Sum Subpar Subtopics

Well, another week of AP Research has passed, and the task at hand seems as daunting, if not more so, as it did a week ago. This week, I spent time reading part of a book on valuation models, another article that is verifying the area are of research I want to go down more, and finding some other articles about possible industries that would be interesting to analyze. Taking some suggestion from Ved, I found that IPO's are a really promising industry to examine: a lot of conventional methods of valuing stocks break down, and modifications have to be made to existing them in order to apply them to IPO's.

Anyways, research crises aside, I need to begin partitioning my topic into subtopics for my literature review. At this point in time, the literature review seems like a thing I will use for narrowing down my research to a specific valuation model and for exploring areas in which my specific valuation model has never been applied in, or generally fails to account for. These give a few natural subtopics for me to talk about. The first, and most general, is just valuation models in general. In the future, and for the purpose of the literature review, I will discuss a single model, justify why it must be looked at, and proceed to investigate/ analyze areas in which it can be applied. For now, however, I must look at various valuation models holistically: what do they measure, what literature is on them, etc.. In the process of doing so, I can come to a more specific or academically "rich" model to examine. Currently, the model that I am looking at, and which I seem to be leaning towards is the Price/ Book Value valuation technique. Having done more research on this technique, it seems as though a gap in regards to how it can improve value premiums, similar to study I read by two researchers in 2005 who examined increasing the value premium for the price/earnings ratio. The next subtopic would be a general historical context for how different models has been applied when valuing stocks, and what modifications of the model have been applied to different scenarios. This has the great benefit of allowing me to focus on a particular scenario that the model has never been applied to, or a modification that has never been attempted for the stock. Attempting to find a way to modify a technique necessarily requires that it fail/ underperform in certain scenarios. This leads me to my third subtopic: documenting common scenarios/ conditions under which valuation techniques and models fail. This will aid me in further refining my research method, since I would have a better idea of where to begin modifying the technique that I would have chosen. Finally, every technique has to have a context, and be tested against certain data. Because of this, my final subtopic needs to be on industries in which the valuation method is not frequently used (if I want to introduce a new method/ improvement for applying the technique), or is frequently used (if I want to improve upon a pre-existing method). This is where Ved's suggestion comes into play. Frequently, IPO financial data previous to their initial offering date is not available. This means that many techniques fail, and need improvement when being applied to IPO's. My research, specifically, seems to be going down the route of improving Price/Book ratio in the valuation of IPO's. As I read more about how other models have been modified when being applied to IPO's, I'll be sure to amend my topic and research area. For now, I just have to keep reading. (616)

Cheers,

Akash

Finally a Topic!!!!! (Kind of)

Welp, It's been a week and I've come a lot farther than I actually imagined I would. I actually have a topic now!!!!!!!!

Well, kind of. I know the general direction to look into at least. After my creative barf session last week and reading some of the comments left by other people in the research class, I realized that I should continue pursuing a project in finance along the lines of analyzing stock valuation measures.

But how? After looking through google scholar, I depressingly found a study from 2012 that essentially conducted the exact study that I had thought of. So that idea was out the window... After searching more through google scholar as well as Columbia and Wharton Business Journals, I found a path that was promising: improving stock valuation measures. To those that are reading this post right now, the topic might seem like another huge open area, but I've done some more research and found some possible leads into what I can do. I found a 2005 article titled "The Long Term Price Earnings Ratio" by Kieth Anderson from the University of Reading. In the study, Anderson managed to improve the incredibly common price/ earnings ratio, a valuation measure commonly applied to stocks, by simply managing to extend the measure of the companies earnings over long-term periods rather than short-term periods. Using this, Anderson attempted to explain the reason for the Price/ Earnings effect, a common effect in finance where stocks with lower price/ earnings ratio (value stocks) generally outperformed stocks with higher price/ earnings ratios (growth stocks) over the long term. A similar measure to the price /earnings ratio, the price / book value ratio, holds similar anomalies as found by Fairfield and Harris in 1993. This could actually lead me to a highly specific topic on applying a method similar to Anderson to the price/ book value to test whether the measure could be improved. In the coming week, I plan to perform more research upon the prevalence of analysis on the price/ book ratio in finance literature. Another possible lead, which is less developed that I am looking into is the CAPM, capital asset pricing model. Essentially, the model claims that riskier stocks that outperform risk-free stocks due to higher market volatility (beta). However, in a study done on this, over a long term period in the 1970's-90's, it was determined that beta was not a substantial reason for why these stocks outperformed risk-free stocks. I have not read much literature on the CAPM, so in the next week I should read more into this to test if improving the CAPM is a viable option.

For now, much of my work in parsing through the literature is determining an appropriate stock valuation method to improve, and once doing so, what aspects could possibly be troubling for the valuation method. In this avenue, I am looking at two papers by researchers Fama and French, which appear to be fundamental to the entire discussion that I am about to engage in. I will read these papers first thing in the coming week, and hopefully be able to focus my search on improvements in valuation methods further.

Going forward, I plan on searching different business journals, JSTOR, EBSCO, and google scholar for more finance articles pertaining to specific valuation measures, and ways to improve valuation measures. At this point, the purpose of my literature review seems to be establishing a valuation measure to analyze and an aspect of the measure to improve upon. Based on this, I can find articles more pertinent to the ideas I have expressed before, and more that are circulating through my head. Once I have read an article, I will go through any cited sources that are of interest and need to me, and in such a way, I can finally begin to construct a solid research topic and question.  (648)

Signing off,
Akash

Yay Research?

As I sit here typing up my first post, recovering from a five-week ramen-induced coma, I am beginning to realize that I only have an inkling of what I want to research about, so apologies if this post comes across as scatter-brained.

Going into AP Research, I have a few goals that I expect to complete for the class. First, I want to be able to develop my knowledge in a field that I already have a passion in. By this I mean that I want to begin to specialize in areas that I have already spent numerous hours at home and at school studying, and otherwise reading into, not a topic that is completely new and foreign to me. Second, I want to produce a complete, tangible result, which I can use to develop further connections and research opportunities. I recognize that finding a topic for doing such a thing would very likely be difficult, as results of the latter nature usually require years to successfully produce. Nevertheless, I believe that choosing a basic aspect of an unanswered or deep question of a particular field, could prove fruitful when going to college. Finally, I look forward to creating something with "real world applications". This "R" word that seems to be as ubiquitous in research proposals as stuffed animals on my bed, doesn't really take on the same meaning here as it does in other places. By real world applications, I mean something which I can use to build on in the future. "Real" in the sense that I would be able to refer to it later and build upon fundamental ideas expressed within it.

As you may have already guessed from my overly generic and unfocused view in this post, I really don't have much of an idea of what I want to do. Having just returned from math camp, I may look into Ramsey Theory, a topic which I covered extensively during the camp, and may end up working on later this year, aside from my AP Research topic. A large problem with mathematics in general, however, is its abstracted nature. Without any solid application to cling to, mathematical jargon can quickly become overwhelming, even for people who study math extensively, but have no knowledge in a specific field. Ramsey Theory may provide more application than most fields of math, as many arguments are based upon the coloring of certain sequences, but I would have to spend more time working out particular details of the simplification process. Another avenue of research that I could look into is stock valuation methods of companies during the great depression and the great recession. Using data (which I could obtain from a contact that I have in ASU), I could compare different valuation models for companies during the great depression/ great recession. After doing a quick search of the topic, I could not find any immediate results for a comparative analysis of the great recession/ depression. Using different valuation techniques, I may be able to suggest, at least in a very simplified manner, a preferable hedging strategy during recessions, or perhaps more generally, bear markets. Finally, my most general idea involves analyzing algorithms for stock trading, or perhaps more tangentially, refining search algorithms for determining ramsey numbers, or finding stronger upper bounds for them.

What is stated before is more or less a giant mental mess of the ideas that have been running through my head for the last few days, and about a week before. In the coming week, I hope to refine my ideas, narrow my choices to one topic, and begin exploring the topic literature for my area of inquiry. (611)

Jet-Lagged and Back from China,

Akash