

The fall series on personal finance andinvesting was a success and the FEI and SIFplan to host it again next year. The nextfinance event at CMC is the ClaremontFinance Conference in February 2016, whichbrings together students, faculty and alumnito explore current themes in the financialservices industry. ▲

CLAREMONT MCKENNA COLLEGE 7

2015-2016 BMGI/Michael Larson Asset Management FellowsThe BMGI/Michael Larson Asset Management Fellowship Program offers financial support and research experience for juniorsand seniors at Claremont McKenna College who are interested in careers involving asset management and investmentmanagement. The recipients of this year’s scholarships are:

Rachel Doehr ’16 Rachel Doehr is a senior majoring in Economicswith the Financial Economics Sequence. A nativeSan Diegan, she came to CMC for the liberalarts experience doubled with the economicsfocus. Since arriving her freshman year, she hasbeen involved in the Student Investment Fund,

as well as been an RA and TA for macroeconomics and Stata.Outside of school, she interns in the investment banking division atHoulihan Lokey in the Los Angeles office, and spends her free timeworking on two research projects with economists at the FederalReserve Bank of Dallas. She will be joining Goldman Sachs in theirinvestment banking division in New York City after graduation. Also a ballet dancer, she spends her free time taking class at Anaheim Ballet.

Brian Eckhardt ’16 Brian, originally from Scottsdale, AZ, is a seniorat CMC pursuing a Bachelor’s degree inEconomics and Master’s degree in Finance aspart of the Robert Day School’s 4-year BA/MAprogram. In addition to being a Robert DayScholar, Frank Seaver Leadership Scholar, and

two-year BMGI/Michael Larson Asset Management Fellow, Brian isthe CEO of the Student Investment Fund and a researcher with theRose Institute of State and Local Government. He is also aperforming member of Under the Lights, CMC’s theatre troupe.Last summer, he interned in the investment banking division ofBank of America Merrill Lynch. Prior to that, he interned withHawk Ridge Management, a long-short equity hedge fund based inLos Angeles. After graduation, he will be joining a private equityfirm in Chicago, IL as a full-time analyst.

Amber Falkner ’16 Amber Falkner is a senior from Bradenton, FL,pursuing a Bachelor's degree in Economics and aMaster’s degree in Finance. In addition to beinga BMGI/Michael Larson Asset ManagementFellow and a Robert Day Scholar, she is theChief Investment Officer of the CMC Student

Investment Fund and President of Claremont Colleges AgainstCancer. Amber has held internships at a search fund, DanvilleCapital, and at a mutual fund, Dodge & Cox, after her freshman andsophomore years, respectively. This past summer, she interned as aninvestment banking analyst in the Consumer, Healthcare andGaming group at Wells Fargo Securities. She will return to theCharlotte office after graduation as a full-time analyst. Her interestsinclude fishing, creative writing, and kickboxing.

Sean Sakaguchi ’16 Sean is a senior at CMC pursuing a dual degreein Philosophy, Politics, and Economics (PPE),and Economics-Accounting in addition topursuing the Financial Economics Sequencethrough the FEI. Originally from Tigard, OR,Sean came to CMC due to its uniquely strong

government and economics programs. On campus, he is an activemember of the Student Investment Fund (SIF) and the President ofCMC’s nationally ranked Model UN program. Over the varioussummers at CMC, Sean worked at the FEI before interning inMorgan Stanley’s Wealth Management division. This past summer,he worked in NYC at Millstein & Company where he worked on avariety of corporate and governmental bankruptcy restructuringsand will be returning after graduation. In his free time, Sean enjoyskayaking, archery, and playing card/strategic board games.

Albert Xu ’17 Albert is a junior at CMC majoring inEconomics. In addition to being aBMGI/Michael Larson Asset ManagementFellow, he is also a Robert Day Scholar. He is theCIO of Sagehen Capital Management atPomona College, and works as a research analyst

at the FEI. So far, Albert has researched under Professors EricHelland, Gary Smith, and Sven Arndt. In his free time, he enjoysdebating, fencing, and watching football.

Personal Finance from page 6

8 THE FINANCIAL ECONOMICS INSTITUTE AT CLAREMONT MCKENNA COLLEGE

THE FINANCIAL ECONOMICS SEQUENCE IS PART OF the Robert Day School of Economics and Finance at ClaremontMcKenna College. The curriculum of the Sequence is designed forstudents interested in pursuing careers in the financial sector and/orgraduate education in economics, finance, and related fields.

The Sequence has a rigorous quantitative focus and is designed tocomplement majors in economics, economics-accounting, andmathematics, as well as dual majors having an economics component.In addition, the Sequence is complementary to the courseworkrequired for the undergraduate Robert Day Scholars Program, andprepares students for the Master’s Program in Finance of the RobertDay School. Under the auspices of the Financial Economics Institute(FEI), students complete the Sequence, which is noted on thetranscript, thereby attesting to their solid understanding of thediscipline.

We currently have twenty FES seniors who will be graduatingduring the 2015-2016 academic year. One senior is graduating at theend of the Fall 2015 semester and he made his presentation lastspring. Three FES seniors wrote their theses this semester and gavetheir oral defense presentations at the end of the semester. In order toreceive the Financial Economics Sequence notation on theirtranscripts, students must complete a major research project in thearea of financial economics, the project may be the student’s seniorthesis, and make an oral presentation.

The following is a list of the students who made theirpresentations this semester along with the titles of their senior thesesand the Abstracts of their theses:

AHMED ELTAMAMI

The Effect of Increased Regulation on Option Use within theInformation Technology Industry

“Exorbitant executive compensation packages have drawn largecriticism from the public eye and with the recent financial crisis andthe previous tech bubble opinion on executive incentives has forcedgovernment institutions to respond. Over the past two decades theSEC and FASB have aimed to respond to the public and with threelarge regulation changes in the 2000s, pay for performancecompensation has gone through many changes. In this study I buildon previous work in an attempt to answer whether or not executiveswithin the Information Technology industry have seen a larger declinein option compensation when compared to executives outside of theindustry. Previous studies have indicated that option use has beenconsistently higher in the IT industry and in addition another studyhas showed that option use across all companies has decreaseddramatically due to regulation changes. In this study I find that optionuse has dramatically decreased over the past decade due to regulationand that option use in the IT industry has remained consistentlyhigher than others. I find that there is little significant evidencesuggesting regulation changes have affected the IT industry at a largerrate than others. I would argue that the industry is less sensitive toregulation changes regarding option use but I do find significant

evidence that the industry has seen larger decreases in option use in2013 when compared to other industries.”

JAMES INGRAM

The Effects of the 1933 Bank Holiday and the Emergency BankingAct of 1933 on the Systematic Risks of Various Industries

“Utilizing the industry portfolio classifications that Fama and Frenchprovide in their data library, I analyze the specific effects that the 1933Bank Holiday has on various industries. My empirical results gobeyond what Silber (2009) determines to be significantly positiveabnormal market returns on March 15, 1933, which is the day afterthe Bank Holiday and the largest ever one-day increase in the stockmarket. I use the CAPM and the Fama-French 3-factor Model to findsignificant systematic risk decreases after the Bank Holiday in theCoal and Transportation industries, as well as systematic risk increasesin Consumer Goods and Apparel. To determine the driving factorsbehind these changes in systematic risk and abnormal returns, I testthe correlation between industry leverage ratios and differences insystematic risk changes after the Bank Holiday. The Bank Holidayhelps stabilize the economy and the nation’s banking system, which Iexpect industries with larger debt obligations will benefit more afterthe Bank Holiday. Inconsistent with my expectations, I don’t findsignificant evidence that the systematic risks of highly leveragedindustries decreases more than industries with lower leverage ratios. Idevelop my argument to leave room for changes in the model used toestimate systematic risks in order to identify the variables that are thetrue drivers of the systematic risk changes that I observe.”

EMILY ZHANG

San Francisco’s Housing Price Surge: Strained Market Fundamentalor Exaggerated Expectations?

“This paper uses time series regressions to examine whether SanFrancisco’s housing price surge is due to strained market fundamentalsor due to speculation. This paper uses and manipulates monthly andquarterly data related to the San Francisco housing market.Regressions focus on the following independent variables: pasthousing prices, value appreciation, new building unit permits,employee growth, technology activity, nonperforming loans, andinterest margins. The results show that those lagged variables explaina reasonable portion of current housing price movements. However,in terms of current events, this paper cannot rule out the possibilitythat speculation is driving a new housing bubble in San Francisco.”

Fall 2015 Financial Economics Sequence Oral Defense Presentations

The Exchange newsletter is published by the Financial Economics Institute at Claremont McKenna College. If you would like copies of previous issues, e-mailFEI@cmc.edu or write to the Financial Economics Institute, Claremont McKenna College, 500 E. Ninth Street, Claremont, CA 91711 with your request.

Bauer Center, Room 321500 East Ninth Street

Claremont, CA 91711-6400Phone: (909) 607-0042 Fax: (909) 607-0088

E-mail: FEI@cmc.eduWebsite: http://financial-economics-institute.org/

Upcoming Events

New York City Networking TripJANUARY 10–15, 2016Three juniors and thirteen sophomoreswill visit prestigious firms in NYC togain exposure to various jobopportunities in the financial marketsand to establish relationships withCMC alumni working at thesecompanies. The goal is for theserelationships to evolve into summerinternship and full-time jobopportunities for student attendees.In addition to the company visits, thetrip will include various eveningevents with financial servicesprofessionals and CMC alumni. Thetrip is sponsored by the FinancialEconomics Institute and Robert DayScholars Program.

Claremont Finance ConferenceFEBRUARY 12, 2016The Executive Committees of theStudent Investment Funds of CMC,Pomona College, and Scripps College,are coordinating and hosting theannual finance conference. Moredetailed information will bedistributed in January.

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CMC’s Student Investment Fund, provides asummary of these sessions elsewhere in thisnewsletter. Second, the FEI added animportant database, the McGraw-HillFinancial Standard & Poor’s Capital IQdatabase. We are making this productavailable to all CMC community membersvia work stations in Poppa Lab and the FEI,but we believe it will be particularly usefulfor those associated with the SIF and FEI,and the decision to purchase the database wasmade in collaboration with the SIF. The FEIis providing support for use of this database,thanks to Gabriel Ayala ’16, who kindlyagreed to add this duty to his work asBloomberg tutor at the FEI. Look forfurther updates on FEI/SIF integration infuture newsletters.

In September, the Institute sponsored a2-hour Wharton Research Data Services(WRDS) information session for FinancialEconomics Sequence seniors, Economics-Accounting seniors, BMGI-Michael LarsonAsset Management Fellows, and FEI studentresearch analysts.

The FEI sponsored the third annualSouthern California Finance Conferenceheld on Friday and Saturday, September 25thand 26th at CMC, and featured GordonPhillips, the Charles E. Cook – CommunityBank Chair and Professor of Finance andBusiness Economics at the University ofSouthern California, as Athenaeum luncheonspeaker. Professor Phillips was theconference Keynote Speaker and hisAthenaeum presentation entitled, “WhenAre Powerful CEOs Beneficial? TheImportance of Industry Competition” wasalso part of the FEI Speaker Series (see thesummary of the conference elsewhere in thisnewsletter). Professors Mitch Warachka andEric Hughson organized the sessions withfinancial and staff support from the FEI.

The FEI participated in the Research

Institutes Fair held in early October,providing information to interested students,staff, and faculty about our activities,including the annual New York CityNetworking Trip, student employmentopportunities, our fellowship program, andthe Financial Economics Sequence.

In early November, with organizationalassistance from Lizzie Fitzpatrick of BMGI,for the second year the FEI hosted an eventbringing together the Student InvestmentFunds from CMC, Harvey Mudd College,Pomona College, and Scripps College. Ateam from each SIF pitched a company to apanel composed of CMC graduates MichaelLarson ’80, Alan Heuberger ’96, JohnO’Brien ’02 and William Knowles ’13, allfrom BMGI; and Erik Anderson ’80 ofWestRiver Capital, Inc. This year, HMC andScripps formed a team to make a jointpresentation. Claremont Colleges’ facultyand staff, along with various studentmembers of the SIFs were in attendance.The event was held in the Freeberg Forum,on campus, and the venue was almost filledto capacity. A networking reception was heldfollowing the pitch event.

Looking forward, the 13th annual NewYork City Networking Trip, which iscosponsored with the Robert Day ScholarsProgram, is planned for January 10ththrough the 15th. Two information sessionswere held in September for CMCsophomores and juniors who were interestedin going on the trip. Thanks to MarisaWalter, the Interim Director of ExternalRelations at the Robert Day School whoorganized the trip this year, we are lookingforward to an exciting week visitingprestigious firms. The trip will also includevarious evening events with financial servicesprofessionals and CMC alumni to providemaximum networking experiences for thestudents participating on the trip. There willbe sixteen students going on the trip thisyear: three juniors and thirteen sophomores.

Also in January, we will be working withExecutive Board members of the StudentInvestment Fund on the annual student-runClaremont Finance Conference, to be heldFebruary 12, 2016.

Finally, as always, I thank the RDSBoard for their generous contributionsmaking our activities possible. I also thankTerri Van Eaton for her wonderful workmaking the FEI a great experience for ourstudents, and both Terri and Brian Dennisfor their great administrative worksupporting our programming. ▲

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