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Gamal
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Why is financial research useless?

March 16th, 2014, 2:12 pm

I did recently browse several financial jounals. What a crap!Why is financial research nonsense?
 
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bearish
Posts: 5691
Joined: February 3rd, 2011, 2:19 pm

Why is financial research useless?

March 16th, 2014, 3:17 pm

It probably has everything to do with the motivation of the authors. The driving force behind doing research for publication in name-brand finance journals is to obtain tenure, promotion, or (more generally) higher status in the academic community, including the possibility of moving up the academic food chain to a better school. Relevance to actual practice or, for that matter, to teaching is only important to the extent that the editors and their hand-picked referees emphasize it in their accept/reject decisions. As I think you imply, that has not been the hallmark of finance journals lately. I am not at all sure how much worse this is in finance than in other fields, but (as TJ is likely to remind us) an academic finance career can be extremely lucrative compared to other fields of study, so the incentive to play the game by the rules and not rock the boat can be pretty compelling.
 
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dweeb
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Joined: July 11th, 2009, 8:10 pm

Why is financial research useless?

March 16th, 2014, 4:35 pm

QuoteOriginally posted by: bearish... an academic finance career can be extremely lucrative compared to other fields of study... just curious as to why this is so.
Last edited by dweeb on March 15th, 2014, 11:00 pm, edited 1 time in total.
 
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bearish
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Why is financial research useless?

March 16th, 2014, 5:48 pm

QuoteOriginally posted by: dweebQuoteOriginally posted by: bearish... an academic finance career can be extremely lucrative compared to other fields of study... just curious as to why this is so.I should perhaps have specified that I was referring to US institutions, since I don't have a very clear picture of the rest of the world. But it is fair to say that they still dominate the mainstream finance journals, although not nearly to the extent they did 20+ years ago. Business schools are still big business for universities (although not quite as big as football and basketball), both through MBA programs and executive education, and finance is a core field. The number of graduates from top PhD programs is limited, and there is leakage to industry at various levels. We should not confuse the fact that much of published finance research is useless with the notion that most finance PhDs are useless...
 
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dweeb
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Why is financial research useless?

March 16th, 2014, 7:07 pm

A good points. I've heard on the grapevine that ivy finance MBA enrollments are down 20% since 2008. Some have shifted the focus eg; HBS and Wharton to some extent. Then there are the MFE degrees - not sure what the stats are around these.There's a saying at HBS - if your PhD thesis is not on the front page of the newspaper, it's not worth doing. So I guess for finance research the question becomes - what will be the forward front-page headlines?
Last edited by dweeb on March 15th, 2014, 11:00 pm, edited 1 time in total.
 
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Gamal
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Joined: February 26th, 2004, 8:41 am

Why is financial research useless?

March 17th, 2014, 7:25 am

I remember times when financial research wasn't useless. All the models currently used were published somewhere. I remember fast progress in interest rate modelling in the 90-ties and new copula every week after the year 2000. XVA should be the hottest topic these days but all publications are empty, I must create myself all needed tools.
 
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dweeb
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Joined: July 11th, 2009, 8:10 pm

Why is financial research useless?

March 17th, 2014, 5:51 pm

There's a rollback in finance to some extent with new regulations and allocating capital to businesses.But there are still plenty of potential research areas (asset pricing and corporate finance). I'll throw some out there - big data/analytics, climate change, energy, intangible assets.
Last edited by dweeb on March 16th, 2014, 11:00 pm, edited 1 time in total.
 
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BenjG
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Why is financial research useless?

March 18th, 2014, 5:51 pm

Ask to Jean Philippe Bouchaud if it is useless... Or any other quantitative trading firm.Or ask to V. Pitterbarg if it is useless to spend some time in order to formalise the market practice... I am sure that Barclays found it very useful ( OIS discounting ?)
 
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bearish
Posts: 5691
Joined: February 3rd, 2011, 2:19 pm

Why is financial research useless?

March 18th, 2014, 11:16 pm

QuoteOriginally posted by: BenjGAsk to Jean Philippe Bouchaud if it is useless... Or any other quantitative trading firm.Or ask to V. Pitterbarg if it is useless to spend some time in order to formalise the market practice... I am sure that Barclays found it very useful ( OIS discounting ?)I took Gamal's complaint to address the research published in leading academic finance journals (the likes of JFE, RFS, JF). They are not often trafficking in the kind of stuff that you refer to. Risk, Wilmott (funny that the built-in spell checker is complaining...), and the like (if there are any) do not register on the academic scale, and MF, QF, IJTAF and other math finance journals are (perhaps correctly) viewed as being from a different academic field of study.
 
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Gamal
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Joined: February 26th, 2004, 8:41 am

Why is financial research useless?

March 23rd, 2014, 2:32 pm

Exactly.
 
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slacker
Posts: 114
Joined: January 14th, 2006, 12:21 am

Why is financial research useless?

March 23rd, 2014, 6:26 pm

QuoteOriginally posted by: GamalI remember times when financial research wasn't useless. All the models currently used were published somewhere. I remember fast progress in interest rate modelling in the 90-ties and new copula every week after the year 2000. XVA should be the hottest topic these days but all publications are empty, I must create myself all needed tools.Is it because most of the 'talent' that can handle such kind of research are still in the front office. Maybe after this tug of war plays out we will see more research devoted to this field LinkAs regards to stuff in JFE etc, isn't that stuff always published at some lag. I mean what year did HJM officially come out? 1990? But it was already 'known' and worked on in the the field a few years prior right?
 
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Gamal
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Posts: 2362
Joined: February 26th, 2004, 8:41 am

Why is financial research useless?

March 24th, 2014, 2:08 pm

QuoteOriginally posted by: slackerQuoteOriginally posted by: GamalI remember times when financial research wasn't useless. All the models currently used were published somewhere. I remember fast progress in interest rate modelling in the 90-ties and new copula every week after the year 2000. XVA should be the hottest topic these days but all publications are empty, I must create myself all needed tools.Is it because most of the 'talent' that can handle such kind of research are still in the front office. Maybe after this tug of war plays out we will see more research devoted to this field LinkAs regards to stuff in JFE etc, isn't that stuff always published at some lag. I mean what year did HJM officially come out? 1990? But it was already 'known' and worked on in the the field a few years prior right?But finally it was published. So with other models: Dupire, Heston, Li, BGM etc. These days I look into JF and don't know what is all that about.
 
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riskguru
Posts: 79
Joined: August 11th, 2004, 4:24 pm

Why is financial research useless?

March 24th, 2014, 3:41 pm

But also consider how many of the top finance articles were not publised in mainstream finance journals in the first place! None of the M&M papers were, not Black Scholes, not Merton! I think that trend continues, except with even fewer genuine insights.
 
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Pat
Posts: 1207
Joined: September 30th, 2001, 2:08 am

Why is financial research useless?

March 24th, 2014, 5:26 pm

The SABR model got published in Wilmott (which turned out to be a very good decision!) because I got tired of arguing with editors of top-notch academic journals, who were telling me how fixed income desks operated in banks. Pointing out that I worked on a fixed income desk, and had a good take on how the other fixed income trading teams in NY operated, and which problems were important or unimportant to our trading teams, didn't dent their conviction of their own righteousness. Since I'm a practitioner, apparently I am automatically in either the unenlightened (if they are being nice) or "mentally slow" category. Maybe they're right. Maybe properly augmenting our sigma algebras with sets of exterior measure zero truly is the nightmare keeping our traders awake at night, and is going to engenger the next global financial crisis.
 
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okmijn22
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Joined: February 15th, 2014, 12:19 pm

Why is financial research useless?

March 25th, 2014, 12:37 pm

I agree with the divide between industry and academia.
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