R-E-S-P-E-C-T

My colleagues and I get along quite well. I have a tremendous amount of respect for them, and they seek my input on all sorts of different issues – ranging from accounting to interviewing management teams. But this week, I think I made a leap into another realm altogether.

During our Tuesday morning meeting, the CEO doubted – somewhat idly – that the Russian stock market has been driven by oil prices in the past 6 months. “I’d like to see that correlation,” he said, to no one in particular.

If anyone can stake a claim to being no one in particular, it’s me. So I sequestered myself in my office and started working on the problem. I downloaded tons of pricing data from the Bloomberg and started crunching it in every direction I could remember from my Stats class on regression analysis. I compared absolute prices, relative returns, percentage changes in price, etc. As background, I quantified how closely the Urals Crude price correlates with the West Texas Intermediate price. At one point, I tested the efficient market hypothesis by lagging the data by different time periods. Much later in the day I reached a conclusion on the question at hand and zapped it out to my colleagues.

I entitled it “I’d Like to See that Correlation.”

In it, I show – among other things - that returns on the Russian stock market were driven by oil prices in the January to May period, but that the effect has dwindled in the May to November period so much so that its possible to say that it has almost no effect. And, I established that all the results were statistically significant at the 95% confidence level.

I ended it with “The Boss is right and the numbers prove it.”

A less modest person might say that it was a bombshell. Colleagues were streaming into my office and looking at the data, discussing the implications and reasons.

The boss flipped. He introduced me to the marketing staff and told us to get the material into the company’s presentation. He’s going to Switzerland for the parent company board meeting, then to Austria to meet clients, and he wants this stuff in there. Also, he ordered us to make sure that my complete bio with photo is attached to the investment staff section and posted on the website.

The next morning, my colleagues all came streaming in with new ideas on how to run more regressions. Their ideas were all elegant and sophisticated at the same time. Basically, they boiled down to this – “If it isn’t oil prices, then what is it?”

But the real effect is that my colleagues let me into their little club. They all have graduate degrees in engineering and math and one guy even has a doctorate in finance. Russians in general are highly mathematically competent, anyway, and a lot of professionals of this type love complicated, pointless research. And now my contribution to the world of complicated, pointless research makes them feel that they can talk to me on their elevated level.

They’re wrong, of course. But that will be my little secret.

At the end of the day, the boss told me that I was challenging the conventional thinking of the investment staff and that he couldn’t possibly expect a better contribution from me during my time here.

Quite a week – and its only Wednesday. I think I’ll call in sick for the next two days and end it on a high note.