Abraham Lioui

Professor of Finance, teaches Financial Economics, Core Course, and Vice-Academic Director of the PhD programme

Research-wise, what do you specialise in?

I focus on the impact of monetary policy on asset pricing. However, at the moment, I am looking into whether using long-term returns as inputs improves the performance and reliability of asset allocation models—while the answer to that question will be of great practical significance, there are fascinating econometrics problems (arising from data scarcity) to be solved along the way and René Garcia will be a welcome fellow traveller! I am also preparing a Position Paper on short-selling in which I look at the impact of the September 2008 bans. While the bans on short-selling banking and insurance stocks were intended to stem falling prices, there is no consensus on the impact of these decisions and there are indications that unintended side-effects may have been substantial.

You have just finished delivering the ‘Financial Economics’ course to the inaugural class of the EDHEC PhD in Finance—what are your impressions?

Executives make up a little over two-thirds of the class; I always find teaching executives is a pedagogical challenge because it demands you pay increased attention to optimising students’ workloads and stressing the business relevance of the academic material. In business administration programmes, the compulsory finance courses often have the reputation of being dry and difficult and they are admittedly challenging to students with average quantitative skills… and I am referring to intermediate finance courses! So I must confess I was a bit anxious at the idea of teaching PhD courses to executives, although I had been told the group was highly qualified and motivated.

The experience turned out to be a very agreeable challenge. Course participants elected to specialise in finance and show much enthusiasm for the material. They come well prepared for class and make interesting contributions to it through questions and comments. Between residential weeks, PhD in Finance candidates keep (me) busy with questions and queries showing they want to deepen their understanding of the material covered in class and in the readings but also to go beyond this and look at specific questions in which they want to develop expertise or which they want to approach as possible topics for their dissertations. Students come with their minds open and with a genuine thirst for learning; they do not ask for easy shortcuts, one size fits all formulas, and exam tips. I am also very satisfied by the quality of the mid-term assignments and confident with students’ ability to pass their final exam. Altogether, I am very happy with how PhD in Finance candidates respond to the demanding material of the Financial Economics course.

Does it make any sense to have young graduate students and experienced professionals in the same classroom?

It certainly does! Compared to recent graduates, executives may have to brush up on their quantitative skills, but they bring maturity and an in-depth knowledge of the industry to the classroom. Interactions between these complementary groups are very conducive to learning and contribute to positioning the EDHEC PhD in Finance as a top academic programme with great business relevance. Asking students to work in pairs on assignments is a way to maximise the benefits of diversity.

Is the block-week organisation of the courses a hindrance to learning?

Quite the contrary, in fact! Each half-course delivered over a block week is a compendium giving PhD candidates the tools and concepts required to explore and understand course material. Between block weeks, students review what was covered in class (using course notes and video-recordings), and deepen and refine their understanding of the matters discussed in the classroom by getting down or back to the research papers in the course package, working on their assignments, and exchanging with their peers and the instructor—I spent quite a lot of time this term answering questions over the Internet or the telephone.

The block-week format is useful to structure the work and learning of students and I find PhD candidates efficiently use the time between residential weeks to master the key concepts, enrich their knowledge, identify outstanding questions, and stand back to reflect on the connections between issues.

What is the use of a PhD in Finance to an executive?

The programme allows participants to develop an integrated view of how financial markets and institutions operate, equips them with a thorough understanding of financial modelling, and trains them to do research. In a very competitive industry, heads of research and product development need this type of training to innovate. But it is also required of senior executives who need to have across-the-board financial knowledge to manage their institutions’ many lines of businesses and to stand on a higher intellectual platform to understand the unifying pattern behind these various activities.

With the hindsight of experience, what is your advice to PhD candidates?

From what I did wrong and right, I have learnt that it is of utmost importance to get exposed to the latest ideas and techniques defining the leading edge. To do that, you should first select a programme which is entirely devoted to your field and which boasts a critical mass of faculty members who contribute to defining the leading edge in the discipline—by this yardstick, the EDHEC PhD in Finance is a dream programme: it is 100% finance and host to leading minds in the field, people like Professor Pietro Veronesi, to name the latest professor to have joined the programme faculty. Then, you should read, read, and read to develop a very strong grasp of the state-of-the-art in your field and sow the seeds of new ideas—what you will learn during your time as a PhD student will, if it is state of the art, be useful for the next ten years of your career.

1 The Impact of IFRS and Solvency II on Asset-Liability Management and Asset Management in Insurance Companies, Amenc, Noël; Martellini, Lionel; Foulquier, Philippe; Sender, Samuel, EDHEC Risk and Asset Management Research Centre and EDHEC Financial Analysis and Accounting Research Centre, December 2006.

 

What is the purpose of the Dissertation Proposal?

The Dissertation Proposal aims to identify a research topic that will be the foundation of the student thesis. After a first year focused on learning fundamentals through lectures, doing assignments and taking exams, the student has to change mindset and think about an original research topic where he would like to contribute to the advancement of knowledge. My role is to help the student define such a topic in a precise enough fashion and make sure that there is potential for such original contributions. What is important is that the student makes the first effort to propose a topic. He or she cannot expect that I will suggest a topic. We expect our PhD candidates to be autonomous thinkers. So I am in an assistance mode. The first meeting with the student establishes this and then we can start the process.

What are the key difficulties encountered by the candidates?

There are three main ones. The first one relates to the identification of the research question. Often students arrive with a loosely defined question or with a research agenda that encompasses too many topics. A research paper has to focus on a precise and well delimited question often perceived as narrow by the student. My role is therefore to help the student in trimming down or in focusing his initial ideas.

The second main difficulty is to make sure that the intended topic is original. What we expect from a PhD student is creativity and innovation. They have to convince me that they go beyond what is said on this particular question in the literature. It means that they have to conduct a thorough literature review. This step is essential. A precision is in order: we do not expect the student to read hundreds of papers before he can submit the Dissertation Proposal. However, we do expect the student to have a clear overview of the existing contributions. Identifying the latest few good papers on the subject is a good way to start since they cite in general the seminal articles and the main contributions along the way. Originality can take many different forms. Students often feel that they have to come up with a methodological innovation. But a new dataset, unavailable to previous researchers, may allow the student to answer a question that was left unanswered because of a lack of appropriate data. On the other hand reproducing a study done with one country or a particular asset class with another country or a new asset class does not pass the bar for a PhD research paper, unless a regulatory difference for example may bring a new light on an ongoing issue. Relevance of the research question is another key criterion. The student has to think about the importance of the results in terms of changing the current academic or professional view on a particular issue. Will it modify a generally accepted paradigm? Will it change industry practices?

The last difficulty regards the format of the proposal. An academic paper must contain an introduction where the issue is motivated, a section where the methodology to address the issue is explained, a data section when the paper is empirical, a section with a discussion of the findings, a conclusion and a list of references. In a proposal we expect a similar structure except for the findings where expected results could be advanced instead. Often students tend to circumvent these standards and submit some loose drafts where it is very hard to follow their reasoning. For example, it is not exceptional that some do not even provide a detailed list of references or do not even think about the existence of data to address the issue at hand.

How concretely do you assist students in this involved process of elaborating their Dissertation Proposal?

The difficulty related to the format is easily addressed, and, in general, after one round of exchanges the problem is solved. The literature review is also an important step and the student receives some guidance during the elaboration of the proposal. The list of references will certainly be complemented when the student starts interacting with the thesis advisor. Several databases are available at EDHEC and are accessible to the students online. Concerning the topic and the issue, the process can take more or less time. First, it is very important to keep in mind that research is not a deterministic process: a topic is not universally original and, even if it is, the results of theoretical or empirical investigations may not be sufficiently significant. Research is inherently risky and originality is subjective. At the Dissertation Proposal stage, the goal is to have a readable draft which respects academic standards and can thus help identify the student preferred topics as well as potential advisors. Even if the student cannot converge towards a truly innovative issue, it is important that at the very least a sub-field of Finance is precisely identified. Finance Professors specialise in one field or another but certainly not all fields. A good fit between the student topic and the advisor is central to the success of the student. To sum up, the advising process at the stage of the Dissertation Proposal makes sure that the student becomes familiar with some conventions for conducting an academic research and writing a research paper.

How can a candidate identify an interesting potential topic for the PhD dissertation?

A lot of time and energy has to be invested in this process since the student will spend several years working on the topic. So the first recommendation is to choose a topic very close to your interests that can turn into a passion. Sometimes, while entering the PhD, the candidate is convinced that he or she has found a thesis topic. However, after a year of core courses that widens one’s horizons through the vast literature covered in lectures and assigned readings, they can radically change their initial intended choice. Somehow, this is a sign of open mindedness and is a good indicator of a successful PhD. Others will stick to their guns and achieve what they had in mind all along. They usually finish in good time. A candidate may also be especially inspired by the research agenda of a professor and decide to go further in one particular area identified in a lecture as particularly promising for a thesis. Another starter is to identify a unique database that researchers did not have access to. Often theories cannot be validated or falsified due a lack of relevant data. This is a great way to start a thesis since one does not need to resort to sophisticated methods to produce interesting findings. The data does the talking with relatively simple statistical methods. Of course this list of ways to get started is not exhaustive.

Is the choice of a topic irreversible?

Of course, the answer is no since data are often not as supportive as anticipated and initial findings may prove disappointing. But a candidate can hardly switch from a sub-field of finance to another one. While the same advisor can handle theses in both investment management and asset pricing, it is uncommon to find an advisor who can guide student in asset pricing as well as corporate finance. So the candidate has to work with the advisor to reorient his or her thesis in another topic that remains in the main area of investigation originally chosen. In this process the candidate will find all the support needed from the advisor. An important remark is that the student has also to put a real effort before deciding to change topic.

What are the main mistakes to avoid when submitting the Dissertation Proposal?

Overconfidence. As I said before, the originality of a topic remains a subjective matter. Therefore the student must spend a lot of time on motivating the main research question. Another typical one relates to the recycling of some research work done during their former professional life. Although it can address a relevant question, the work itself may not have a publishable value and a totally different approach may have to be used. The students are encouraged to dig ideas from their own experience, but interacting with a professor is the best hedge to make it viable for reaching a publishable quality.

Once you finally accept the Dissertation Proposal, what is the next step?

Well, the students are almost there. I submit their proposal to the Academic Director of the program for his approval. The next step is to assign an advisor to the student. A matching process assigns the most appropriate advisor given the topic and the choice expressed by the student but even if a student does not get the desired advisor, this is not an issue. He will receive the appropriate support. Moreover, remember that autonomy is the key quality we expect from a PhD student.