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NEWS
Clips
Dividend Yield Model Mystery
Eugene Fama, M.B.A. ’63, Ph.D. ’64, Robert  R. McCormick Distinguished Service Professor of Finance, was featured in the New York Times about the dividend yield model, which enigmatically stopped working about a decade ago. Once one of the most respected valuation models on Wall Street, it now seems completely irrelevant. Its mysterious demise is typically attributed to a change in the way corporations distribute money––the emergence of corporate share repurchase programs resulted in record low dividends. However, Fama contends that this is not really an answer, since, according to research by him and Kenneth French, a former GSB faculty member who now teaches at MIT, at least half the decline in the dividend yield over the last two decades must be attributed to factors unrelated to the repurchase program trend. In particular, Fama and French have drawn attention to the rising percentage of unprofitable companies that have rarely paid dividends.
Great Expectations
A new working paper by Eugene Fama and Kenneth French, “The Equity Premium, ” was cited in the Economist. In the paper, Fama and French examine the relative performance of American shares between 1872 and 1999 by estimating investor expectations using a model based on how much investors could reasonably expect dividends to grow in future years. Their findings suggest that “a large part of the equity premium is not puzzling at all: investors simply got lucky and earned far more than they had expected. ”
Nonplanning for Retirement
Brigitte C. Madrian, associate professor of economics, was quoted in a Chicago Tribune article about forced savings for retirement. According to Madrian, many employees who are automatically enrolled in 401(k) plans believe the default plan’s smaller contribution and conservative investment choices are sufficient and represent their bosses’ best advice as to what they should do. Her comments also appeared in Newsweek.
Inefficient Markets
Economists once swore by the  efficient markets hypothesis, which contended that financial markets process all new information about securities so efficiently that no one investor could get a consistent advantage over others. Recently, however, that hypothesis has been increasingly challenged by a growing number of opponents who argue that new evidence shows financial markets aren’t really so efficient after all. In a New York Times article, Richard Thaler, Robert P. Gwinn Professor of Behavioral Science and Economics, was named one of the pioneers who first dared to challenge the old orthodoxy. The results of more sophisticated research begun in the 1980s have indicated that human behavior––often irrational––affects stock prices.
Election Results Boost Mexican Stocks
“The markets are reacting  to the prospect of great hopes for change in Mexico, ” said professor of economics Randall Kroszner in a Chicago Tribune article. Former Coca-Cola executive Vicente Fox swept Mexico’s longtime ruling party out of office in the latest elections. According to Kroszner, “Fox’s economic policies aren’t much different than those proposed by the PRI. But this cleans out the old sense of alliances and the old-boy network. ” Key Mexican stocks, including Telefonos de Mexico, Grupo Televisa, Grupo Elektra, and Coca-Cola FEMSA, recently gained points on the market.
The Priceline Conundrum
“The Priceline dilemma, if they can’t secure partnerships, becomes one of increasing costs to them and decreasing benefits to their consumers, ” Sam Peltzman told reporters at Time magazine. An article about the downside to the Priceline model claimed that Priceline “has come to represent both what is transformative and what is just plain annoying about the Web. ” Although Priceline built a brand by doing away with fixed prices, some customers are dissatisfied with supposed “hidden charges, weird flight itineraries, and lousy customer service. ” Peltzman is Sears Roebuck Professor of Economics and Financial Services.
Building Trust in the Global Market
Steven Kaplan, Neubauer Family Professor of Entrepreneurship and Finance, spoke at the Forum for Trust in Online Trade’s inaugural summit conference in San Francisco. The purpose of this year’s event, titled “Linking the Virtual to the Physical: Building Trust in the Global Market, ” was to gather 200 international leaders of the new economy in order to begin developing confidence-building international standards for B2B electronic commerce. AIG, Cambridge Technology Partners, and TradeCard cosponsored the event. Announced by the Dow Jones News Service, the Forum for Trust in Online Trade was founded last May as a global trade organization dedicated to addressing the issues of reducing risk and fostering trust in the expanding B2B e-commerce market.
Educational Expansion
Many reporters from the U.S. and international media covered the opening of Chicago GSB’s Executive M.B.A. Program Asia last fall. The New York Times featured photographs of Chicago GSB’s Singapore campus on the first page of its September 20, 2000, business section. The article also examined why top North American and European business schools are expanding their operations to Asia. “If you’re going to be a major business school, we think it’s important that you be represented in the major economic cities of the world,” said Deputy Dean Gary Eppen.
The Sky’s the Limit
With regard to business ambitions and e-commerce possibilities, Steven Kaplan tells his students to “aim as high as you can possibly imagine, and then aim higher. In today’s environment, it is amazing how far you can go with a good idea and a strong drive to implement it. ” His remarks were included in a Knight-Ridder Tribune Business News article about how business schools are struggling to quickly create e-commerce curricula.
Uncertain Future of B-Schools
“The M.B.A. industry is overbuilt, ”  and new methods of corporate training will “wipe out” many of the 900 programs in the U.S. that award about 100,000 M.B.A. degrees each year, Dean Robert S. Hamada told USA Today. E-learning and rapidly changing technology are markedly influencing the future course of business education and posing some threat to the brick-and-mortar model of prestigious business schools. For the most part, however, the deans of these schools say they recognize the threat and “are on top of it, ” according to the article.
Western M.B.A. Schools: A Threat to Asia?
The GSB’s Singapore campus received attention in a cover story in Asia Week. The article addressed the question, Are Western M.B.A. schools a threat to Asia? William Kooser, associate dean of the Executive M.B.A. Program, was quoted in the story. He said that the Singapore location enables an exchange between three continents and thereby “expands the network. ” But why not set up in Asia directly? “We always came back to the fact that we wanted to offer a University of Chicago degree. To do that, we need to have it taught by our faculty, ” Kooser said.––E.T.
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