P2P No Bank

Finally it is here - three years in the making - it will make its debut on May 16th 2008. What is it you ask? It is the book that is destined to become a bestseller (and I know ’cause I have read it - check out the Amazon page of The New Age of Innovation by Prof C K Prahalad and Prof M S Krishnan.

I have seen this book take shape for more than three years now. Prof Krishnan is of course my PhD advisor and I had the opportunity to do some background research for the book for him. This also meant that I could read all the work-in-progress manuscripts. At the end of this process, now that the book is finished and about to be launched, I have this immense sense of pride that comes from a job well done. Prof Prahalad and Prof Krishnan have achieved the holy grail of business books in this one - marry the top level vision with an implementable roadmap. This book is not just about the lofty ideas and strategic foresight (which it has in plenty, as you would expect of any book with Prahalad on the cover), it also goes deep in IT and Operations issues of how to implement the strategy - how to get the value and not just talk about it.

The book is available for pre-order on Amazon for 20 bucks. Run and reserve your copy. Now!

• Back of Book Canada Stamps

• Book Ends Decorative Collectibles Collectibles

Continue reading → The New Age of Innovation

As the title indicates - my love/hate relationship with LaTeX continues. For the uninitiated - LaTeX is a document preparation system that relies on explicit commands rather than the WYSIWYG interface of word-processors like MS-Word. More about LaTeX is available here. I have written many times about LaTeX - Click Here for my previous LaTeX related posts.

After really trying very hard to use LaTeX for all my writing needs, I had to give up because using LaTeX for day to day activities was getting too tedious - and many software I need for my writing (like EndNotes for reference management) are not compatible with LaTeX. Well - so I thought! Recently, I had to make a few documents for my job search - and I was just not satisfied with the quality of the output I got with MS-Word. I converted the document into LaTeX - and voila! the documents came out just so much better. Here is the proof: click here for the LaTeX document - and ask yourself if you could get the same look and feel in MS-Word! I could not.

So here is my compromise status - when I need to create documents where quality is most important - I am using LaTeX; and when I need to make documents quickly and use specialized software like EndNotes - I am going to use MS-Word. Now - the template you use has a tremendous impact on the quality of LaTeX documents - and I have had to spend a lot of time tweaking my LaTeX templates to get them just right for the Letter page size most commonly used in US. If you are looking for a decent LaTeX template - look not further - here is the LaTeX file for the document linked above. This file will create one inch margins on all sides for a Latter size paper. Note that this template is made for using “pdflatex” command that directly makes .pdf files.

I had once made a small button/icon for supporting LaTeX on my website. Please feel free to copy it and use it on your site if you find it useful:

On the subject of buttons - here is one for the statistical system R - again - feel free to use it on your website:

• Documents Paper Collectibles

• 1940-59 Documents Paper Collectibles

Continue reading → LaTeX - Love and Hate Continues

I am writing this from the lobby of the good but not “fairmont good” - Queen Elizabeth Hotel in Montreal, Canada - the venue for ICIS 2007. I presented my paper on Information Sharing and Service Oriented Architecture (SOA) use in supply chains. The paper was received very well - I had more than 60 people in attendance - standing room only. Here is the paper’s abstract. Full paper is available from the conference proceedings - if you want the full paper but can’t find the proceedings - drop a comment/email and I will send you one. The paper was nominated for the best paper award at ICIS.

SOA and Information Sharing in Supply Chain: “How” Information is Shared Matters!

This also happens to be the year that I am in the job market - that means a lot of interviews. So this was a busy conference - busy but successful.

• Large Cents Coins Canada Coins Paper Money

• Current Year, Next Year Calendars Paper Collectibles

Continue reading → ICIS: International Conference on Information Systems 2007

My research paper “Impact of SOA Use on Performance Outcomes of Information Sharing in Supply Chain” has been accepted for the INFORMS CIST - Conference on Information Systems and Technology 2007. This would be my second visit to CIST. I love this conference for its open, discussion oriented format and great participation. This will be my fourth research conference presentation this year (after Academy, AMCIS and ICIS) - the year is turning out rather well.

• Current Year, Next Year Calendars Paper Collectibles

• 1980-Last Year Calendars Paper Collectibles

Continue reading → Going to INFORMS CIST 2007, Seattle

I have just came back from AMCIS 2007 - Americas Conference on Information Systems. The conference was held at the beautiful Keystone, Colorado. I presented my preliminary paper on Prosper.com titled - “Bank of One: Empirical Analysis of Peer to Peer Financial Marketplace”. The presentation was received very well. I even received an invitation to submit it to a very good journal - which is quite nice. Several attendees asked me for a copy of my presentation - so here is a PDF copy of my AMCIS 2007 presentation on Prosper.com. The paper itself is available through AMCIS Proceedings or upon e-mail request to the author.

• Bank of Canada Canada North, Central America Paper Money World Coins Paper Money

• Americas Antiquities Antiques

Continue reading → Bank of One: Prosper.com

Have Airlines Lost Their Mind?

I have heard stories of Airlines doing some really crazy pricing. However - I had never came across on such masterpiece face to face - till this week.

I was looking for flights from Detroit to Tulsa, OK. I was not sure of my return date so I tried looking for one-way flights. Horror of horrors - this is what I find. Look at the screenshots below. The first screenshot is for a return flight - leaving May 10th and returning May 20th. The second screenshot is a one way journey (exactly same as the first half of the return journey).

Screenshot 1: Return Flight, Price: $401

Screenshot 2: One way flight, Price: $730

Note that the two flights use exactly the same setup for the common part - same flight no. So - at any rate, the return flight should be expensive than the one way - its the same flight plus some more. However, the reality is completely upside down. The on way ticket is almost double in price than the return ticket that has the one way ticket embedded in it. One might as well buy the return ticket and then throw away the return part of the ticket.

I can’t think of any justification for it - it just does not make sense. Airline industry it seems uses all kinds of sophisticated revenue management systems, yield management systems etc etc. - and after than if they are coming up with this amazingly crazy pricing then something is surely wrong somewhere.

PS> Northwest has been bleeding money past few years and it under bankruptcy now. See any lconnections??

• VI Return of the Jedi Star Wars Science Fiction Collectibles

• Return of the King Lord of the Rings Sci-Fi, Fantasy Trading Cards Collectibles

Continue reading → Crazy Pricing in Airlines Industry

One of the ways I decide what to post about is by looking at what search terms browsers are looking for while reaching my blog. This is quite easily accomplished by using traffic tracking services like sitemeter or mybloglog (I use both). Recently many visitors came to my blog looking for information about Information Systems research conferences. So - here is an attempt to provide some commonly needed information about Information Systems research conferences. This includes large conferences that look at business application of Information Technologies/Systems. This consolidated information would be useful for starting PhD students in MIS/IS/IT area. Disclaimer: This is by no means an exhaustive list and the acceptance rates mentioned are approximate.

Starting off there are two kinds of research gatherings - those that publish full papers in proceedings and those that don’t. The difference is important to realize. Since you can publish a paper only once, if the paper is published in its full form in a conference proceeding then you can not publish the paper in a journal without significant revision. On the other hand, conferences that do not publish proceedings or only publish a abstract of the paper in their proceeding - then you are free to publish the same paper later in a journal. Conferences of this type are often called a workshop.

ICIS - International Conference on Information Systems (Link to ICIS 2007):
Reputation: Tier 1
Acceptance Rate: 12-15%
Proceedings: Full Paper

ICIS is the most prominent research conference in IS research area. Its a large gathering with a very international profile. I have been to last two ICIS (Vegas and Milwaukee) and both have been very positive experiences. The papers are of good quality, attendance in paper sessions is quite decent and most active researchers in IS are usually there. ICIS also hosts job interviews for IS faculty positions. ICIS 2007 is in Montreal, Canada. ICIS publishes full proceedings and is very very selective. Its acceptance rates in past years have been around 12-15% - which is very low for a conference - its quite difficult to get a paper accepted at ICIS.

AMCIS - Americas Conference on Information Systems (Link to AMCIS 2007):
Reputation: Tier 3
Acceptance Rate: ~50%
Proceedings: Full Paper, Research-in-Progress

AMCIS is a really large gathering of IS researchers - but mostly has participation from US. The high acceptance rate means that its easy to get your paper accepted here - but it also means that the average quality of paper is not very good. Attendance in paper sessions is usually low. However - I recommend going to this conference as you get to know a lot of IS researchers and some Universities hold their hiring interviews at AMCIS.

HICSS - Hawaii International Conference on Systems Sciences (Link to HICSS 2008):
Reputation: Tier 3
Acceptance Rate: ~50%
Proceedings: Full Paper

HICSS is an expensive conference to go to - Hawaii in January! Its a great vacation if you stay for a couple of days after the conference - however - the conference itself nothing too great. Good thing is that the atmosphere is quite casual (think shorts and printed shirts) and stress free; bad thing is that attendance levels are low (what else can be expected - when you are in Hawaii in Jan). Since the conference is so expensive to attend, number of submissions are lower - so a 50% acceptance is not bad. One really bright part of the conference is the Competitive Strategy, Economics and IS mini-track organized by three leading lights of IS research - Rob Kauffman, Eric Clemons and Rajiv Dewan. This track has low acceptance, really good papers and very good participation.

WISE - Workshop on Information Systems and Economics (Link to WISE 2006):
Reputation: Tier 2
Acceptance Rate: ~30% (guesstimate)
Proceedings: No Proceedings

For researchers studying Information Economics or Business Value of IT, this is THE place to be. Its a two day workshop where all the big guns get together and have a really good critical discussion. Its a short, interactive and very valuable workshop. This also happens to be my first ever research conference - so I like it even better. You only submit a five page extended abstract to WISE - so you can submit in-progress research as well - which is great. This also has one of the last deadlines (early Sept) - so you can submit your summer work here - good timing. WISE is one of the many workshops that happen just before ICIS (pre-ICIS workshops) - and it is usually very close to ICIS location - so you can combine the two visits.

Academy of Management - OCIS Division (Link to AoM-2007):
Reputation: Tier 3
Acceptance Rate: ~50%
Proceedings: Abstracts and Extended Abstracts

Academy is the biggest gathering of all - all management divisions are there. Information Systems researcher usually find place in the OCIS division. I haven’t been to this conference as yet - so no first hand information - I am scheduled to go this year - so I will know more soon. The acceptance rates are reasonable/easy and it only publishes abstracts or extended abstracts - so works well for in-progress research papers.

CIST - INFORMS Conference on Information Systems and Technology (Link to CIST 2007):
Reputation: Tier 2
Acceptance Rate: ~30% (guesstimate)
Proceedings: No Proceedings

The annual INFORMS conference is a big deal (and a big gathering) for Operations researchers. As part of the INFORMS conference, IS researchers organize the two day WISE-like event called CIST. Difference is that you need to submit a full paper for CIST. The level of discussion and participation is same as WISE. A very good conference to present your research before you submit it to a journal, especially for research connected with operations. CIST also has some practitioner participation.

WITS - Workshop on Information Technology and Systems (Link to WITS 2007):
Reputation: Tier 2
Acceptance Rate: ~30% (guesstimate)
Proceedings: No Proceedings

WITS is another pre-ICIS workshop - but its focus is more technical than WISE. Design science researchers find this particularly attractive. My research usually does not fall under the WITS umbrella - I have heard good things about it though.

Alright - that finishes my top of the mind info in research conferences/workshops in Information Systems. Hope somebody finds this useful. Feel free to add to this info by posting comments.

Updates:

• Andrea has this very informative blog about pre-ICIS workshops. Click here for Andrea’s blog.
• Prof Don Harter at Syracuse has maintained a page on IS Conferences with links to past conferences. Link to Don’s Conferences Page.

• Brave and the Bold Superhero Bronze Age 1970-79 Comics Collectibles

• Heart Rate Monitors Monitors Pedometers Gym, Workout Yoga Exercise Fitness

Continue reading → Research Conferences in Information Systems

Recently one of the readers of this blog - Akash, posed this question about Prosper.com:

Great blog. I am trying to understand the p2p lending biz models out there, such as prosper and zopa. What I am struggling with how these guys make money:

- looking at the public data, these sites take on average 1% origination fee from borrower, and 0.5% from lenders (on outstanding loan), then it would appear that they are not making a lot of money even on a loan volumes of $1 Billion ($15M in revenue)
- when will these companies make money? their expenses even running an internet outfit will be high
- they have raised over $20M in VC money;

Questions:

- what are investors seeing that I am not able to grasp? (assuming they will get traction)
- will they be able to monetize their loans in the secondary market somehow

Here are my thoughts on the subject:

Current Revenue and Cost Streams for Prosper
I agree that on the current scale of operation, Prosper is not making too much money. However - look at the other side - the business model is risk free - once the loan has originated, the future revenue stream (apart from defaults) is guaranteed. The cost elements of the business are very low - running the site costs only little, they do not have too many employees (double figures only), Prosper is not doing any paid marketing and once the platform is established, they can outsource most of the routine work. With sustained growth for a few years - they will have enough scale to make decent money with very little downside.

My sense is that their current cash burnout rate is quite low - so their $50 million venture funding should go a long way. Even if they need extra cash, they have a positive cash flow in future with all the loan repayments - so they shouldn’t have problem raising either secureed debt or the next round of venture financing.

Future Revenue Streams
I imagine that once they have established their current business model, they will start cross-selling other financial products. Lender’s insurance, database mining, prosper security backed credit cards, syncing your prosper account with your paypal account… secondary trading in Prosper loans… the possibilities are endless. Oh yes - Prosper Loan insurance - insurance than lenders can buy that will protect them against loan default - this can be a pretty good business - I will buy it, especially after suffering through the pain of a couple of defaults!!

Secondary Trading of Prosper Loans
As far as secondary trading in Prosper loans is concerned - I hope Prosper introduces something similar soon. Currently there is no “exit” for Prosper lenders - you got to wait 36 months for your payments to slowly trickle in. What if you need some cash out? Right now the only good way is for you to actually borrow in Prosper for a similar amount that you have lent out. I am not sure whether anybody has really tried it as an exit strategy - although there are several lenders which try to use it as an arbitrage strategy. Creating a secondary market is not difficult at all - in fact it will be remarkably similar to the current platform. A current lender can put a portfolio of loans up for auction and other lenders can bid for it. Once the auction clears - the documentation can get shifted to the new owners of the loan. Easy! This secondary market will bring liquidity to Prosper loans and encourage more lenders to participate as they will always have an opportunity to exit the market.

• Investments Opportunities to Make Money

• Cash Registers Banks, Registers Vending Collectibles

Continue reading → How does Prosper.com Make Money?

H-1B Visas: Problems All Around
Its old news that this year the annual quota for H-1B visas filled twice over in just two days (Link to CNN story). This has given rise to all kinds of discussion on whether H-1B cap should be raised; whether H-1B should even exist and what effect does H-1B has on wage levels in US. There is a bipartisan bill on table in congress that is expected to make matters worse.

Among all the noise, there is one group of people who are finding themselves in the middle of the crossfire - International students in US Universities. The H-1B visas are no longer available for students who will graduate at the end of the current academic year. Most of them have job offers with US companies, provided that they are get their H-1B visa. This really is a double whammy for them - first of all - employment opportunities for international students are severely limited in US. Here in Ross School of Business, University of Michigan, during the past internship season for the MBA class of 2008, only 255 of the total 490 job listings accepted applications from international students. On top of that, even these jobs are in jeopardy because of visa restrictions. Just to be sure - these are students from one of the top MBA programs in the world and any country/company should welcome them with open arms as they will script the future of the business world tomorrow - and here they are rebuffed and rejected.

Increasingly US universities are looking abroad to get qualified students. In most top MBA programs, international students make up more than one third of the student body. These students pay higher out of state tuition and take huge loans (more than $120K) and are willing to legally pay taxes and contribute to the US society and economy - there is no reason to not allow them to work and prosper in US.

Update: International PhD students that take up a job with a US University are not counted as part of the usual H-1B limit. This is good news for all aspiring faculty members like me! (More information available at Carnegie Mellon’s excellent page on the subject.)

US Competitiveness: Auto Industry

Already many people including Bill Gates and Harvard Crimson have raised their voices. Bloggers have even suggested that restricting companies from hiring foreign workers will actually lead them to go to the source of talent and outsource more work. In the middle of these, New York Times has written an excellent piece on increasing skill levels of outsourcing firms in India. Combine this with excellent engineering innovation like the sub-$2,500 car I mentioned in my last post - and the indicators are not good for long term competitiveness of the US economy.

If someone really needs some hard data after all this, here are the latest automobile sales figures for US market for March 2007 (market share means share among the producers mentions, not total market share, sales mean unit sales not dollar sales). Look at how the Detroit Three are doing against the Asian Three:

Since I live in Michigan, the auto industry is always top of the mind - and the figures above are so disappointing for any true fan of Detroit’s auto history. Not only are GM, Ford and Chrysler losing market share, they are doing worse even in their supposedly strong area - trucks and SUVs. In cars its not even a competition anymore - its a rout! Toyota is already the largest car maker in US and is third if we include both cars and trucks. With gas prices and emission requirements pushing the market towards smaller and more efficient Toyotas and Hondas, its only a matter of time before Toyota and Honda take the leadership position in US auto market from GM and Ford.

Toyota and Honda are both excellent value with forward PE in 13.50 range. I own Honda as I am slightly concerned with Toyota’s ability to sustain growth with the large base that it has. Plus I expect Honda to take back the green leadership that it seems to have lost to Toyota Prius.

• Racing-Auto Game Used Memorabilia Sports Collectibles

• Honda Asian Automobiles Advertising Collectibles

Continue reading → H-1B, International Students and US Auto Industry

I am a huge fan of LaTeX (especially on Emacs). I love the output generated by LaTeX and I would have been so happy continuing to write my research papers and dissertation in LaTeX - but alas - that is not to be. First of all, Information Systems research conferences ask for submission in MS-Word format - no exception. Secondly, now that I am handling large numbers of references and a huge pdf document library for my dissertation, I can not escape using EndNote for managing references - and EndNote does not support LaTeX.

So finally, I am giving up on LaTeX and shifting all my writing to MS-Word. I would continue to keep my LaTeX skills updated though - with the hope that once I graduate and (hopefully) become a faculty - I will perhaps be able to migrate back to LaTeX.

Sidenote: EndNote is amazing! I recommend EndNote to all researchers and especially doctoral students who are building their research paper library. It has helped my research productivity big time.

• Opener Systems Garage Doors Openers Building Hardware Home Improvement

• Tokens Love Exonumia Coins Paper Money

Continue reading → Giving Up on LaTeX

I had written before about the growing wind energy capacity in India (Link: Wind Energy Powering India). Wind energy has continued to expand at a phenomenal pace in India. In year 2006, wind energy capacity in India increased by 41.5% amounting to 1,840 MW of new capacity. India was third in the world in new capacity additions (after US and China) and fourth in the world in total installed capacity (after Germany, Spain and US). The table below shows the distribution of installed wind power capacity in the leading countries:

Fast growth in US was expected because of recent tax concessions and the large suitable area and energy demand. China’s emergence as the second largest capacity addition in 2006 is more of a surprise. Till few years back China did not really cared about alternative energy. China’s ability to quickly ramp up is admirable though.

Things are moving in the right direction. Wind energy is the cleanest renewable energy source available and even though it had problems of high capital cost and non-optimal load distribution, its good to see rapid growth in wind energy capacity. This is one positive impact of the rise in oil prices - the renewable energy sources are now looking more and more attracting in comparison. I will continue to follow growth in wind and other renewable energy resources.

• Wind Generators Alternative Solar Energy Electrical Solar Home Improvement

• Alternative Solar Energy Electrical Solar Home Improvement

Continue reading → Wind Energy *Continues* to Power India

My papers have been accepted at both the AMCIS (Americas Conference on Information Systems) 2007 conference as well as AMCIS 2007 Doctoral Consortium. Its great news - a good start to the conference and job hunting season. The papers accepted and their abstracts are below:

Service Oriented Architecture (“SOA”) has been viewed as a strategic approach to IT that provides increased flexibility. However, there is scant research evidence of SOA adoption leading to tangible performance benefits across a cross section of firms. We fill this research gap by empirically analyzing the impact of SOA adoption on the performance of electronic supply chains for a cross section of large US firms. We estimates the moderating impact of SOA adoption on relationships between supply chain performance and complexity and transparency of information sharing relationship between firms and their suppliers. Our results show that while SOA adoption mitigates the negative effects of information sharing complexity, it also reduces the positive benefits of information sharing transparency. Thus while SOA adoption can lead to potential improvements in performance, the extent of the benefit depends on characteristics of the information sharing relationship.

Peer to peer financial marketplaces provide a platform for individual lenders and borrowers to interact and transact. These marketplaces dis-intermediate the traditional financial services business models. In this exploratory paper we study the operation and effectiveness of one such marketplace: Prosper.com. We analyze six months of lender, borrower and loan repayment data to answer preliminary research questions about lender behavior, market effectiveness and antecedents of loan default. We show that lenders mostly behave rationally and charge appropriate risk premiums for antecedents of loan default. We also show that there are mismatches between risk premiums charged and relative importance of factors that drive loan default. We then explore the dynamic process of lenders adjusting their lending strategies to reduce these mismatches. Interestingly, our results indicate that the group reputation used in marketplace is not effective and needs to be enhanced. Our analysis provides a base for future research in this exciting and evolving context. Our results provide directions for practice applications as well as future research in design of financial marketplaces, investing and risk mitigation strategies and improving effectiveness of financial marketplaces.

AMCIS 2007 is in Keystone, Colarado from August 9-12, 2007.

• Papers Tobacciana Collectibles

• Buildings, Architecture Postcards Collectibles

Continue reading → AMCIS 2007 and AMCIS Doctoral Consortium

I have been trying my hands on various ways available to coax some money out of this blog. You can see that there are a few AdSense ads on the blog and also one Google search link on the sidebar.

I am not sure how this is going to work out - but I am going to make a try. I really don’t need money from this blog - my stock and Prosper.com investments take care of that. Its just a nice little challenge… and I like challenges. I intend to donate all money I raise from this blog to charity.

There has been a few instances of junk comments past few days - so I am putting the comment moderation on. I would of course approve genuine comments (both appreciative as well as unflattering) as soon as possible.

Lastly, I have been writing a lot recently about my investments in Tata Motors (TTM). BusinessWeek seems to concur with my views and has written a long feature that relates to TTM’s future prospects. I am sitting pretty with a strong core position in TTM and trade around that according to my time tested trading strategy.

• Investments Opportunities to Make Money

• Tokens US Trade Exonumia Coins Paper Money

Continue reading → Comment Moderation, Adsense and Tata Motors

Cricket World Cup 2007

The cricket world cup is going on in West Indies. Till now it has been a disaster - India and Pakistan, with a combined population of 1.2 billion and a cricket media market worth many billions went out of the contention in the first round itself. Billions of dollars were lost, billions of people were utterly devastated (for those who know the influence of cricket on lives of ordinary Indians and Pakistanis - they know how deep the hurt it) and the Pakistan team coach was even murdered.

Within all this turmoil, the Sri Lankan team has emerged as a bright silver lining. The small island country of 20 million or so with a deeply unstable political and social environment has produced a team that is holding the Asian flag high. The team itself is so unorthodox and quaint - it even has three players that won the world cup 11 years ago!! In the age of world’s fascination with youth and everything skin deep, they bring a depth of skill that gives you reason to continue believing. Mukul Kesavan has captured the essence of Sri Lankan team in his blog on CricInfo. The blog post and the ensuing discussion is highly recommended for all with any interest in cricket.

• Hockey-Team Canada Fan Apparel Souvenirs Sports Collectibles

• Cricket Other Sports Fan Apparel Souvenirs Sports Collectibles

Continue reading → Cricket World Cup - Billions Lost, Billions Devastated, One Silver Lining

My last post on the group reputation system at Prosper.com focussed on the effectiveness of the system. Since then I have continued my research on the same and will likely deploy a survey to group leaders in next couple of months to test my hypotheses.

There has been a lot of research recently on online reputation systems like the ones used at eBay and Amazon. There are some important differences between the “individual” reputation systems at eBay etc and the group reputation system at Prosper.

• Seller Only Reputation: First of all, Prosper’s reputation system is essentially a seller reputation system. Buyers do not need to prove their reputation as they bear all the risk (since they pay money upfront). This is a key difference compared to eBay where the reputation system includes both buyer as well as seller transactions.
• Credit Scores: While the reputation system is the ONLY window to a seller’s reliability in eBay; in Propser, buyers have access to the credit history of sellers - which gives them all sorts of information to judge seller’s reliability. So the reputation system here is of only incremental importance over and above the information available in the credit history. The group reputation system is essentially as secondary reputation system with the credit score being the primary reputation system.
• No Repeat Transactions: Unlike eBay and Amazon, sellers at Prosper rarely conduct repeat transactions (second, third loan). Since the sellers are unlikely to come back to the market, their incentive for keeping a great reputation in the market is quite low. Hence, there needs to be factors beyond the marketplace to force them into complying with buyer’s expectations.
• Group’s Core Connection: Prosper expects that if sellers are part of a tightly knit group then there would be peer pressure from the group for the seller to behave nicely. However, this would only be true if the group has a strong core connection (whether offline or online) which has some value to the seller. Currently most groups in Prosper do not have a core connection - they are just an online group of people with similar needs. This is unlikely to lead to good behavior by sellers and we have seen the evidence of same in the repayment data.
• Filtering by Groups: Prosper also expects the group to be a filtering mechanism where group leaders check the listings and only let trustworthy borrowers come to the market. However, many groups do not even enforce the mandatory review of the listing by the group leaders - so even this expectation is futile.
• Conclusions: Based on the above - we come to the following conclusion:
• Groups that share a strong core connection (offline or online) would perform better
• Groups that have a strong process for filtering listings would perform better

We have refined the conclusions above to generate research hypotheses and are testing these hypotheses using forthcoming survey data and data collected from Prosper. I will post the results once the analysis is done in next couple of months.

Links

1. Thanks are due to Prosperous PF Strategies for leaving a thoughtful comment. Link to the comment.
2. Rate Ladder is an excellent resource for Prosper participants. It is a little cluttered with ads - but has great information.

• VS System Comic Trading Cards Collectibles

• System of a Down S Rock, Pop Music Memorabilia Entertainment Memorabilia

Continue reading → Group Reputation System at Prosper.com - II

Where are Markets Headed?

It has been more than a month since that fateful Feb day when markets tanked and like many other, my dream year soured a little. Till then, in just 2 months of the current year, I had made (actually booked profits!) around 12%. Since then I have lost most of it - although for the year I am still positive. This is the time to make decisions - and here is my decision - I AM BUYING!! and here are my reasons:

1. First of all, I don’t mind too much when good stocks drop. How else are you ever going to get good opportunities to get into them! I am convinced that the stocks I have chosen are strong ones and I am going to stick with them till they recover - and because I am buying at every decline - when they finally recover I would have made a decent sum.

2. It takes conviction and patience to win long term in the market - and I am fully behind my stock picks. Fortunately my cash flow situation for the rest of the year is quite decent so I can afford to be patient and even put more cash into the market.

3. The current market weakness is mainly because of US economic slowdown, housing market worries and dollar value concerns. I have been aware of these risks and have focussed on creating a portfolio that includes quality developing world stocks and stocks with US stocks with significant international exposure. I am convinced that when the current market starts separating real risks with hidden gems, my picks will flourish. I am willing to wait till that happens.

4. Almost all my stocks are very reasonably valued (no Google for me!). These values give me confidence that there is a floor for them. Many of my stocks have forward PEs of low teens and even single digits. There is only so much that they can go down.

5. US Economy is in real danger of getting into a recession in near future. This will bleed the markets and there would be pain. I am sure that in spite of my quality portfolio - the pain will spread to me. But then - these are the best buying opportunities. I am willing to wait till the recession hits and leaves. Most recessions are less than 4-6 quarters - so a wait of 3 years to recover all my investments and get incremental returns on all my buying on the down ride. Not bad!!

My Portfolio

So now that I have professed my confidence in my portfolio - what is my current portfolio. Here are my main holdings. I am buying each of these stocks at every available opportunity: AMD, CAT, CX, FTE, HMC, IBN, SCSS, STX, TNE, TTM, TTMI and UL.

My Dream Stock

The one stock I am most excited about is Tata Motors (TTM). I have worked in this company, I have followed it for more than decade now - and I know this market inside out. And - in my opinion - the current PE of 13, with forward PE of 12 is a steal!! The current decline from 22 levels to 15-16 levels present an excellent buying opportunity and I am buying big time. A PEG of 0.66!!

TTM is the market leader in one of the fastest growing commercial vehicles market! It owns that market with more than two thirds market share with hardly any challenger in sight. TTM’s foray into the passenger car market was successful beyond expectation and TTM is now the third largest car maker in India. Now, the recent push to make the world’s cheapest car is going to thrust into a position of cost leadership all across the developing world. Look at this Forbes story (hosted on Rediff) for the magnitude and importance of this project. I am convinced that if anyone can pull off making a modern car for $2500 - TTM can. When this product finally hits market - TTM will skyrocket. On the other hand, even if that project fails, the commercial vehicle and mainstream car volumes are enough to justify current valuations. So - buy on.

From the Forbes article, here is a comparison of previous low cost leaders in automobiles:

Think about where the next big push in automobile sales volumes will come from - its not US Japan or Europe - these markets will likely contract in coming decade. The future of car market is in China, India and the rest of the developing world. This market is crying for a low cost car - and Tatas will give them one.

• Current Year, Next Year Calendars Paper Collectibles

• Commercial Real Estate Opportunities

Continue reading → Stock Markets: I am Buying!!

Asimov - Science Fiction

Since I can remember I have been a fan of Asimov’s Science Fiction. The Foundation series is my absolute favorite. Asimov, however, was at his best when writing short stories. These short stories are “short” on length but incredibly complex and full of implications for matters as broad as religion, God, evolution and decline of civilization and so on… I consider “Nightfall” his second best work with an ending that takes your breath away - gives you goosebumps! But I reserve the title of best Asimov work ever to “The Last Question”. It packs such a powerful punch in just one sentence in the end that you keep pondering over it for long after you have read the story. Its so completely incredible and yet so feasible…

Now - some good soul has done us all a favor and put “The Last Question” online for all to read. If you have not read it as yet then you are in for a time of your life. Enjoy - here is the link.

I could not find an online version of “Nightfall”. If you know where I can find it - please do let me know.

Research Update

This year is turning out to be a great year. Another paper of mine titled “Collaboration Network Structure in Open Source Software Projects” has been accepted for presentation at the 5th AIS SIGSAND Symposium on Research in System Analysis and Design to held on May 12-13, 2007 in Tulsa, Oklahoma. Here is the abstract of the paper:

In this study, we view open source development teams as social collaboration networks of developers. By integrating theories and methods from social network, software engineering and organizational behavior studies, we examined the collaboration network structure of ongoing open source projects and the impact of the network structure on open source developer productivity. With development data from SourceForge.net, we found that open source developers, like their counterparts in traditional software development setting, have the tendency to use larger and less centralized collaboration network structure to tackle more difficult projects. However, such collaboration structure is associated with lower developer productivity. Our findings indicate that OSS practitioners still need to deliberately manage collaboration structure of the development teams to enhance productivity.

This research is co-authored with Ning Nan (University of Oklahoma) and Li Wang (Ross, Michigan). As usual, a copy of the paper is available on request.

Lastly, Thank you Miron for linking to my blog.

• Open Salts Tableware Housewares Kitchenware Collectibles

• Publications Software Building Hardware Home Improvement

Continue reading → Asimov’s “The Last Question”

Today is turning into a pretty nice day. First, I checked the current copy of the SmartMoney, the magazine of the Wall Street Journal, and saw that it referred to my research on peer to peer financial marketplaces in one of the articles. Second, I heard back from the Academy of Management Conference and one of my papers have been accepted for presentation there.

The current issues of SmartMoney has an article on Prosper.com titled “The Banker Next Door” by Ann Kadet. She quotes my research in the article. I am quoting the article below:

As a whole, Prosper’s lender community is still more subject to irrational whims and emotional behavior than professional credit analysts. Sanjeev Kumar, a doctoral student at the University of Michigan’s Ross School of Business, analyzed six months of Prosper activity and found that quantitative data such as credit scores and borrower income explain just a third of bidding behavior. “Everything else is subjective, like whether there is a photo of the kids”, he says.

Here is the link to the original article: Banker Next Door.

Now the other good news. Academy of Management is the largest association of management researchers and professionals. The Annual Meeting of Academy is one of the largest gathering of management researchers. It would be a great experience to present in the Academy 2007 conference. The paper accepted is titled: Embedded Trust in Open Source Software Development Communities. Following is the abstract of the paper:

Structure of naturally evolving collaborative relationships in open source software (OSS) development communities has been identified as a critical factor in success of OSS projects. This study attempts to extend the literature by examining impacts of collaborative relationship structures on trust, an important yet under researched construct in the OSS context. Based on social network and organizational theories, this study proposes that collaboration network structures have significant effects on individual OSS developer’s trust in a project team. Subsequently, we expect that trust has positive effects on effectiveness of an OSS development community. Empirical analysis of project and survey data using partial least square (PLS) verifies that collaboration network structures significantly affect trust, which subsequently enhances OSS team effectiveness in terms of perceived software quality, team cohesiveness and satisfaction with the teamwork. Results of this study shed light on the antecedents and relevance of embedded trust in OSS communities with significant implications for both researchers and practitioners.

This year has started well - I attended the first conference of the year and my paper got accepted at the first paper submission of the year. I hope the luck is continue for the rest of the year as this is my job market year. Talking of jobs - I finally finished writing my academic Vita.

I also got the full student feedback for the course I taught in Spring 2006. Here is the feedback image from the evaluation website:

Quite Nice, Huh?

• Current Year, Next Year Calendars Paper Collectibles

• 1980-Last Year Calendars Paper Collectibles

Continue reading → Research Mentioned in SmartMoney; Paper Accepted at Academy

Continuing my data analysis pieces on Prosper.com (click here for all my posts regarding Prosper), I am looking at the group rating system in this post (using the more academic term - Group Reputation Systems).

Prosper introduced the rating system a few months back. Borrower’s have the option of being part of a group and groups are given a star rating (1 star to 5 star) based on the repaying history of past loans originated from the group. More details are available on Propser’s page. Now, the first thing which is clear to anyone with any experience lending on Prosper is that this group reputation system is broken - it does not work! In this post I will first provide “empirical evidence” (fancy research term for a statistically tested argument) that the group reputation system is not working and then I will discuss reasons why this is so and how can this be fixed.

Effectiveness of Prosper’s Group Reputation System

The essential idea is the groups will keep tabs on their member borrowers resulting in lower default rates for good groups. This will lead to lenders charging lower interest rates (lower risk premiums) for borrowers belonging to these better groups, providing incentives for borrowers to be part of these groups. A nice virtuous cycle. Now, lets look at some numbers and see if this cycle is in fact working:

The image below is a screenshot from Prosper of interest rates for last 30 days. Look at differences between interest rates for borrowers belonging to a group and those not.

As we expect, for most categories interest rates for group members are below those for non group members. This is good - the system is mostly working for the borrowers. However, there are many categories where the system breaks down and non members in fact get better rates (for example: AA for loans between 5K and 10K).

Now lets see if the system is working for lenders. I can’t divulge all the details here as its part of a research paper that is under review - but this is essentially what I did. I collected six months of listing information and the loan repayment information for all resulting loans. Then I analyzed this data to discover the factors that are antecedents of loan default - factors that drive loan default. The analysis was done using something called a duration model (also known as survival analysis). This statistical technique is widely used to model failure events where time to failure is known. Failure in our case is of course a loan default. Duration models output hazard ratio, which is an estimate of the relative risk of failure resulting from the factors included in the model. A hazard ratio greater than 1 would mean that the risk of failure increases with the factor. In my preliminary models the hazard ratio for group membership came out well above 1. This means that the risk of default is actually higher for borrowers that belong to a group! So as far as lenders are concerned - the group system completely does not work.

The duration model of loan defaults also uncovers some interesting results.

• The Debt to Income ratios of borrowers seem to have no impact on the risk of loan default
• Amount of information provided in listing description (on an overall description length basis) has no impact on the risk of loan default
• Being a homeowner also does nothing to the risk of loan default
• Listings with endorsements from group leaders seem to have a lower risk of loan default

I will provide more details of this analysis as the paper passes through the review process and I finalize my dissertation.

Whats the Problem?

This is a topic for future post. There has been extensive academic research on reputation systems in past years - I will borrow from those and analyze Prosper’s reputation system in that light.

GMAT Preparation?

One of my long time friendshas started this wonderful online service to help students preparing for GMAT. Look up his site WinGMAT.com. I have looked through the contents of the site and they are good, quite good!

• VS System Comic Trading Cards Collectibles

• System of a Down S Rock, Pop Music Memorabilia Entertainment Memorabilia

Continue reading → Group Reputation System at Prosper.com

I have not posted anything here for a while as I have been busy trying to give shape to my dissertation. As part of my research I have been working with Lending, Borrowing and Loan Repayment Data at Prosper.com and there are some pretty neat results. I finished writing an article about my results and submitted it to one of the major Information Systems conferences AMCIS (Americas Conference on Information Systems) for review. I of course can not detail all the results here as it is under review, here is the abstract of the paper I submitted:

Peer to peer financial marketplaces provide a platform for individual lenders and borrowers to interact and transact. These marketplaces dis-intermediate the traditional financial services business models. In this exploratory paper we study the operation and effectiveness of one such marketplace: Prosper.com. We analyze six months of lender, borrower and loan repayment data to answer preliminary research questions about lender behavior, market effectiveness and antecedents of loan default. We show that lenders mostly behave rationally and charge appropriate risk premiums for antecedents of loan default. We also show that there are mismatches between risk premiums charged and relative importance of factors that drive loan default. We then explore the dynamic process of lenders adjusting their lending strategies to reduce these mismatches. Interestingly, our results indicate that the group reputation used in marketplace is not effective and needs to be enhanced. Our analysis provides a base for future research in this exciting and evolving context. Our results provide directions for practice applications as well as future research in design of financial marketplaces, investing and risk mitigation strategies and improving effectiveness of financial marketplaces.

I am excited about my research on Prosper.com (or Peer to Peer Financial Marketplaces - the name I have given to the broader phenomenon). I am continuing to enhance my analysis and looking for improving my paper and submitting to a top journal. If you would like to read a copy of my paper then pls drop a comment with your email and I will send one to you.

It seems my research will be quoted in the SmartMoney Magazine. Ann Kadet, who is a columnist and Senior Editor with the magazine got in touch with me about my research on Prosper.com. The coming issue of SmartMoney will have an article on Prosper.com and according to Ann, there will be a mention of my work. Cool…

Portfolio Update

Like everyone else, my stock portfolio also took a hit in last two weeks with the sharp decline in US markets. Although, I continue to believe that in the medium term stocks are worth keeping - so I used the drop to add to my holdings and I have now mostly recovered. My current major holdings are (in order of size of holding): STX, AMD, TTM, TNE, UL, FTE, SCSS, CX, CAT, IBN, TTMI, HMC and TKC. As you can see - I have diversified considerably - I now have large technology MNCs, Indian Auto, Brazilian Telecom, Mexican Cement, Consumer Goods, Global Auto, Turkish Telecom and some good old US companies in my portfolio… Before the Feb end decline, I had booked profits to the tune of some 16% return - not bad for a two month period.

Research Update

Since I wrote last one of my papers was nominated for the best paper award at HICSS 2007 (Hawaii International Conference on Systems Sciences). The paper is available here. I have further improved this paper and it is now going to be a part of my dissertation.

• Large Size Notes Paper Money US Coins Paper Money

• Hawaii, North Africa Small Size Notes Paper Money US Coins Paper Money

Continue reading → Prosper.com Data Analysis

I have not written for a while as I am attending the International Conference on Information Systems (ICIS) 2006 in Milawaukee, Wisconsin. Its a delightful downtown full of holiday decorations and lots of beer places. Yesterday I presented a research paper in the OASIS Workshop - Empirical Analysis of Determinants of Perceived Customer Satisfaction with Open Source Software (extended abstract).

This post is essentially an update of previous posts. First - my stock portfolio, then an update on my Prosper adventure and lastly, research.

Stock Portfolio

My post on a 60%+ stock market return in 9 months generated a lot of interest. Well - my portfolio is continuing to perform and I am on on track for ~80% by the end of the year. I will be paying capital gains tax on this end of the year - but thankfully my marginal tax rate is low so its not going to hurt too much. Here is my current stock portfolio:

• Seagate (STX): It has been the largest stock in my portfolio for a while. Now I have booked profits to the extent of about half of my initial holding but I still have quite a bit left.
• LCA-Vision (LCAV): I bought some when it dropped after bad results as I am positive on its medium term growth. It has been reasonably volatile since then and that had given me the opportunity to book profits and re-enter.
• Cemex (CX): It is the classic business school case - and its growing. There have been some unpleasant acquisition news going around - that gave me an opportunity to enter. This is my first time holding on Cemex.
• TurkCell (TKC): I put in a lot of money on this a few months back - was down a significant percentage one time then it recovered sharply and I was able to book profit on my entire holding. Then it dropped and I have re-entered.
• Tata Motors (TTM): I have a smaller holding in my one time employer than I would like to have. I am looking for entry points but it has been consistent and strong.
• Other small holding are - Select Comfort (SCSS), Christopher & Banks (CBK), PepsiAmericas (PAS) and HiMax Tech (HIMX). I picked initial stakes in all of these after their sharp down move recently.
  

You can see that I am quite heavy on emerging markets. This also insulates me from the coming decline of the dollar and the slowing down on the US economy. Here is a screenshot of how my portfolio has grown in last 6 months. Not all of this is stock appreciation - I also infused cash along the way. I have cut out the values on the y-axis for privacy reasons.

Figure 1: Stock portfolio growth in last 6 months

Prosper Adventure

I am continuing to put money in Prosper - although the careful lending strategy that I use necessitates slow scaling up. Now I have ~3.5% of my total investments in Prosper. All the data analysis pieces I posted here has helped me make better sense of the dynamics in Prosper. All my loans are current and I have average interest rate of 20%+. Lets see how long the honeymoon continues. This is my current Prosper portfolio distribution. As I had recommended in my previous posts - D credit group is the way to go in Prosper.

Figure 2: Portfolio distribution on Prosper, December 2006

Research

I am in the middle of all the big names in IS research here in this conference. I have been talking to several researchers and here is the big thing everyone is talking about - impact of IS on Innovation. The troublesome thing is that I am also looking at the same thing - although I am confident that the niche I am following is quite unique and I will be able to look at it from a different angle than other researchers.

PS> LFCFan has inspired me to put some ads on my blog and “monetize” the traffic. I am not completely comfortable about it - but its exciting to see that all this that I write has a hard cash value. If you find the ads in bad taste, not appropriate, unpleasant… then please leave a comment and I will take them out.

PPS> Its that time of the year when NASDAQ 100 index is rebalanced. This year Infosys (INFY) is being added to the index and its a great great story for the Indian businesses. Although I am very positive about future growth of Infosys - I am quite uncomfortable with current valuations (PE 45, PEG 1.29) - so I will stay out of it till valuations come down to more reasonable levels.

• Stock Certificates, Bonds Paper Railroadiana, Trains Transportation Collectibles

• Current Year, Next Year Calendars Paper Collectibles

Continue reading → Current Stock Portfolio, Updates

I feel like charts and numbers today. I have been following India’s development progress for a while and want to draw attention to some macro level data that illustrate the direction and magnitude of this progress. All the data used in this post are public and you can find them at the India page of the CIA World Factbook. You can also find previous years data and a lot many charts at the IndexMundi Country Facts website. I have borrowed the charts from there - though they are all based on public information. All the text, interpretation and analysis is original.

1. Population Growth: Lets start with something broad and basic - Population. India’s large population and predictions for India crossing China as world’s most populous country by 2025 or something is well known. I agree with the assertion that India *does* have a population problem and India’s large population is an impediment to growth and higher standards of living. Now - the good news. India is seeing significant improvement in population growth rates - look at the chart below:
   Chart 1: India’s Annual Population Growth Rates, Year 2000 - 2005.

   The chart shows *consistent* and reasonably rapid reduction in India’s population growth rates. Its almost constant rate of change: reduction by 0.04% points per year. Keep going at this rate and soon India will have annual growth rates of less than 1% - very manageable! Though India’s growth rate is still significantly higher than that of China (0.58% in 2005), it should be remembered that India is reducing her population growth rate in a peaceful, democratic way without any coercion.

2. Birth Rates: Just so that its clear - India’s population growth rate is not coming down because of epidemics and illnesses! India’s birth rates are declining - again consistently and significantly. Here is the graph to prove it:
   Chart 2: India’s Birth Rate (No of births per 1000 population), Year 2000 - 2006

   What makes me happy is not the decline - but the persistent and consistent decline. Again - almost at a uniform rate. This shows that this is a *systemic* phenomenon and not the result of some one-off policy, epidemic, whatever.

3. Fertility Rate: As can be expected, the decline in birth rate shown above is because of women in India are having less number of babies. There is a special point here - look at the fertility rate trend below:
   Chart 3: India’s Fertility Rate, Year 2000 - 2005

   Here is the point: to me, year 2002 is a landmark year. For the first time in India’s history, fetility rate (defined as number of babies for every mother) fell below 3 in 2002. Anybody familiar with India’s middle class ethos would understand how big a deal it is. Not long ago the ideal family size used to be 5 0r 6 persons (parents and 3 or 4 children). Now, the average family size is less than 5. That means the *ideal* family size is moving towards nuclear families of parents and two kids - which BTW is the replacement level!! Fertility rates have continued to fall in the same consistent manner as other charts above - and its so very encouraging!

4. Infant Mortality Rates: So the population growth rate is coming down and people are having less kids - but what about standard of living? Here is the answer - Infant mortality rate (how many kids out of every 1000 die by the age of 5) in India has, again, been declining consistently over the years. This indicates an improving healthcare system and improving availability of medicines and nutrition.
   Chart 4: India’s Infant Mortality Rate, Year 2000 - 2005

   Not that 56 kids out of every 1000 dying by the age of 5 is no tragedy - it is and its deplorable. But - there is a ray of light. Its coming down and coming down every year. For a country as large and diverse as India, being able to maintain a secular improving trend in all the demographic parameters is commendable.

5. Life Expectancy: The last chart - what is happening to overall standard of living of people in India. One of the broadest standard of living measure is the life expectancy - the average expected lifespan of an Indian. Here is the data:
   Chart 5: India’s Life Expectancy, Year 2000 - 2005

   Same story - the average age to which an Indian can expect to live is increasing every year. The increase is consistent and almost uniform. We can broadly conclude that the standard of living in India is improving - consistently.

Okay - now that I have shown all the charts and data that I wanted to - the question is - what is the message? Well - the message is simple. India, in spite of all the chaos and problems, is developing consistently and rapidly. It might seem like a redundant message with all the media attention on India these days - but I feel that true measures of a country’s development are not economic but social. India’s economic growth is well known - but there is a social side to development as well and I am very happy and reassured by the strides made by India in this field over the years. There is still a long way to go but at least the trend is positive, consistently positive, consistently and uniformly positive. The future looks bright from where I am standing!

• India Maps, Atlases Maps, Atlases, Globes Antiques

• India Asia, Middle East Paper Money World Coins Paper Money

Continue reading → India: Facts and Figures on Development

This is the third article in a series of data analysis pieces I have written on Prosper.com. Links to my previous two articles are there at the end of this article, in case you want to dig deeper. Okay - so what am I saying here? As would be clear to anyone who has read my previous posts, I like data and I like visual representation of data. So here are three charts and what we can infer from these charts. All these charts are drawn on a monthly sampling basis for 10 months from Feb 2006 to Nov 2006. I am starting my analysis from Feb as the Prosper’s size before Feb was quite minuscule and not really comparable. All data is from Prosper’s Lending Performance page. It takes a while to retrieve all this data but its all publicly available.

Chart 1: Growth of Prosper

This is a chart of dollar value of loan’s originated every month from Feb 2006 through Nov 2006.
Two things are obvious from the chart. First - Prosper’s growth has been phenomenon. It has grown from half a million dollars of loans per month to more than three million dollars of loans per month in less than a year. Second - the growth has levelled out in last three months - in fact it the loan volume declined in Sep and Nov. Whats going on? My read of the situation is that in Aug Prosper received some good media coverage and it lead to an influx of borrowers and lenders leading to a huge spike in Aug. However, this spike also meant a decline in quality of loans - more loans of lower quality got funded. Prosper then clamped down on its verification process and started rejecting some loans (even when they got funded). Further, some lenders who got burnt after lending indiscriminately in June-July-Aug tightened their belts. Both these combined to reduce volume of loans in following months. However, the long term uptrend is very much intact and we should see continuing growth in Prosper’s loan volume.

This loan volume also gives us a fair idea of how much money Prosper might be making. Lets assume an monthly loan volume of 4 million dollars per month and all repayments being reinvested. Prosper charges 1% of loan amount from borrowers - so that makes $0.48 million a year. Further, Prosper charges 0.5% of outstanding loan principal from lenders - so that makes $0.24 million. So a total of $0.72 million. Prosper will also make some money from interest (it does not pay any interest to lenders with free cash in their Prosper account), some from fees etc - so may be we are looking at $0.75 million per year. Lets say that in three years (I guess venture caps will stand by you for that long before pulling the plug) Prosper grows to be ~$40 million pe