Journal of
Financial Education

Implications for Enhanced Portfolio Performance Based on the Information Content of Short Interest

In this paper, we review the mean-variance portfolio theory literature that supports short selling as an active portfolio management tool and the empirical literature that provides evidence of active short sellers having superior information about overpriced securities. What may not be clear is exactly how that information can be detected and analyzed. We, therefore, review the theoretical and empirical literature that investigates the information content of short interest. Finally, we document several methods used by portfolio managers to target short sale candidates.

Pages 1-12

This paper has two objectives: first, it makes a case for the implementation of effective finance pre-courses in business schools. Based on findings from the learning theory and educational psychology literatures, a strong argument emerges that a well designed finance pre-course can significantly increase student performance in business school finance. By addressing differences among students in attributes such as prior knowledge, interest, and anxiety, well designed pre-courses can make main course finance teaching more effective and satisfying for students and instructors. As business schools attract an increasingly diverse student body, the importance of finance pre-courses is likely to continue to increase. The second objective of the paper is to share experiences in designing and implementing finance pre-courses. The paper discusses recommendations, pitfalls, as well as issues related to online pre-course instruction and effective pre-testing. The overall conclusion of the paper is that finance pre-courses are effective, inexpensive, and relatively easy to implement if some simple guidelines are followed. Several resources for pre-course design are recommended.

Pages 13-29

We develop a classroom exercise for MBAs and advanced undergraduates that requires student teams to structure an appropriate payout policy for a fictitious firm and present their proposals to other student groups. The teams base their recommendations on the classic concepts that determine payout policy and recent developments that have influenced corporate practice, such as the substitution of share repurchase for regular cash dividends and the reduction of the tax rate on dividend income in the U.S. The exercise includes an optional extension where students conduct a financial analysis of Microsoft before and after their dividend initiation announcement.

Pages 30-55

This paper offers a strategy for teaching students in Financial Institutions and Markets (FIM) courses to think like finance professionals by giving them the same kinds of ill-structured problems addressed in Fed publications. Students in FIM classes too often fail to integrate their knowledge, see the connections among textbook chapters, or apply course concepts to real world questions. In this paper, we provide a rationale for incorporating a survey and discussion article from a Fed publication into FIM courses in order to help students transition from lower to higher cognitive levels based on Bloom’s taxonomy (Bloom, 1956). We particularly focus on Bloom’s "evaluation" level, which demands the highest critical thinking. We demonstrate a method by which finance instructors can incorporate a Fed publication into the classroom to achieve these goals and offer a detailed example of a sequenced assignment that draws students into deep levels of critical thinking and arguing. We also provide a companion grading rubric for ease of implementation and a list of Fed publications well suited for advancing this goal.

Pages 56-73

Team projects are a staple in many finance courses, however they can be vexed by peer participation issues. We propose slight alterations to team project case content, delivery and peer evaluation methodology that we think alleviate some peer participation problems. The team project we initiated in the introductory finance class requires students to analyze financial ratios, and calculate the WACC, EVA, and MVA for two companies, reinforcing course coverage of these topics. The case develops student’s research skills by requiring them to find most of the source information for the project online. To address peer evaluation issues the team project was divided into sub components, the peer rating methodology was simplified, self evaluations were required, extreme variability in peer ratings required documentation, and team members had the option to dismiss a non-performing team member. Forcing team members to address participation issues beginning early in the semester and lasting for several iterations improved the quality of the team project and gave team members experience in group dynamics issues that they will most likely encounter in the work force.

Pages 74-87

The International Studies Office at Northern State University (NSU) helps U.S. students arrange programs to study in other countries and also aids foreign students in coming to NSU to study.¹ Tuition for study abroad programs is negotiated with the host institutions well in advance of the students’ payment, introducing considerable exchange rate volatility risk. This case study requires the reader to determine the degree of this risk and possible solutions for hedging the risk.

Pages 88-99