It is with great sadness that we have to announce that Nicola Bruti-Liberati, a Research Associate and former PhD student with the School died in a road accident in Sydney, Australia on Tuesday 28th August 2007. We would like to take this opportunity to pass our condolences to his partner, family and friends. He will be greatly missed by all who knew him.

Congratulations to the following staff who we successful in obtaining Australian Research Council (ARC) grants.

ARC Discovery Grants

Professor Eckhard Platen and Associate Professor Erik Schlögl
Title: Approved Pricing and Hedging Extreme Maturity Contracts
Funding: A$340,000 over years 2008-2011

Summary:

Most Australians belong to superannuation schemes. Hence, the long term performance and risk of these investments is of particular importance to the welfare of Australia. This research will improve the life-long financial security of Australians by clearly demonstrating that many superannuation targets can be achieved with less capital than currently suggested. This project will provide new technology for enhancing the long term performance of superannuation funds, managed funds, investment banks and insurance companies, giving these Australian institutions a competitive advantage and permitting them to offer innovative financial products to mitigate extreme maturity financial risk in retirement.

G. H. Kingston, H. J. Bateman, K. W. Clements, L. A. Fisher and Dr Susan Thorp
Title: Approved Security in Retirement: Forecasting and Managing Macro Investment Risks
Funding: A$330,000 over years 2008-2010

Summary:

In his Boyer Lectures Ian Macfarlane, former RBA governor, observed that risks once borne by employers or governments are in the process of being transferred to households. Retirement incomes are a case in point. Not only do most households belong to accumulation funds which shift investment risks to members, but exposure to growth assets (equities and property) in the typical account is in the 60% - 70% range, even in the case of retirees. Our project will focus on the forecasting and management of economy-wide risks, as distinct from the equity risks or credit risks attached to investments in particular companies.

Professor Carl Chiarella and Ms Thuy-Do To
Title: The Modelling and Assessment of Credit Default Risk
Funding: A$450,000 over years 2007-2009

Summary:

This project will deliver an enhanced set of methodologies for the quantification and management of credit default risk. These outcomes will benefit researchers both in academia and in Australian financial institutions as research into credit risk has been active in recent years, due to the impending adoption by financial institutions of the Basel II accord on risk assessment. The outcomes will provide a strong academic methodology applied to credit default risk by Australian financial institutions and the Australian financial regulator. This research has the potential to enhance the competitiveness of Australia's financial sector.

Dr Xue-Zhong He and Professor Carl Chiarella
Title: Dynamic Asset Pricing and Portfolio Decision Rules under Heterogeneous Expectations and Adaptive Learning
Funding: A$400,000 over years 2007-2009

Summary:

The outcomes of this project will provide two benefits to Australian financial market researchers in academe, in industry and financial market regulators. First, a better theoretical and empirical foundation for understanding and analysing optimal portfolio decision rules in a setting that captures many realistic features of market behaviour such as heterogeneity of investor types and adaptive behaviour by market participants. Second, new tools to more effectively understand and manage portfolio risk in financial markets. Consequently Australia will have a more efficient and competitive financial system. It also has the potential to lead to the development of more finance related industries such as financial market software.

Professor Michael Keane
Title: Effects of Maternal Work, Day Care Use and Other Investments in Children on Child Cognitive Outcomes
Funding: A$345,000 over years 2007-2009

Summary:

Later life outcomes due to investments by individuals and/or society in children are crucial to many countries, including Australia. Appropriate policy responses require reliable and valid estimates of the likely effects of individual investments and policy interventions. Despite many research reports on this topic, almost all do not control for selection bias (eg, high achieving mothers tend to put children in day care), which is a feature of our work. Thus, our empirical results will have major policy implications, and will suggest ways to obtain similar results for Australian environments.

Professor Eckhard Platen
Title: Large Scale Simulation Methods for Measuring Financial Performance under the Benchmark Approach
Funding: A$285,000 over yers 2007-2009

Summary:

All working Australians are now required to belong to superannuation schemes. Hence, the measurement of financial performance safely, efficiently, and over long time horizons is of particular importance to Australia. One outcome alone of this research will be the provision of a technology to optimize the long term performance of superannuation funds. More generally, the results will allow better decision making and integrated, strategic planning for financial institutions and insurance companies. An additional outcome will be global growth for the sectors of Australia's IT industry developing innovative simulation based hardware and software, since the new simulation methods have wide applicability.

ARC Linkage Grants

Professor Carl Chiarella and Dr Les Clewlow
Title: The Pricing and Hedging of Multi-Factor Multi-Commodity Based Swing Options
Funding: A$323,0000 over years 2007-2009
Collaborating/Partner Organisation: Lacima Group Pty. Ltd.

Summary:

The partner organisation, an Australian based company, is a leading global player in providing risk management solutions to energy corporations world-wide. The advances of the project will help it to enhance Australia's role as a provider of practical implementation of the most recent academic advances in the area of risk management technology.

US National Science Foundation Grants

Associate Professor David Michayluk with JD Farmer (Sante Fe Institute), A Lo (MIT), R Mantega (Palermo), J Wilkins (Santa Fe Institute), F Lillo (Palermo), M Girvan (Sante Fe Institute), J Geanakoplos (Yale), B Hollifield (Carnegie Mellon), B LeBaron (Brandeis) and J Dunne (Sante Fe Institute), W Moro (Carlos III)
Title: Financial Markets as an Empirical Laboratory to Study an Evolving Ecology of Human Decision Making
Funding: $US749,661 over years 2006-2009

Abstract:

This project takes advantage of rich data sets from financial markets to study an evolving ecology of human decision making. How do the decentralized actions of social agents result in global social order, and how does this change through time? There are two central reasons for doing this study in the context of markets: First, markets play an important role in organizing human behavior and are interesting for their own sake. Second, the richness of these financial data sets provides a unique opportunity to look for patterns in sets of decision making strategies, making it possible to study their interactions and track them across evolutionary spans of time. The data this project studies are from five different stock exchanges, with a diversity of rules for trading and price formation, making it possible to study the role of institutions in determining behavior. They include tens of billions of detailed records, making it possible to identify and differentiate patterns of human behavior with a high degree of statistical precision and temporal resolution. Most of the data sets include the actions of agents (orders to buy, sell, or cancel) as well as prices and trading volume. This makes it possible to study the interaction between agent behavior and market response. Many of them have identifiers labeling each action with its institution and trading account. This makes it possible to study and classify the heterogeneity of strategic behavior. The data sets range over long spans of time, as long as eleven years, making it possible to study the evolution and interaction of strategies on time scales that are longer than those on which we expect strategies to change. The investigators also have a record of public news announcements, making it possible to study the relationship between information arrival and agent response. They call their approach to modeling these data empirical behavioral modeling. By observing behavior in a context that is directly related to the phenomenon of interest, and characterizing its key regularities, they construct parsimonious agent models whose components are empirically grounded. They then use these models to make accurate quantitative predictions of the economic phenomena of interest. By constructing such models in a setting where we can directly observe heterogeneous agent behavior, we believe we can make models that both give practical insights into the functioning of markets and yield deeper insights into the nature and evolution of human decision making strategies. Financial strategies undergo selection, inheritance and innovation, and thus provide an ideal (though admittedly restricted) setting in which to study cultural evolution. While the detailed mechanisms are all quite different from those in biology, the investigators believe the analogy nonetheless remains strong. By working in close collaboration with biologists the investigators should be able to determine whether these ideas have quantitative predictive value for social science. If they are not useful in financial markets, where the selection of strategies is strong and complicating factors such as altruism are minimal, they are unlikely to be useful elsewhere. Broader impacts. This project uses a new approach that synthesizes ideas from behavioral economics, agent-based modeling, evolutionary biology, ecology, and statistical physics. A convincing demonstration of the success of these methods could have a broad impact on agent modeling throughout social science. Other impacts of this project include educating and mentoring undergraduates, graduate students and postdoctoral researchers.

Congratulations are due to the following staff who were successful in achieving Australian Research Council Linkage Grants. These were the the only successful grants in Australia in the category of banking, finance and investment.

Professor Eckhard Platen and Dr A. L. Pope
Title: "Risk Measurement for Large Portfolios under the Benchmark Approach"
Funding: $72,500 over years 2005-2008
Partner Organisation: Group Credit, St George Bank

Summary: The measurement of risk for large portfolios, consisting of basic assets and derivatives, will play a key role in future risk management systems. Based on a new characterization of asymptotic portfolios this project proposes the development, implementation and testing of highly efficient new risk measurement methodologies suitable for portfolios with hundreds or thousands of instruments. Comparisons with standard and new simulation methods will demonstrate their superiority. The outcomes of this project will give the Australian industry and the industry partner a competitive advantage in the measurement and management of risk for large portfolios as superannuation funds or portfolios of banks.

Associate Professor Erik Schlögl and Professor Tony Hall
Title: "Implied distributions and implied asset dynamics: Calibration and visualisation of models on market data"
Funding: $308,300 over years 2005-2008
Partner Organisation: SIRCA

Summary: Global money markets represent a very complex interlinked system. Market prices of derivative financial instruments bear information about this system, information that is critical for the effective management of interest rate and currency risks in a global context. The project will develop and test methods to extract this information. It will provide an interactive environment to explore (numerically and visually) sensitivities of asset dynamics and derivatives prices to input data and modelling assumptions, thus permitting a detailed analysis of market and model risk.

Carl Chiarella was successful in steering an Australian Research Council Network grant:

FIRN - The Financial Integrity Network
Funding: 2004-2009 $1,750,000

UTS Network Members:

Carl Chiarella - Network Convenor
Tony Hall
Eckhard Platen
Don Stokes

Project Abstract:

The integrity of the financial system is constantly under stress because of the development of ever more complex financial instruments, structures and strategies, and the associated research technologies that continues to accelerate worldwide. FIRN's vision is to harness the considerable strengths of Australia's internationally renowned finance, accounting and economics researchers into a research agenda to address issues concerning the integrity of the financial system. It will enable Australian research in this area to match the scale and impact of similar research in other major international financial centres, and play an essential role in placing Australia among the world's leaders in financial markets related research. Financial Market Behaviour".

Congratulations to Lorenzo Casavecchia on the award of a 2008 UTS Early Career Research Grant

Project: "An Experimental Analysis of the Drivers of Mutual Fund Investing"

Funding: A$22,802

Congratulations to the following School members who were successful applicants for Faculty of Business Research Grants for 2008.

Abigail Brown
Project: "Revisiting Auditor Fees' Effect on the Probability of Issuing a Going Concern Opinion"
Funding: A$7,806

Mario Fiorini
Project: "The Impact of Home Computer Use on Children's Cognitive & Non-Cognitive Skills"
Funding: A$6,015

David Goldbaum
Project: "Modelling the Dynamics of Preference & Choice Using an Evolving Social Network"
Funding: A$10,000

Tony He
Project: "Heterogeneity, Bounded Rationality, & Mean Variance Efficiency"
Funding: A$9,624

Chih-Ying Hsiao
Project: "Optimal Long-Term Asset Allocation in a Time-Varying Investment Environment"
Funding: A$9,836

Boda Kang
Project: "The Accurate & Efficient Pricing & Hedging of Multi-Dimensional American-Style Financial Derivatives Using the Meshfree Approach"
Funding: A$9,368

Kazuko Kano
Project: "Consumer Inventory & Demand for Grocery Products"
Funding: A$8,500

Len Perry
Project: "The Paradox of Declining Union Membership Accompanied by Rising Approval Rates"
Funding: A$5,000

Massimo Scotti
Project: "Investment Banks' Reputation & Information Transmission in Initial Public Offerings: An Empirical Analysis"
Funding: A$9,948

Annastiina Silvennoinen
Project: "Modelling the Conditional & Unconditional Correlations & Volatilities in Financial Asset Returns"
Funding: A$8,035

Pat Wilson (with S Stevenson and R Zurbruegg)
Project: "Investigating Price Leadership in the Changing Structure of Commercial Office Sub-Markets"
Funding: A$8,500

Oleg Yerokhin and Olena Stavrunova
Project: "Stock Market Participation & Exposure to Risky Assets: Understanding Portfolio Choices of Australian Households"
Funding: A$6,737

Lucy Zhao and David Michayluk
Project: "Equity Liquidity: Another Factor in Determining Capital Structure?"
Funding: A$9,985

Min Zheng
Project: "Heterogeneous Beliefs & Intertemporal Effects in Exchange Rate Markets"
Funding: A$9,550

Congratulations to 2008 Teaching and Learning Grant Recipients!

The successful grant applicants are:

David Michayluk

Title: "Using Interactive Student Response Systems to Improve Student Engagement and Teaching Quality"

Summary: Large classes pose problems for student engagement. Similarly, small classes can have students that are not willing to participate due to cultural barriers or dominant students. This project will implement the use of student response systems in two subjects and test whether studentsengagement is sustained over the semester and whether teaching quality improves.

Chris Terry, David O’Toole and Danny Yeung

Title: "Enhancing Analytical Learning and Communication Skills of Students Who Have Been Identified as Being at Risk of Failing"

Summary: The Financial System (25556) is an entry subject for pathway (i.e. Insearch) students attempting the Finance major. Analysis of the subject's results over recent years reveals very poor learning performances by these students. The aim of the project is to improve their learning performance given their abnormal risk of failure. The project comprises the development of a database of information on student study behaviour and the perceived value of the subject's learning environment and to trial (and evaluate) a targeted set of "learning to learn finance" sessions that aim to strengthen these students anaytical learning skills.

Peter Docherty

Title: "The Impact of Writing Programs on Student Writing and Student Attitudes to Writing"

Summary: This project examines an extensive collection of data generated as a by-product of two previous FOB-funded projects. Its aim is to thoroughly evaluate the effectiveness of writing programs and to prepare two papers for submission to higher education journals. The first would examine quantitative evidence relating to improvement of writing outcomes against data on attendance at writing workshops and a wider array of control data than previously considered. The second paper would examine qualitative data about student attitudes to writing and writing programs collected from 30 minute interview recordings and notes.

Deborah Cotton and Rowan Trayler

Title: "Peer Assisted Learning and Support for Postgraduate Students"

Summary: This project will extend the successful ePal system to the postgraduate subject, Finance Management: Concepts and Applications. The PAL sessions will be voluntary for the students enrolled in the subject and will be conducted as small drop-in style classes run by the PAL instructors, who are more senior students. The instructors will be able to pass on their own experience and knowledge of the subject content, the subject expectations and how to achieve the desired outcomes. It is expected that the student's learning will improve not only in this subject but in their approach to learning throughout the rest of their course.