Observers in academia have noted a conspicuous flow of finance scholars heading toward Yale SOM recently. Over the last two years, four highly accomplished researchers have joined the finance faculty at Yale SOM as full professors. The senior hires include leaders in empirical asset pricing, behavioral finance, and financial econometrics, who have collectively published dozens of papers and garnered thousands of citations.
What has drawn this caravan of star faculty to the Yale SOM finance group?
According to several new and longstanding faculty, the answer has to do with the same qualities that have made the group an intellectual powerhouse across a wide range of topics in finance: a collaborative, entrepreneurial culture and a shared interest in rigorous inquiry into meaningful questions in finance. “We’re building strength on strength,” says Andrew Metrick, the Janet L. Yellen Professor of Finance and Management, to describe how the new recruits fit in the group.
Tobias J. Moskowitz, Dean Takahashi ’80 B.A., ’83 M.P.P.M. Professor of Finance
Kelly Shue, Professor of Finance
Stefano Giglio, Professor of Finance
Bryan T. Kelly, Professor of Finance & Associate Director, International Center for Finance
A Collaborative Culture
If you ask Nicholas Barberis, an expert in behavioral finance who has been at the school for 15 years, what sets the finance group at Yale SOM apart, he’ll point to the culture of the group, which he says is both open minded and forward looking. “There is no dominant ideology,” he says, “which contributes to an entrepreneurial feeling within the group; each of us is encouraged to pursue our interests wherever they may lie.”
Tobias Moskowitz was the first of the new group of recruits to arrive at Yale SOM. He joined the school in 2016 as the Dean Takahashi ‘80 B.A., ‘83 M.P.P.M. Professor of Finance, after establishing himself at the University of Chicago as a leading empirical scholar of asset pricing, as well as a range of other topics, including real estate and sports. He explains that the heterogeneous topics he studies are united by more than just the fact that they interest him. “I primarily work with data,” he says. “I am interested in how prices evolve, and how people make decisions. Even my sports research—it has nothing to do with prices, but it has a lot to do with decision making under uncertainty.”
Moskowitz speaks of the culture of the group as one factor that appealed to him, and adds that he thinks Yale is a distinctly collaborative environment in which to explore the big questions in markets. “I tend to be a very social, collaborative kind of guy. I like that,” he says. “I think one of the things that’s important to a good research environment is certainly collaboration, and that doesn’t mean necessarily writing papers together. It means talking about ideas. It means criticizing each other’s ideas. It means giving feedback. It means encouraging people to try different things. When you’re in a good research environment, the whole is greater than the sum of its parts.”
Kelly Shue, another new arrival, agrees that the culture of the group can improve research output. “The culture of the group is very active and vocal, but also very collegial… People will still speak their minds, but it’s done in the spirit of building each other up and not bringing each other down.”
Shue’s main area of interest is behavioral finance. She started her research career studying peer effects, or how one’s friends affect one’s decisions. “From there I started exploring other behavioral topics, such as having the wrong expectations about what may happen in the future, using irrelevant comparison sets to form your decisions,” she says. Not surprisingly, the school’s strength in behavioral finance is part of what drew her to Yale SOM. She points to the work of Nicholas Barberis, James Choi, and Robert Shiller as examples of leading behavioral research happening at Yale. But she was also drawn to Yale because of its strength in so many other areas. “I wanted to move to the finance group at Yale SOM in part because the group has such a broad set of interests,” she says. “I personally work on behavioral finance and the group is very strong in behavioral finance, but there are people here who work in history of finance. They study art markets. They test theories of asset pricing and sports betting markets. So it’s just a very fun, broad group in terms of research interest.”
Moskowitz adds that a part of the culture at Yale SOM is that everyone is expected to participate in the discussion of new ideas—whether by attending academic seminars or joining the group for lunch. “People bring new ideas, and the ideas feed off of each other,” he says. “So having everybody in the room together is much more valuable than me going around to each individual office and asking the same questions.”
A Heritage of Creativity
William Goetzmann has been at Yale SOM as a student and a faculty member, almost uninterrupted, since 1984. While completing his doctorate, he studied with Stephen Ross and Jonathan Ingersoll, whom he describes as among the most influential finance scholars of their generation. Goetzmann says that from the beginning, the senior faculty encouraged people to pursue creative research agendas. “Over time, we’ve been able to attract top scholars who have eclectic tastes,” he says. “We’re less interested in trying to identify with one particular area of research, and so it’s common for our faculty to make contributions in many different fields. The same person may be all over the map when it comes to areas that interest them.”
Goetzmann, currently the Edwin J. Beinecke Professor of Finance and Management Studies, could be said to embody SOM-style eclecticism. He has published papers on art markets, real estate, hedge funds, behavioral finance, financial history, and stock market predictability, among other topics. He has also served for more than 20 years as the director of the International Center for Finance, which supports a wide range of faculty endeavors and serves as a conduit between the community within Evans Hall and numerous industry leaders and outside experts.
Andrew Metrick credits Goetzmann’s leadership of the ICF for helping to spur the recent growth in the group. “He has tremendous energy and has grown the operations of the place a lot over the last few years. There’s a first-class advisory board. There are a lot more events. It’s touching many more parts of the school.”
Metrick points out that the growth in the finance group mirrors the growth at the school more broadly. And, he says, the expansion helps the school expand the impact of its mission. “I feel like we really can support a broad range of faculty and of course offerings and of intellectual activities that make us a fully grown-up business school.”
For example, in 2014, the school launched an asset management area of focus within its MBA for Executives program. The creation of the new track was part of a drive to grow the EMBA program from about 20 students per class to close to 70. The decision to develop an asset management program reflected interest at the school in an area of finance that affects a great number of people (everyone who saves for retirement) and important societal institutions. Goetzmann says, “It has attracted fantastic people who care about the social impact of asset management, as well as industry practice and knowledge.” The program draws a number of speakers with expertise in asset management who might not have otherwise visited campus, and, Goetzmann points out, the students themselves are knowledgeable practitioners. “We have classrooms where we can have case studies, and we can learn from them, they can learn from each other about particular fields.”
This expansion builds on an existing area of strength for the school. Yale SOM has a long history of graduating some of the leaders in endowment management, in part because of its close association with the Yale Investments Office and Chief Investment Officer David Swensen. SOM graduates head the investment offices at Princeton University, the University of Pennsylvania, and Bowdoin College, among other nonprofit institutions that contribute to society.
The Real World of Finance
Another focus of particular interest in the group is financial stability. In the aftermath of the 2008 financial crisis and the ensuing Great Recession, faculty, including Metrick and Gary Gorton, the Frederick Frank Class of 1954 Professor of Management, have been exploring topics related to securitization, liquidity, and banking panics. In fact, Metrick and Gorton co-wrote an influential 2012 paper, “Securitized Banking and the Run on Repo,” that argued that the use of securitized loans as collateral in the repo market was at the nexus of the financial crisis.
In 2013, Metrick launched the Yale Program on Financial Stability to better connect academic research into financial crises with the regulators and policymakers tasked with trying to prevent such events and then mitigating them if they should occur. Recently, his focus has shifted to what he calls the “wartime” aspect of fighting an active crisis. “We’ve, in the last year and a half or so, been focused pretty exclusively on, What should we do in a financial crisis? What are the policies that work? Why do they work? Where did they work?” he says.
YPFS hosts a prestigious summer program that draws central bankers and other regulators to Yale each year. It has also hired about a dozen researchers who are focused on building out a deep and accessible set of case studies of past interventions in financial crises, along with lessons learned and best practices derived from those experiences. The project is called the “New Bagehot Project,” a nod to the author of the seminal text in the field, and was made possible by generous support from Jeff Bezos, Bloomberg Philanthropies, Bill Gates, the Peter G. Peterson Foundation, and an anonymous donor. Metrick and YPFS have also supported the launch of a new degree, called the Master of Management Studies in Systemic Risk, which brings mid-career professionals in central banks and other policy organizations to Yale for a year of study.
Metrick says, “This is an area where we’re drawing from a lot of strength that’s already at the school. We’re now combining that with a lot of practical knowledge and experience from the people who come to our programs and who visit.”
Added to the active research agenda of Metrick and Gary Gorton, the programs hosted and supported by YPFS create a critical mass around topics related to financial stability. One result of this cluster of expertise, according to Metrick, is that the school was able to attract Bill English, a former top staffer at the Board of Governors of the Federal Reserve System, to take a position as a senior lecturer in finance. The concentration of resources benefits students in the MMS-Systemic Risk program and across the university. “His [Bill English’s] courses on central banking and on monetary economics serve a very large population of students. It would’ve been harder to get off the ground unless we had this program,” says Metrick.
Understanding financial crises is one manifestation of what several faculty described as an interest in questions in finance that have a meaningful impact in the real world. A recent paper by Stefano Giglio and Bryan Kelly, two of the new arrivals to the department, used data from 19 commodities markets to better understand how investors respond to uncertainty as compared to actual swings in market prices. “We found they were insuring against periods of low volatility, which is completely at odds with theories about how investors should handle uncertainty,” Giglio says. “Our results help policymakers figure out what needs to be stabilized versus what doesn’t.”
Goetzmann notes that a number of faculty have done work that reaches beyond the academy. Gary Gorton and Geert Rouwenhorst have written influential papers on commodities futures as an asset class. James Choi’s research has been influential in the movement for companies to automatically enroll employees in retirement savings accounts. Matthew Spiegel’s research has helped explain when a particular mutual fund will generate above-market returns, and he co-teaches a course in which students manage an investment fund. Heather Tookes has studied how capital markets, including credit and equity markets, can affect firms’ financing decisions. “With all of our faculty,” Goetzmann says, “you could point to things that they’ve done that make a change in the real world, not just a contribution to academic knowledge, but a contribution to knowledge about the real world of finance.”
Kelly says that the department’s many contacts with the investment community are a boon to his research agenda. “An environment that’s more closely connected to the actual investment community gives me some real-world outlet for my research and access to the types of questions that people in the finance industry are dealing with on a day-to-day basis,” he says.
Bryan Kelly speaks about his future plans with the excitement of a kid stepping through the door of a candy store—for him, the jars and brightly colored bins are filled with unanswered riddles about markets that might be solved with sophisticated statistical methods. Kelly points out that the varied but overlapping perspectives of Yale SOM faculty can help tackle big questions. “By putting these different pieces together in interesting ways, I think you’ll learn a lot of new things about economics,” he says. “To what extent are asset prices influenced by people’s behavior that doesn’t fall in the traditional, rational paradigm?... To what extent do those influence the way markets are intermediated? Then, what can we learn about the types of risks that emerge in intermediated markets?”
In fact, Kelly’s data-intensive work requires collaboration with others in finance and in disciplines around the university. “I’ve always worked in an area that’s essentially at the interaction of finance, and asset pricing in particular, with statistics,” he says. “What that means is that I’ve been spending a lot of time trying to understand how you do things like prediction in financial markets when you have an extremely high-dimensional predictor set—thousands or millions of predictor variables.”
Kelly continues, “I’m working on those frontiers, and those frontiers very naturally interact with what you would typically have in a statistics department or a computer science department… So one thing that I’m excited about is helping to bring those two together—seeing what we can learn from what’s going on in the university more broadly and bringing them some interesting finance problems to which they can apply all the cool tools they work with.”
Kelly’s cross-disciplinary approach is consistent with what William Goetzmann sees as a signature Yale approach. “Part of the genius of Yale is that it’s figured out how to encourage faculty from different parts of the university to interact with each other. At any given time, for example, I might be interacting with the dean of the art school, or a colleague in sociology, or a colleague in history, and that really enriches the research activity and the teaching activity, as well,” Goetzmann says.
Yale SOM has long been a place where faculty collaborate across disciplinary lines. Since the implementation of the integrated MBA curriculum, team teaching has become a regular part of the core. For example, James Choi and marketing professor K. Sudhir team teach a case on Ant Financial, using their relative areas of expertise to explore topics in finance, risk, and the impact of big data on customers. Tobias Moskowitz, who co-teaches an elective course on sports analytics with Edward Kaplan, the William N. and Marie A. Beach Professor of Operations Research, values cross-disciplinary thinking. “I come at it from an economic and finance background. He comes at it from an engineering and operations research background. And it’s really great because we learn from each other.”
Andrew Metrick argues that the addition of a crop of energetic and accomplished scholars has improved the academic environment for everyone. “There are more research conversations in the hallway and I think that will be good for all of us. It’s good for the old fogies like myself to have new perspectives and new things to learn from some of the colleagues who have just joined us, and I think that those colleagues also feel energized being at a new place and getting the opportunity to interact with the incumbents that we have here.”