If a finance PhD is stupid, then an economic PhD is way more stupid, on average.
How can a Finance PhD be this stupid?
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I once talked with a guy who managed a several hundred million dollar portfolio that had no idea what he was doing. Does that mean all portfolio managers are idiots? No. In life, as in investment performance, there is a distribution. If you sample one out of several thousand observations, the statistical power of your test is pretty damn weak.
In my personal experience I find there is a strong correlation between academic pedigree and academic performance while there is almost no correlation between academic pedigree and industry performance. And that makes sense to me. OP hired someone with academic training for a non-academic job and gets pissed that they aren't trained right? He didn't think to conduct an interview and ask about non-academic knowledge? To me that reflects much more poorly on OP than it does Finance PhDs in general. I would suggest that OP hire smart people regardless of their training (I have several friends from LRM PhD programs who have phenomenal practical skills and understanding).
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You should push a little bit further your argument. Outside of academia the component of luck is huge...
I once talked with a guy who managed a several hundred million dollar portfolio that had no idea what he was doing. Does that mean all portfolio managers are idiots? No. In life, as in investment performance, there is a distribution. If you sample one out of several thousand observations, the statistical power of your test is pretty damn weak.
In my personal experience I find there is a strong correlation between academic pedigree and academic performance while there is almost no correlation between academic pedigree and industry performance. And that makes sense to me. OP hired someone with academic training for a non-academic job and gets pissed that they aren't trained right? He didn't think to conduct an interview and ask about non-academic knowledge? To me that reflects much more poorly on OP than it does Finance PhDs in general. I would suggest that OP hire smart people regardless of their training (I have several friends from LRM PhD programs who have phenomenal practical skills and understanding). -
I worked as a derivatives analyst for quite a few years and I am now in a PhD finance program. I made the switch over for personal reasons.
One big point I will emphasize is, PhD's with no work experience only focus on backtesting. They do NOT know how to do ex ante analysis or forecasting. That said, there is one big key difference that is the source of differences between Finance and Econ PhDs.
Finance PhDs tends to be more "practical" than econ PhDs. One big reason for that is that Finance PhD's have to teach MBA's, many of whom have worked in industry and you can't really BS MBA's. Econ will teach undergrads, who really know nothing and have to do what you tell them to and you can't really challenge them on anything. Also, PhD Finance programs only accept about 1-5% of applicants, and overall it is much harder to get into a PhD Finance program than Econ PhD. The reason is most Finance programs only graduate 2-3 people a year with 20-35K stipends, while econ graduates like 20-30 a year with maybe half getting 12K stipend and the rest nothing.
Econ PhD's spend about half their time dreaming up ways to relate utility to "expected utility" or "choice theory" with math equations. If human behavior deviates from a simple math equation, they simply call that human "irrational" and get mad at the data. Basically, beginning economists believe (because the math is easy) that a person should eat chocolate until their stomach bursts open. Advanced economists think that chocolate will eat less and less chocolate before their stomach bursts. Being able to write that in a math equation is what makes you an economist.
But as for finance, it is different. I do remember while at a macro hedge fund, we had a really neat model made by PhD finance guys where it told us exactly what assets our alpha came from. Pretty cool model.
But all in all, I would say that if you want market smarts along with book/modeling smarts it would be best to go with someone who has both industry experience and a PhD in finance.
My ranking would go:
1) PhD finance with market experience
2) PhD finance with CFA with no market experience
3) PhD finance
4) PhD stat/math
5) PhD economicsYou really have to be careful though with PhD econ. They tend to only backtest, and have no idea how to do ex ante analysis.
He said he was a specialist in asset pricing and very good in derivatives modeling which included our products, high yIeld debt.
But we did not understand what kind of asset pricing he knew as he could not value basic securities in the market, which is what our analysts do (all of them are pre MBA) undergrads.
He always blabbered some equations with drifts and diffusion which is completely irrelevant to what we do, we are focused on credit, valuation, market analysis, industry trends, spread analysis etc. He had no idea and unwilling to learn.
No one has answered my question, is this typical of a finance PhD, if yes we will not hire another one. If no, then we may interview another one for the job. -
That said, I think the economists at the investment banks level are really great. Andy Xie is one of my favorite bloggers of all time.
When Econ PhD's do go into industry, the one that gets filtered out do tend to be pretty good, once they understand how to do ex-ante analysis.
It is a crap shoot if you get them straight out of school. I would recommend poaching one from an investment bank or maybe consulting with an MBA professor for a recommendation. It seems that an MBA professor with access to the PhD student body will be able to filter out the ones who are motivated to go into industry for you.
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Oh, another thing, econ tends to pick those out with a solid math background.
As you know, math rules have been stagnant for quite some time. It doesn't change. So in general, econ is filled with people who do not know how to operate in an environment with changing rules and changing fundamentals.
Trying to encourage an economist to deal with a world other than their 18th century background is akin to making a puppy eat new food.
Basically, unless they are starving, they will not attempt to try it.
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I am an applied mathematician specializing in hydrodynamic instabilities.
For the past 3 years, i have dabbled with stochastic processes if finance.
I am now a pretty successful trader.
Economy is not a science.
Only mathematical finance.
In fact one can derive all mathematical finance from the no-arbitrage axiom.Therefore phd in econ/finance means nothing to me.
We Math/phys phds do look down on "social" phds. Rightly imho... -
OP may not be a troll. I'd like to make a couple of points.
1. In a Finance PhD program, we usually do not cover FI. Nobody knows/cares anything about calendars, conventions, resets, daycount, or different types or durations, VaRs, collateral currency, multi-curve pricing etc unless your thesis was specifically on it. We usually abstract away from all this and focus on the determinants of the equilibrium, transversality conditions, preferences of the representative agent etc. Having said that, anybody with half a brain could just pick up Hull and crunch through it in a few months, especially if you have a PhD in Finance or Economics and then use Brigo or Andersen for long term reference. Your hire did not do that and it's possible that he had a terrible attitude and a massive impostor syndrome.
2. Finance programs take 2- 6 students every year and lose a few along the way. The ones that survive are usually very high quality. Econ departments take 30-50 students every year, mostly because they need bodies to teach undergrads. Half of the econ PhDs from top schools publish nothing after graduating and go on to teach in liberal arts college because they discover that that was their true noble calling, ie they have no talent. A Finance PhD from a 50th ranked school usually has a higher contribution to research than half of the Econ students from top-5 schools. You obviously got a lemon from a top Econ school.
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That said, I think the economists at the investment banks level are really great. Andy Xie is one of my favorite bloggers of all time.
When Econ PhD's do go into industry, the one that gets filtered out do tend to be pretty good, once they understand how to do ex-ante analysis.
It is a crap shoot if you get them straight out of school. I would recommend poaching one from an investment bank or maybe consulting with an MBA professor for a recommendation. It seems that an MBA professor with access to the PhD student body will be able to filter out the ones who are motivated to go into industry for you.You seem dumb.
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Oh, another thing, econ tends to pick those out with a solid math background.
As you know, math rules have been stagnant for quite some time. It doesn't change. So in general, econ is filled with people who do not know how to operate in an environment with changing rules and changing fundamentals.
Trying to encourage an economist to deal with a world other than their 18th century background is akin to making a puppy eat new food.
Basically, unless they are starving, they will not attempt to try it.you seem dumb
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Oh, another thing, econ tends to pick those out with a solid math background.
As you know, math rules have been stagnant for quite some time. It doesn't change. So in general, econ is filled with people who do not know how to operate in an environment with changing rules and changing fundamentals.
Trying to encourage an economist to deal with a world other than their 18th century background is akin to making a puppy eat new food.
Basically, unless they are starving, they will not attempt to try it.you seem dumb
You seem to lack the ability to synthesize cognitive dissonance.
Which was my entire point
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I worked as a derivatives analyst for quite a few years and I am now in a PhD finance program. I made the switch over for personal reasons.
One big point I will emphasize is, PhD's with no work experience only focus on backtesting. They do NOT know how to do ex ante analysis or forecasting. That said, there is one big key difference that is the source of differences between Finance and Econ PhDs.
Finance PhDs tends to be more "practical" than econ PhDs. One big reason for that is that Finance PhD's have to teach MBA's, many of whom have worked in industry and you can't really BS MBA's. Econ will teach undergrads, who really know nothing and have to do what you tell them to and you can't really challenge them on anything. Also, PhD Finance programs only accept about 1-5% of applicants, and overall it is much harder to get into a PhD Finance program than Econ PhD. The reason is most Finance programs only graduate 2-3 people a year with 20-35K stipends, while econ graduates like 20-30 a year with maybe half getting 12K stipend and the rest nothing.
Econ PhD's spend about half their time dreaming up ways to relate utility to "expected utility" or "choice theory" with math equations. If human behavior deviates from a simple math equation, they simply call that human "irrational" and get mad at the data. Basically, beginning economists believe (because the math is easy) that a person should eat chocolate until their stomach bursts open. Advanced economists think that chocolate will eat less and less chocolate before their stomach bursts. Being able to write that in a math equation is what makes you an economist.
But as for finance, it is different. I do remember while at a macro hedge fund, we had a really neat model made by PhD finance guys where it told us exactly what assets our alpha came from. Pretty cool model.
But all in all, I would say that if you want market smarts along with book/modeling smarts it would be best to go with someone who has both industry experience and a PhD in finance.
My ranking would go:
1) PhD finance with market experience<br data-evernote-id="415" class="js-evernote-checked">
2) PhD finance with CFA with no market experience<br data-evernote-id="416" class="js-evernote-checked">
3) PhD finance<br data-evernote-id="417" class="js-evernote-checked">
4) PhD stat/math<br data-evernote-id="418" class="js-evernote-checked">
5) PhD economics
You really have to be careful though with PhD econ. They tend to only backtest, and have no idea how to do ex ante analysis.He said he was a specialist in asset pricing and very good in derivatives modeling which included our products, high yIeld debt.<br data-evernote-id="422" class="js-evernote-checked">
But we did not understand what kind of asset pricing he knew as he could not value basic securities in the market, which is what our analysts do (all of them are pre MBA) undergrads.<br data-evernote-id="423" class="js-evernote-checked">
He always blabbered some equations with drifts and diffusion which is completely irrelevant to what we do, we are focused on credit, valuation, market analysis, industry trends, spread analysis etc. He had no idea and unwilling to learn.<br data-evernote-id="424" class="js-evernote-checked">
No one has answered my question, is this typical of a finance PhD, if yes we will not hire another one. If no, then we may interview another one for the job.Good luck on the market, FT
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well, the gap between academia and practice is probably larger in Management and Finance than any other area. Wouldn't surprise me that a Finance PhD hadn't heard about duration...
LOL, no. There are many finance profs and management profs who work in industry too.