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By Tai, May 9, 2010 11:47 am

and Share and

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By Tai, May 3, 2010 7:53 pm

and Share and

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By Tai, April 29, 2010 9:25 pm

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M&A normally are big events and many parties want to benefit from them, thus the market is sensitive to M&A, being able to detect deals before it actually happen.

In an acquisition, immediate capital gains are transferred from shareholders of the buyer to those of the seller in the form of premium. Synergistic gains will be realized later by increase in operations of the combined firm.

In the event of an M&A, stock price of the target goes up because shareholders of the target expect to receive an amount exceeding current fair value of the firm in the form of M&A premium from the buyer. Concurrently, stock price the buyer usually falls also because of premium the buyer has to pay the seller.

In light of this knowledge, risk arbitrageurs usually long the stock of the target and short the bidder. This normally put price pressure on both stocks, making target’s higher and buyer’s lower.

In the Palm case, arbitrageurs had taken action nearly 2 weeks before the acquisition announcement by Hewlett-Packard. The capital market was relatively efficient in predicting the acquisition.

Also for this case, price pressure on HP was far more complex since multiple factors may affect the company stock price. Palm stock was simpler, I attributed the increase in stock price partly to the acquisition.

In reality, Palm has been in discussion of selling and HP was indeed a surprise buyer.

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By Tai, April 24, 2010 3:08 pm

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In 2004, I was doing a research project with RMIT University on Semantic Web. The goal was for the query to ‘recognize’ who a person is and how s/he is connected to the world. One issue arose: no single source provides sufficient data of the level of connectedness we expected.

6 years later, the whole thing world has changed. One entity has accumulated more data than most others: Facebook.

We started talking about Web 3.0 backed by Semantic Web in 2005, and Social Graph in 2006. But until this point do we realize how the new web shall have to rely on a skeleton offered by a company and its alliance (Microsoft, Zynga).

I’ll think more of what new business models will emerge, the changing competitive landscape, disruptive innovation and most importantly, how do we capitalize on this.

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By Tai, April 17, 2010 7:29 pm

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In markets where index funds are a feasible investment channel, investors can undertake strategies to hedge their position in such funds.

1. Investor, depending on their bargain power, may require installment of liquidity reserve. An increasingly popular calculation of a reserve is with Value at Risk (VaR). Reserve = VaR * multiplier

The more volatile the market is expected to be, the higher the multiplier is used.

Read more of VaR on JP Morgan and Benninga & Wiener 1998 ¹.

2. The position can be further hedged by entering a credit default swap.

Given these instruments, further concern of index fund service provider liquidity risk (default event on the commitment to investors when index rockets) might be attributed to other factors beyond the scope of this technical argument.

¹ Benninga S. and Wiener Z., 1998, ‘Value-at-Risk (VaR)’, Mathematica in Education and Research, vol. 7 no. 4, 1998