Tactical asset allocation research

With the topic of presidential elections being an active topic in the news, I thought that you would be interested in some research conducted by Professor of Finance and Insurance Emery Trahan from Northeastern University College of Business Administration on Tactical asset allocation and presidential elections. Below is an abstract and an introduction from the research piece.

Over the past 75 years, common stocks performed better under Democrats, while U.S. government bonds and Treasury (T) bills performed better under Republicans. Using a mean-variance framework, we find that Democrats provide better risk-reward opportunities for portfolios weighted toward stocks, while Republicans provide better tradeoffs for portfolios weighted toward government bonds and T-bills. More recently, Republicans provide better portfolio opportunities than Democrats for a bond-stock allocation range typical of diversified investors. Moreover, when segmenting the value stock (style) premium by political party, we find that Republicans provide better risk-reward tradeoffs than Democrats for portfolios of value stocks, bonds, and bills.

The issue of tactical asset allocation (TAA) around calendar events, such as U.S. presidential
elections, is a controversial one for investors.1 At the heart of the matter is whether
or not the capital market is efficient in the sense that security prices fully reflect the
information content of known events. If so, then calendar events, such as presidential
elections, are irrelevant to current investment decision making because security prices
already reflect the information content of any perceived patterns or cyclicality. Conversely,
if investors evaluate the investment consequences of calendar events in a somewhat inefficient
market, or if the outcomes of presidential elections impact the returns on various asset
classes, then a series of questions emerge that are relevant to tactical investing.
Applied to U.S. presidential elections, a prominent four-year calendar event, these active
investing questions are as follows: Are asset prices impacted by a four-year presidential
election cycle? If so, what are the effects on different asset classes (stocks, bonds, bills, etc.)
according to the political party elected into office? More important, as presidential elections
come and go, should investors depart from their long-term or strategic asset allocation to
pursue a TAA posture?

Our initial focus is on whether asset returns vary by the political party in office. If asset prices
are related to presidential elections, then investors will want to consider information pertaining to election outcomes in making asset allocation decisions. Tactical investing around a four-year
election calendar would hold the possibility of earning superior returns (alpha). Anecdotal
evidence suggests that many investors follow expected election outcomes closely.

Bear Stearns arrests give a face to crisis

The arrests of two former Wall Street investment fund managers gave the nation a pair of alleged villains in the subprime mortgage crisis.

With their arrest Thursday on a nine-count indictment, two former investment fund managers for banking titan Bear Stearns are now the public face of the nation's mortgage finance meltdown.

The U.S. Attorney's Office in Brooklyn brought the securities and wire fraud charges against Ralph Cioffi, 52, and Matthew Tannin, 46, respectively the founder of two Bear Stearns hedge funds for ultra-wealthy investors and the funds' manager. The two were also charged with conspiracy, and the Securities and Exchange Commission brought civil charges against the pair Thursday.

The indictment alleges that the two deceived investors into believing the hedge funds, which held special mortgage bonds that were backed with now-toxic subprime home loans, were healthy when they knew clearly they were not. The end result was that well-heeled investors like the one described in the indictment, Major Investor 1, collectively lost more than $1.5 billion.

Despite that assessment, the pair allegedly told investors the market downturn was an ''awesome opportunity'' to buy, when in fact Cioffi transferred $2 million of his own money out of the fund, allegedly without disclosing that to investors who believed the pair had their own money at stake, too.

''The Bear Stearns indictments present a remarkable trail of e-mails regarding what the Bear Stearns managers knew, when they knew it, and what they told investors. The tale the alleged emails tell, if true, should make an investor's blood run cold,'' Kurt Eggert, a law professor at Chapman University in Orange, Calif., said in a written analysis of Thursday's indictment.

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JustLuxe Partners With RedButler

JustLuxe.com, an online publication focused on the luxury market, has teamed with Red Butler, the global concierge company. The publication will deliver content directly to Red Butler members via the "Luxury Lounge" on RedButler.com. "This is a valuable step in expanding our brand by establishing strategic content partnerships with Red Butler and other leading companies in various segments of the luxury market," said Gilbert Gautereaux, president of LuxeMont, JustLuxe.com's parent company. "I hope their sophisticated global audience enjoys our content, and we look forward to introducing Red Butler to our business and consumer audience in the future." --Tanya Irwin

United cuts deal to lower expenses

Continental partnership also aims to benefit fliers

United Airlines and Continental Airlines will link their flights and mileage reward programs together as part of a broader partnership meant to combat steep fuel prices.

The airlines, which announced the deal Thursday, say the move will help them lower expenses, boost revenue and provide their customers with more flight options.

The agreement will "redefine the industry by going forward in a way that is beneficial for our airlines, employees, shareholders, customers and the communities we serve," Glenn Tilton, United's chief executive officer, said in a recorded message to employees.

By connecting passengers to each other's flights, United and Continental could help blunt the impact of those capacity cuts. But some observers question how much it will bolster the financial health of the two airlines.

"This could help (revenues), but it is not going to do much for their costs," said Harlan Platt, a turnaround specialist and finance professor at Northeastern University in Boston. "To achieve real cost savings will require more than an alliance. My opinion is that this is a logical first step on the way to an ultimate merger between the airlines."

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Advance look at chapter on Russian MNEs

I thought you might be interested in seeing an advanced copy of a chapter on Russian multinationals written by two business school professors from the College of Business Administration at Northeastern University who are expert on Eastern European economics in general and Russia in particular. The proposed book title (scheduled to come out in late 2008) is Emerging Multinationals from Emerging Economies. Below is the introduction to the chapter entitled Russian Multinationals: Natural Resource Champions, written by Daniel J. McCarthy and Sheila M. Puffer. Profs. McCarthy’s and Puffer’s bios appear after the introduction, which is provided below. Please let me know if you’d be interested in seeing the entire chapter, or interviewing the professors on any of their ideas.

INTRODUCTION
Of the 63,000 multinational corporations in the world in 2006 (Lodge & Wilson, 2006), a relatively small, but increasingly visible number were from Russia. This was despite the country having ranked only 62nd out of 125 countries on the 2006-07 Global Competitiveness Index (World Economic Forum, 2006). Russia’s ranking fell from 53rd in 2005 due in large part to the increasingly pervasive role of the state in the economy. Still, the importance of these large multinationals is underscored by the fact that small and medium-sized enterprises in Russia accounted for only 12 percent of the country’s GDP in 2006 (Fallico, 2007). The future competitiveness of MNEs, however, will depend substantially on continued positive developments in the Russian economy in which they play so important a part. And it is clear that their competitiveness will also be determined in large part by the role the government plays in the economy.

The chapter begins with an overview of the Russian economy, including benefits as well as dangers like the Dutch disease, of its energy-driven character. The role and priorities of the Russian government in the economy are then discussed, including government ownership of key MNEs during the Putin administration. The next section traces the rise of Russian MNEs as well as the industries in which they operate. Corporate growth strategies for building international presence are the focus of the next section, which includes not only MNEs’ competitive strategies, but also how successful firms overcame late-entry challenges, the competitive advantages they possess, and obstacles to their development emanating from the national context in which they operate. This section is followed by one that discusses the sustainability of that presence. How the rise of these MNEs has changed global dynamics is the next topic addressed. The chapter concludes with implications for various parties of the entrance of Russian MNEs into the global economy.

IMPLICATIONS – The end of the chapter outlines implications of Russian multinationals’ global strategies on the following:

· Emerging Market Firms
· Western/Japanese MNEs
o Natural Resource-reliant MNEs
o Natural Resource-based MNEs
o Nonnatural Resource-based MNEs
· Russian Public Policy Makers

Daniel J. McCarthy, Alan S. McKim and Richard A. D'Amore Distinguished Professor of Global Management and Innovation, Entrepreneurship and Innovation Group. Professor McCarthy is cofounder and codirector of Northeastern’s highly ranked High-Technology MBA program. He has been a member of the editorial board of The Academy of Management Executive, and has more than 80 publications, including four editions of Business Policy and Strategy, as well as Business and Management in Russia, The Russian Capitalist Experiment, and the recently published Corporate Governance in Russia. Professor McCarthy is the lead director of Clean Harbors, Inc., and has consulted in the US and Europe for more than 40 companies. Early in his career, he was president and cofounder of Computer Environments Corporation and served as a director on its board, as well as the board of its sister company, Time Share Corporation, and other private company and nonprofit boards. Professor McCarthy holds AB and MBA degrees from Dartmouth College and a DBA from Harvard University. He is a Fellow at the Davis Center for Russian Studies at Harvard University. Professor McCarthy ranks as the #1 most published author (tied) in the Journal of World Business from 1993-2003, and has been identified as one of the top 5% of researchers in international business in a Michigan State University study of publications in the top international business journals from 1996-2005. He is also one of the top three scholars internationally in business and management in Russia and Central and Eastern Europe, based on a Journal of International Business Studies article analyzing publications in 13 leading journals from 1986-2003.

Sheila M. Puffer, Professor, International Business and Strategy Group. Professor Puffer is a fellow at the Davis Center for Russian Studies at Harvard University, and recently served as program director of the Gorbachev Foundation of North America. She has been recognized as the #1 scholar internationally in business and management in Russia, the former Soviet Union, and Eastern Europe according to a 2005 Journal of International Business Studies article analyzing publications in 13 leading academic journals from 1986-2003. Professor Puffer also ranks as the #1 most published author (tied) in the Journal of World Business from 1993-2003. She has been identified as one of the top 5% of researchers in international business in a Michigan State University study of publications in the top international business journals from 1996-2005. She was also ranked among the top 100 authors who published in Administrative Science Quarterly from 1981-2001. Professor Puffer has more than 125 publications, including over 50 refereed articles and 11 books including Behind the Factory Walls: Decision Making in Soviet and US Enterprises, The Russian Management Revolution, Managerial Insights From Literature, Management International, Business and Management in Russia, The Russian Capitalist Experiment, International Management: Insights From Fiction and Practice, and Corporate Governance in Russia. She served as the editor of The Academy of Management Executive as well as a member of the Academy’s Board of Governors from 1999-2002. She worked for six years as an administrator in the Government of Canada and has consulted for a number of private and nonprofit organizations. Professor Puffer earned a degree from the executive management program at the Plekhanov Institute of the National Economy in Moscow, and holds BA (Slavic Studies) and MBA degrees from the University of Ottawa, Canada, and a Ph.D. in business administration from the University of California, Berkeley.

Thoughts on Pepsi Acquisition of Aquafina

With Pepsi’s recent announcement that their popular Aquafina water brand comes from tap water, I thought I would share some additional thoughts from Gloria Barczak, Professor of Marketing and head of the marketing department at Northeastern University’s College of Business Administration:

“Many consumers already know that Aquifina and Dasani are purified water from public sources. For those that don't know this fact, they may be turned off from future purchases of these brands now that they know the truth. There are some consumers who never buy such brands; opting instead for spring water.”

“Overall, I think the impact of clarifying the source of the water will be minimal either way. Consumers buy bottled water for two primary reasons: convenience and concern about public water with the former being the more important motivator.”

2 Wall Street execs first to face charges for sub-prime chaos

WASHINGTON — With their arrest Thursday on a nine-count indictment, two former investment fund managers for banking titan Bear Stearns are now the public face of the nation's mortgage finance meltdown.

FBI agents made the first high-level arrests of Wall Street executives in connection with the nation's sub-prime meltdown, parading the handcuffed fund managers in front of cameras as the sun came up over Manhattan.

Despite that assessment, the pair allegedly told investors the market downturn was an "awesome opportunity" to buy, when in fact Cioffi transferred $2 million of his own money out of the fund, allegedly without disclosing that to investors who believed the pair had their own money at stake, too.

"The Bear Stearns indictments present a remarkable trail of emails regarding what the Bear Stearns managers knew, when they knew it, and what they told investors. The tale the alleged emails tell, if true, should make an investor's blood run cold," Kurt Eggert, a law professor at Chapman University in Orange, Calif., said in a written analysis of Thursday's indictment.

Although the case involves rich investors losing big sums, it has a great importance for ordinary Americans. It's a milepost in an unfolding national saga.

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Calif. Gay Marriages Raise Legal Questions Nationwide

The laws governing marriage nationwide are a complicated state-by-state patchwork, with little or no interstate recognition. The recent ruling in California legalizing same-sex marriage adds another layer of complexity to the legal landscape. Legal experts examine these questions.

To understand the legal questions this raises, we turn to two professors of law: John Eastman, dean of the Chapman University School of Law in Orange, California; and David Cruz of the University of Southern California School of Law.

California decision will ripple

RAY SUAREZ: Professor Eastman, this being the largest state in the union, just by changing its own law does it immediately change the family law legal landscape across the country?

JOHN EASTMAN, Chapman University: It does not, but the implications are different than the Massachusetts case of five years ago. Massachusetts had an in-state residency requirement that California does not have.

And that means there will be an incentive for people to travel to California from across the country and then return to their home states in much larger numbers than existed just with the Massachusetts decision.

RAY SUAREZ: Well, doing what? If 26 states say that they won't recognize it -- in fact, the Defense of Marriage Act tells them that they're perfectly allowed not to recognize those marriages.

JOHN EASTMAN: Well, they are, if the Defense of Marriage Act is constitutional, if it's not challenged in the courts, if various state prohibitions are not challenged in the courts. And I fully expect in very short order that those things will all be challenged in the courts.

And then the state courts and, ultimately, the federal courts will have a big issue on their hands. Are they going to uphold those statutes?

Remember, California had a statute, as well, Proposition 22, adopted by roughly 70 percent of the people in this state just eight years ago. But the Supreme Court struck that down last month.
And, you know, there will be a big push in many of the other states to strike down their statutes and even constitutional provisions, as well.

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Thoughts on Apple's Share Increase

As you may well know, Wall Street reported Apple’s shares surged 6.5% after reporting a 73 percent earnings growth. I thought I would share some thoughts from Gloria Barczak, Professor of Marketing and head of the marketing department at Northeastern University’s College of Business Administration.

Apple's quarterly records suggest two things: 1) as Apple removes barriers posed by its proprietary technologies, it's ease of use, simplicity , and sleek product designs attract more users and 2) success in consumer electronics does not happen immediately.

Making the Mac more compatible with Microsoft's operating systems and applications broadens the appeal of the Mac to a larger target market. This fact combined with the benefits of the Mac itself, seem to account for the incredible growth rate in Mac sales.

Though sales of the iPhone are not what some expected, it is still too early to say whether or not this product will be a success. However, looking at Apple's past history and the consumer electronics industry in general, it can take a while for a product to take-off. If Apple fixes some of the deficiencies of the iPhone such as compatibility with corporate e-mail systems, sales are likely to increase. Apple never sits still with its products; it is always improving and adapting them to better need customer needs and I expect this will happen with the iPhone too.

Northwest to reduce jobs, flights

But airline CEO says cost-saving cuts still may not be enough if oil prices don't fall soon.

Northwest Airlines Corp., which plans to merge with Delta Air Lines by the end of this year, will reduce its seating capacity by up to 9.5 percent beginning this fall and will cut an unspecified number of jobs as it tries to cut costs to cope with skyrocketing fuel prices, the company announced late Tuesday.

Layoffs are possible, but the airline said it will "first look to voluntary separation programs such as early outs" to reduce its headcount.

Airline analysts agreed.

"This is by far not enough," said Harlan Platt, an economics professor focusing on the airline industry at Northeastern University in Boston. "This is a situation where they're bleeding all over, and just using a very small Band-Aid."

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More Loan Forgiveness Sought

Group Is Lobbying To Extend Tax Relief For Homeowners

A new law to give tax relief to homeowners who refinance a mortgage doesn't go far enough for some.

The Mortgage Forgiveness Debt Relief Act of 2007 gives a tax break to a homeowner when the mortgage lender forgives debt used to buy or improve a home. Now, a group is lobbying to extend those breaks to cover money received in a mortgage refinancing that is later used to pay medical bills, education loans or other nonhome costs.

Critics said the effort rewards people who use their homes as piggybanks by using the equity to secure loans. Advocates of the change, though, said it is needed to help those now facing foreclosure who have been hurt by subprime loans and falling housing prices.

A double whammy for many in the current housing market is a home that has lost value together with a loan that has become too expensive, according to Kurt Eggert, a professor of law at Chapman University School of Law in Orange, Calif., and a former member of the Federal Reserve Board's Consumer Advisory Council. "I think for people who are trying to save their homes, to have an additional tax burden is very problematic," said Mr. Eggert.

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Dear China: I Am Really Sorry If I Have Offended You

Below is the text of a “tongue-in-cheek” letter to China written by Dr. John Hall, a professor of law at the Chapman University School of Law.

Dear China: I Am Really Sorry If I Have Offended You

John A. Hall


Dear China, I wish to apologize to you. I have said some mean and hurtful things recently, and I think I may have offended you. I really am sorry.

I think I may have embarrassed you when I discussed with my wife your melamine-tainted pet food. I’m sure it was in fact delicious. I’m sorry that I raised my eyebrows when I read of the Chinese toothpaste laced with anti-freeze. After all, what’s a little diethylene glycol between friends? As to my negative comments while searching to see if we own the Elmo, Big Bird, Dora, Thomas the Tank Engine, or any of the other millions of Chinese-made toys recalled because they contain dangerous levels of lead paint, I can only say once again how sorry I am. The paint is, I am sure, bright and cheerful.

Similarly, I can only apologize for thinking negatively of you merely because of the formaldehyde in the textiles, the improperly wired electric heaters, the dryers that can electrocute, the lamps that might burst into flames, the batteries that can melt, the bike frames that fracture, the extension cords that shock, the wall sconces that have exposed wiring, the explosive oil heaters, the flammable baby clothes, the dangerous circular saws, the collapsing stools, the faulty tires, the lead jewelry, the deadly cribs, and the collapsing recliners. I am worried that my body language may have caused you offense.

I would also like to take this opportunity to apologize to you, China, for thoughtlessly criticizing your record on human rights. I was imposing my own values on you, and I am sorry for my thoughtlessness. I am sorry for being concerned that the Chinese government continues to violate the rights of journalists in spite of assurances to the International Olympic Committee that the 2008 Beijing Olympics would foster improvements in human rights and of specific pledges of wider media freedoms. Did I upset you when I discussed with friends the Chinese government’s ongoing harassment of HIV/AIDS activists and surveillance of AIDS support groups? As to my comments about the Chinese government’s suppression of Tibetan religion and culture, and the oppressive occupation of Tibet, what can I say? Did I really describe these things in negative terms? I am really sorry if that offended you. You also probably heard my cry of frustration from 10,000 miles away when on Wednesday you blocked an official condemnation in the United Nations of the atrocious regime in Myanmar. How very rude of me to raise my voice in such a fashion.

Similarly, I fear I may have upset you when I expressed concern that China is on its way to becoming the world’s great polluter, whose industrial expansion is coming at the cost of environmental degradation the scale and speed of which are unprecedented in global history. Did I cause you offense when I mentioned that the China National Petroleum Corporation is securing much of the world’s natural resources to feed the largely unregulated Chinese industrial expansion? Perhaps I was insensitive when I said that China is undermining democratic reforms internationally, providing economic assistance and political support to rogue regimes in exchange for access to oil and mineral reserves? I can only say once again how sorry I am. Did I really call the Chinese government’s campaign to extend its economic and political influence throughout Latin America, Africa, and Asia as being in conflict with the interests of the United States? If so, I apologize. What was I thinking? I may even have expressed concern about the continued suppression of workers’ rights, the artificial undervaluation of the Chinese currency, the absence of genuine attempts to preserve intellectual property and suppress rampant piracy, the leverage gained by a sustained policy of investment in the dollar and US government bonds, the hacking of Pentagon computers, and the potentially destabilizing impact of the rapid expansion of the Chinese military. What was I thinking?

I would also like to apologize for my comments critical of your pal, Mattel, the world’s largest toy maker. When I read that Thomas Debrowski, Mattel’s executive vice president for worldwide operations, had apologized to you for harming the reputation of Chinese manufacturers by ordering product recalls of dangerous toys, I jumped to the unwarranted conclusion that this was the craven groveling of an American corporation desperate to maintain its access to cheap Chinese factories. I was mistaken, and I am sorry if I hurt your feelings. Now can we be friends? Let’s hang out this summer, grab some chips and dip and watch the Olympics. Though, if you don’t mind, let’s make sure the snacks are not from China. Just to be on the safe side. No offense.


Dr. John A. Hall is an Associate Professor of Law at Chapman University School of Law in Orange, California, and Director of the Center for Global Trade & Development.

The iPhone's Impact on Rivals

As Apple looks to make further inroads with its soon-to-be-released 3G device, both handset makers and wireless carriers may suffer.

It didn't take Apple ( AAPL) long to make its mark on the mobile-phone industry. In the first year after the introduction of the iPhone, Apple grabbed handset share from rivals including Research In Motion ( RIMM), while AT&T ( T), the only authorized U.S. provider of iPhone service, used the device to lure customers from Alltel and T-Mobile USA. Imagine the ripple effect of a cheaper, faster, more feature-packed version of the iPhone.

Not only has Apple whacked as much as $200 from the iPhone price and made it capable of working on a faster wireless network, but the company is also adding a wide range of software features that may make it more appealing to consumers and business users alike. The new iPhone is due in July.

In the past year, U.S. wireless carriers had scaled back on the subsidies that resulted in lower handset prices in exchange for long-term wireless service contracts. But now that AT&T is boosting its subsidy of the iPhone, chances are other operators will follow suit—especially on iPhone copycats. "Most people want the iPhone, just as they want the iPod and not some other MP3 player," says Gloria Barczak, professor of marketing at Northeastern University. "People want the real thing." Consumers will need an incentive to settle for something other than the iPhone, she says. The new iPhone 3G will sell for $199 to $299 with a two-year contract from AT&T.

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The Back Vine

FROM FORBES LIFE

Golf pros take a swing at the wine game.

Normally you'd figure that any PGA Tour player accepting high-fives for scoring in the 90s must have had a sip of something strong. A group of current and former pros, though, have taken winemakers for playing partners and adopted the wine critics' 100-point scale as a new measure of being on par.

The idea is simple enough: Golfers bring the fame, winemakers bring the expertise and together they alchemize the mix into a golden brand. Greg Norman has been at it for nearly two decades. More recently, Arnold Palmer, Mike Weir, Nick Faldo, John Daly, Ernie Els, Retief Goosen and Gary Player have all jumped in, the latter releasing his first bottling this spring.

On the whole, connoisseurs give high marks. Els' and Norman's have received the best scores in the wine press, and other projects like Mike Weir's have had a warm reception as well.

"They have a legacy attached to them," adds Mark Russo, a longtime wine writer and golf enthusiast who founded Angel's Share, a food and wine events company in California. "If you're truly a golf aficionado, you probably don't care; it's a nice souvenir, a great keepsake and may actually increase in value with an autograph. But for the true wine geek, it's what ends up in the glass and not what's on the label that counts. It can't be just a pure business deal."

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New Method for Ranking Driving Performance on the PGA Tour

I thought you might be interested in taking a look at a new research paper entitled A New Method for Ranking Total Driving Performance on the PGA Tour, written by three PhDs and business school professors at Northeastern University. Below I provide the abstract, introduction and conclusion to this piece, as well as short bios of the three authors. If you’d like to receive a copy of the research, or talk to one of the authors, I’d be happy to facilitate an interview.

The Professional Golf Association Tour (PGA Tour) currently ranks its players according to their overall Total Driving performance by adding together the individual ranks given to each golfer for their average driving distance and for their driving accuracy percentage. However, this widely used and reported measure is inappropriate because it is based upon the addition of two ordinal-scaled measures in which the underlying differences between successive ranks are not equal. In this paper, we propose a new method for ranking golfers in terms of their overall driving performance. The method eliminates the drawbacks of previously reported measures, including the one used by the PGA Tour. Using the new methodology, we re-rank all PGA Tour golfers for the 2005 season and compare these ranks to the “official” ranks reported by the PGA Tour. In some cases, large differences in players’ rankings existed. The reasons for these large differences are then discussed.

Introduction
In recent years, numerous statistical analyses have been conducted in an attempt to assess the relative importance of various shot-making skills on overall performance on the PGA Tour and among amateur golfers (Shmanske, 2000; Dorsel and Rotunda, 2001; Engelhardt, 1997 and 2002; Callan and Thomas, 2004 and 2006; and Wiseman and Chatterjee, 2006). While most of the measures that have been used in these analyses have been well-defined and widely accepted, there is one performance statistic, “Total Driving,” that has not been well-defined. This particular statistic, which combines a golfer's (i) average driving distance and his/her (ii) driving accuracy percentage, has been operationally defined in numerous ways, but no methodologically sound measure has emerged to date. This includes the measure now being used by the PGA Tour.

In this paper, we propose a new statistical measure based upon standardized z-scores for ranking golfers according to their Total Driving performance. This new measure eliminates the methodological drawbacks of previously developed measures. Using this new measure, we re-rank PGA Tour golfers on their Total Driving performance during the 2005 season and compare these rankings to the "official" PGA Tour rankings for that season.

We first examine the evolving nature of the relationship that has existed between driving distance and driving accuracy on the PGA Tour over the last sixteen years (1990-2005). We then focus our attention on alternative ranking methods that have been proposed and discuss the necessity of and the rationale for a new composite measure of Total Driving performance. Following this, we describe the new measure and apply it to the 2005 PGA Tour season. These new rankings dramatically alter the previous ranking of many golfers on the tour. The reasons for the differences in rankings will be explored.

Summary

The proposed method for ranking golfers according to their Total Driving skill takes into account the magnitude of the differences that exist between players on each of the two driving dimensions. The current PGA Tour method does not. The proposed method also takes into account the strong negative relationship that exists between driving accuracy and driving distance. This negative relationship is reflected in the new conditional standardized z-score. As a result, this new method gives a better overall reflection of the true Total Driving performance of PGA Tour golfers than does the current ranking system. Computationally, the proposed method is slightly more involved than other existing methods, but this is not a significant factor today.

It should be noted that this methodology can be applied in other areas in which an overall ranking is desired based on two correlated factors, which have different units of measurement and need to be combined in some way to provide an overall ranking.

"iPhone Killers" gird their loins for battle

As the launch of the 3G iPhone approaches, BusinessWeek reports that competitors face the same problem they did in July of last year.

"Most people want the iPhone, just as they want the iPod and not some other MP3 player," says Gloria Barczak, professor of marketing at Northeastern University. "People want the real thing."

The difference between now and then is that the real thing will cost less, at least up front. Higher costs for data plans and messaging actually means the 3G iPhone costs more over the life of the contract with AT&T. Nonetheless, that new sticker price is putting pressure on rival carriers "to increase their own mobile handset subsidies, boost marketing budgets, and reduce prices on some services, analysts and industry insiders say—all likely to mean slimmer margins."

Unfortunately, none of those business strategies are about the product and the user experience, which leaves it up to the handset makers to challenge the iPhone.

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Continental locks in more of its fuel costs

Continental Airlines has increased its fuel hedges for the remainder of this year and next as oil prices remain near record levels.

Houston-based Continental is making the move at the same time it has unveiled plans to cut the number of flights it operates worldwide because of fuel costs.

Hedges act like insurance against higher prices. The practice is a strategy to minimize exposure to an unwanted business risk.

They also can lock a carrier into buying a certain amount of fuel above market prices, said Harlan Platt, a finance professor at Northeastern University's business school who follows the airline industry.

"This is a little bit like buying car insurance after you wreck your car," Platt said Friday. "Continental will most likely be losing money on its hedge instead of benefiting like Southwest has."

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B-school prof comments on "free to play" video game model

At the end of 2005, Chinese online gaming company Shanda Interactive Entertainment changed to a new revenue model: they started allowing people to play games for free, charging users only for certain features. For example, if you want to use powerful weapons to be more successful in the game, you have to pay for them. Under the old traditional model, users were charged on a time basis: the more they played, the more they paid. The new model has attracted new customers.

"This is the same model as web sites use in providing information/services to customers. Low levels of service are free but if you want higher levels of service, you have to pay," says Gloria Barczak, a marketing professor at the College of Business Administration at Northeastern University who studies marketing issues in the consumer electronics industry. "For example, 4shared.com has basic storage services that it offers for free to anyone online. For more space and greater protection, you have to pay. This is an interesting model to apply to online gaming but why not? Currently, in order to play some video games online, you must first have purchased the CD-Rom (e.g., Halo). So again, this just seems to be an extension of this type of model. The caveat is that customers must be informed that they will be charged for certain types and levels of weapons. If they are not clearly informed, Shanda could run into trouble."