Alpha Beta Group

  In this post, we examine the historical developments of the efficient market hypothesis (EMH). We also discuss questions surrounding the EMH. Historical Development Random Walk In mathematics, the random walk concept describes a path that consists of a succession of random steps. The process is completely memoryless, meaning each step the walker takes is independent of their previous steps. Early Development In 1900, a French mathematician, Louis Bachelier, published his doctoral thesis, “The Theory of Speculation”. It was a pioneering work in the development of financial mathematics. The work introduced a model in which the changes in stock prices could be viewed as a random walk. In other words, future price movements are unpredictable based on past trends. What insights did Bachelier have in order to come up with a model of stock prices based on a random walk? In his time, financial markets were certainly nowhere as developed today in terms of size as well as sophisticated mar...

In this post, we examine the events that led to the collapse of First Republic Bank (FRC) in Q2, 2023.  Balance Sheet, Q4 2022 First, we look at the balance sheets of First Republic Bank at the end of Q4, 2022, as reported on FRC’s Q1 2023 earnings release (FRC Investor Relations). Assets Liabilities Total Loans: $166.084 billion Bonds, held to maturity: $28.348 billion Bonds, available for sale: $3.347 billion Cash: $4.283 billion Other: … Deposits: $176.437 billion Short-term borrowings: $6.7 billion Long-term FHLB advances: $7.3 billion Other: Total Assets: $212.639 billion Total Liabilities: $195.193 billion Bank Capital: $17.446 billion At the end of Q4, 2022, the loans to deposits (LDR) ratio of FRC was: 166.084/176.437 = 94.1 %. This was higher than the safer range of loan to deposits ratio between 80% and 90% (Investopedia). A higher LDR means the bank may not have enough liquidity to cover unforeseen funding requirements. Uninsured Deposits Just looking at FRC’s Q...

Vietnam has a bank centric financial system, as is common in developing economies. To promote growth and complement the banking system, the government has been promoting the development of capital markets in recent years. This post outlines a brief history of the financial system in Vietnam and discusses the common financing mechanism for businesses in Vietnam. A brief history of Vietnam’s financial system 1975-1986: Centrally planned economy The Vietnam war ended in 1975, and the unification of North Vietnam and South Vietnam created the Socialist Republic of Vietnam, which followed the Soviet model of a centrally planned economy. The Vietnam National Bank was established in 1951 and renamed to State Bank of Vietnam in 1961 (SBV, n.d.). It served as both a central bank and a commercial bank, overseeing all the financial system. Other financial institutions were largely nonexistent and there were almost no private enterprises in the country. ...