Finance Ph.D, BS to Ph.D or Masters First?

XaviFM · December 4, 2011, 3:40am

Financial</a> Rounds says that the best preparation for a Ph.D in Finance is a MS in Applied Economics. Should I try to do something like that, possibly with a program such as the online one from University of North Dakota, before applying to Ph.D Finance programs? I would otherwise consider a MS in Finance. The reason I would do an online program is so that I could work in the private sector to gain the perspective prior to entering the Doctoral realm with a goal of professorship.

My undergraduate program is in Economics with seconds in Math and Business.

DrExPat · December 21, 2011, 1:38am

The online program from UND might even hurt your admission chances. Finance PhD programs tend to be rather small, admitting just a few students each year. So you’ll be competing for one of 100 odd slots. (If your goal is a professorship, you’ll need to attend a top 25 program.)

Primarily you will need to show that you are adept at the same sort of math required for an econ PhD program. (There are more good resources available on the math preparation for econ PhD aspirants than there are for finance.) You need to take these courses as part of a traditional and fully accredited program. The more academically respected the program, the more it will enhance your application.

However, you should be sure that whatever you study and however much you pay for your studies is worth it to you regardless of whether you eventually gain entry to a finance PhD program. There are limited slots available in the better programs, so many of the people that don’t get accepted are just as qualified as those who do. There is more than a little luck involved.

XaviFM · January 1, 2012, 3:25pm

DrExPat:

I’m of a relatively meagerly represented ethnic group in the United States and I’ve only been able to identify 3 professors in the United States of my particular ethnic group and two of them are at a solid (but not top 25) AACSB accredited Finance Doctoral program. Would you imagine that the cultural connection could feasibly be the “…more than a little luck…” that I would need to gain entry to a program?

Also, you mentioned math required for Ph.D in Economics programs, would it be more valuable to earn a Bachelor’s in Mathematics along with my BS in Economics? I have enough time left that I could feasibly accomplish that task.

Thank you for replying.

sakky · January 2, 2012, 6:46pm

I agree with DrExPat that the number of slots at top Phd finance programs is limited.

Certainly I can agree that it is more convenient to obtain a top finance placement from a finance PhD program specifically. But I would hardly fret if you can only be admitted to a program in a related discipline, if top-ranked. What really matters are whether you can publish in top finance journals and obtain recommendation letters from top finance faculty, not the specific discipline of your PhD.

sakky · January 2, 2012, 7:00pm

Yes it would. In fact, I would go so far as to say that obtaining a BS in math may (somewhat ironically) actually be more important than obtaining the BS in economics, as academic finance/economics is more akin to mathematics than, frankly, to economics.

But if the BS in Math is infeasible, you should at least take extensive coursework in upper-division math and - perhaps best of all - obtain rec letters from math faculty. Ultimately, you want to demonstrate strong math facility.

BanjoHitter · January 3, 2012, 8:11am

Don’t listen to Sakky.

While people can enter finance academia from other disciplines, such as Economics, it is very difficult to do so and is becoming increasingly more difficult as Business PhD programs grow. Right now, the Econ academic market is flooded - there are many more graduates than there are schools hiring. In addition, Econ academic positions pay substantially less and don’t have the same facilities (business schools tend to be nicer buildings with more amenities because attracting students is important). Because of these factors, the top Econ students always try to cross over to business. Is there room for these students in the top Finance schools? Not really. The finance job market right now tends to be 30-40 PhD’s granted per year and 20-30 openings. So the market is already full with Finance PhD’s. And this ignores one of the biggest issues: in business academia schools want to know that you can teach MBA’s on day 1. In many Finance PhD programs you teach undergraduates while in the program, so your teaching scores demonstrate an ability to teach effectively. In an Econ program you likely won’t teach and won’t have teaching scores, so you’re more risky to faculty.

Can you make the jump from Econ PhD to Finance academia? Sure. But you have to have research highly targeted at business journals, a publication or two in a business journal, an advisor well connected in Finance circles, come out of a very top econ program, and a great bit of luck. In short, unless you’re a superstar, it’s not going to happen. On the other hand, to go from Finance PhD to Finance academia you just need to go to a good school and have one publication in a good journal.

Forget the second degree. Get a B.S. in a related quantitative field (Econ, Math, or Engineering is fine) and get into research. Find faculty at your school willing to work with undergraduates, talk to the faculty about their research, and ask if anyone is willing to let you work as a research assistant for free. If you can get your name on a published paper by graduation, you’re golden. Even if you can’t, having a clear research interest with demonstrated experience in that field gives you a leg up.

sakky · January 3, 2012, 6:40pm

Don’t listen to BanjoHitter.

Right there is false assertion #1: business PhD programs are not growing; indeed, they’ve been shrinking or, at best, remaining at a constant population, for nearly a decade now, if not more.

False again - the top Econ students do not ‘always’ try to cross over to business. Only a minority do so, precisely because most have no interest in business specifically and therefore appreciate the far greater research and teaching freedom that a pure economics department provides.

As a case in point, how many John Bates Clark Medals - which are the rough equivalent of the ‘Junior Nobels’ granted to the most promising young economics scholar in the world - were granted to an economics professor in a business school? I believe the last one was Kevin Murphy at Chicago Booth, and was awarded nearly 15 years ago. The overwhelming majority of JBC Medals(to say nothing of the actual Nobels) in Economics were awarded to those in pure economics departments, despite the fact that top universities employ comparable numbers of economists in their business schools as they do in their pure economics departments. (Granted, there are many universities that don’t have business schools at all, but with the exception of only a handful such as Princeton, Caltech, Brown, or JHU most of those universities are not top economics research centers that are serious contenders for JBM’s or Econ Nobels). And I’m willing to take the bet that the next JBM winner will also come from a pure economics department rather than a business school.

On this point, I actually agree. But that’s hardly a strong driving factor. Let’s face it, if what you cared about was money and nice amenities, you wouldn’t join academia at all, even at a business school. You’d take a posh consulting or Ibanking job.

That statement is woefully false, at least at the top universities. In fairness to you, I agree with the sentiment, for I wish it were true, as I absolutely agree that business schools should base the hiring junior faculty on their evidence of their ability to teach MBA’s. However, I must report to you the deeply unfortunate truth that you no such evidence of strong teaching ability at all is required to be hired at a top finance department. And many (almost certainly most) new hires at top programs lack such evidence.

As a case in point, the most recent hire at the Finance department at Harvard Business School is Aditya Sunderam. He had never taught a single course in his life before he was hired. Yet Harvard hired him anyway. In fact, you can go down the line of the CV’s of the recent hires at the top finance departments, and you will find that most of them lacked evidence of strong teaching experience prior to their hiring.*

Now, I can agree that lower-ranked universities or teaching-oriented universities often times care highly about your teaching capabilities. But I don’t think we’re talking about them - at least, I wasn’t. I believe we were implicitly restricting the conversation to only the top research universities, and whether we like it or not, those universities accord relatively little value to evidence of your teaching abilities.

*To be clear, I am not accusing any of them of being bad teachers. I am simply saying that they had little evidence of strong teaching ability prior to their hiring.

Oh really? Then let’s work through some examples. In 2011, of the graduates of the Harvard pure economics PhD program who specialized in finance, not a single one who wanted a finance academic position failed to obtain one. Not even one. {Granted, some of them such as Chris Nosko obtained a ‘deferred’ placement, but every one of them obtained a placement. And Nosko’s deferred placement was not at a low-level finance program but at Chicago GSB.} And of all of them, I believe only one (Richard Towsend) actually had an A-level pub in a business journal by the time they graduated, and Towsend’s pub wasn’t even in a finance journal (rather, it was in SMJ). Hence, I believe not a single one of them had an actual A-level finance pub by the time they graduated. Heck, Stefano Giglio, who placed directly at Chicago GSB without even a deferral, didn’t even have a single pub in any journal, let alone at a top finance journal, by the time he graduated.

Now perhaps you might argue that 2011 was an exception. Then let’s consider 2010, a year in which, once again, every single Harvard pure economics PhD program who wanted a finance placement obtained one, and yet not a single one of them had a top finance pub upon graduation. {Heck, Noam Yuchtman to date still doesn’t have any pubs at all, and it’s already 2012.} Yet they were still able to place at top finance schools such as MIT, Berkeley, Chicago, etc.

2009: the same. Every pure Harvard econ PhD who wanted a finance placement obtained one, yet none of them had a top finance pub by the time they graduated. {Heck, Thomas Mertens apparently still doesn’t have any pubs to date, and it’s 2.5 years later.}. In fact, it seems that you have to go rather far back in time to come up with a pure Harvard econ PhD graduate who wanted a finance placement and didn’t receive one. {I certainly can’t remember any.}

Now, were those aforementioned people nonetheless ‘finance superstars’ despite lacking top finance pubs when they placed? I suppose it all depends on how you define ‘superstar’. But certainly lacking any top pubs upon graduation does not conform to the traditional definition of an academic superstar. Nor did any of them seem to require much luck, for like I said, every single one of them who wanted a finance placement obtained one.

To be sure, all of them graduated from Harvard. However, I doubt that such an analysis is specific to Harvard as I’m quite certain that the economics department at, say, MIT, Chicago, Stanford, etc. are also highly successful in obtaining finance placements for their students.

The common thread - which you pointed out - is that they are all top economics departments. But I’ve never recommended otherwise. Like I said before, you should attend a top-ranked disciplinary program if you want a strong finance placement.

But that need to attend a top-ranked program is true even if you attend a finance PhD program. One can simply browse through the list of new faculty at the top finance programs and note that, of the ones who have PhD’s in finance, only a tiny fraction will have obtained those PhD’s from lower-ranked finance programs. To use the finance department at Harvard Business School as an example, the number is probably zero.

XaviFM · January 3, 2012, 8:30pm

I have been looking at information from the phdproject.org and I am interested in working in research and academia. I’m a Junior in an Economics program at University of Washington and my degrees would be a BS in Economics and a BA in Mathematics with a Business Minor. I can feasibly do both at this point in time. My GPA is a shade above 3.6 right now and I’m big on family and so there are only really three places I think I’d like to do Doctoral studies, the Pacific NW (UW, WSU or Oregon), Chicago, or Upstate NY (Rensselaer, SUNY-Albany, Syracuse, NOT Cornell as they only confer a degree in Management).

I’ve spoken with admissions people at UW, WSU and Illinois Institute of Technology and it basically goes as follows, UW and WSU welcome you direct from UG but WSU has a MA in Economics which would give advanced standing in the Ph.D and they offer funding and TA positions for the MA program, as well as the Ph.D. UW’s program is longer but they grant you a MsBA (differentiated from an MBA) at a point in the program, while IIT wants you to have an MBA when you apply.

I’ve noted that Finance and Accounting Ph.Ds get paid significantly more than Econ Ph.Ds to work, but Economics Ph.Ds are comparable to Marketing and Management. I think that my mind would work best in a B-School, even if I were to have an Econ Ph.D simply because I like the practical applications and trying to see how they effect the real world.

I am not super focused on being in a “top-tier” program, since I note that a lot of them are in places I would not want to be. I have had a bit of banter back and forth with some of the faculty at Boston University and Boston College, but I don’t think that I would be happy in that city. I am drawn partially to the Finance program at WSU because there are two faculty members of my ethnicity at their program and since I have a lot of family in Seattle (Boeing), there is only one other professor I know of from my ethnic group in the USA and he’s at Columbia. I was accepted there for UG, but chose not to go because of how far away it is and how expensive it is compared to UW. I may kick myself down the line for that decision, but que sera, sera.

I am asking this question because I want to get an idea as to what I should focus on for this coming summer. I am going to spend it either cramming for the GRE or cramming for the GMAT. Many of these programs appreciate someone who is coming into the Doctoral program with a Masters level business degree, but when I look at the Masters in Economics at a school and compare it to the core foundation courses for the Ph.D in Finance I note that they are often the exact same courses. When this was pointed out to WSU, the reply was “of course, we would grant advanced standing for that” I also asked a similar question, with a similar reply, of the people at Nebraska (as I was thinking of following a girlfriend there).

So I guess my question is two-fold; as in what would best help me get into the Ph.D (and subsequently guarantee funding), and what would make me the best possible scholar once there? Many of these masters programs would allow me to have real-world work experience while I complete the degree. My impression is that would offer me perspective which would benefit me as a Doctoral candidate and later as a professor.

Maybe this makes my question more clear.

Thank you.

sakky · January 4, 2012, 12:04am

Heh heh, well the truth is, while business academia is more practically applicable than is academic economics, the truth is, it’s probably only marginally so, at least at the junior levels. As a business school PhD student or untenured junior professor, you will be expected to publish highly theoretical research papers that usually not only have little real-world applicability, but where such applicability is often times viewed as highly suspect, but rather as a signal that you’re not a ‘serious’ theorist. Even if you don’t have such an attitude towards relevance, you will be perennially interacting with journal referees/editors and hiring/tenure-committee members who do have this attitude. And they’re not going away.

As a case in point, since we’re discussing finance & accounting together, I would challenge anybody to point to all of the articles published in the latest issue of the Journal of Finance, the Journal of Financial Economics, or the Journal of Accounting Research - the three consensus preeminent journals in finance/accounting - that have direct practical application. I suspect that you won’t find even one that qualifies, and certainly the majority will not.

Research will make you more impressive. You realistically have two methodological paradigms within the realm of academic finance or accounting: analytical modeling and econometrics (as, for better or worse, alternative techniques such as experimental and qualitative methods have been relegated to the fringe). Learn one of them well. Peruse articles published in the latest issues of the top journals to understand the skillset you will need. Then try to write some working papers of your own. Even if they’re never published, the mere exercise of attempting to write your own paper will provide you with crucial knowledge about what skills you will need and what literature to read.

XaviFM · January 4, 2012, 1:46am

I read several abstracts, as the information is not widely available. Compelling information. I’m definitely interested in that.

So, if I were trying to get into such a program, I should focus on getting research or partaking in research even if it is in the field of Economics? If I were to partake in a Master’s program, I should be sure that it has research that I could present to the Doctoral admissions committee? That should be my focus instead of trying to obtain any sort of real-world work experience?

Thanks for the input.

starbright · January 4, 2012, 1:54am

I just want to add that Sakky said everything I would have said if I had gotten here earlier. I especially agree when he and Banjo disagree. I have a feeling that Sakky is a business school professor such as I am.

sakky · January 4, 2012, 7:12am

You may be able to access some published articles, albeit perhaps older ones, for free through online databases such as JSTOR through your public library. Newer ones may be available perhaps through ‘alumni library access’ from your undergrad school, although you might have to pay a yearly fee for such access. Many preprints that eventually do become published papers are available for free through SSRN, and some professors even provide links to their SSRN papers or even the final published prints, on their public website.

As an example, [George</a> Serafeim](<a href=“http://drfd.hbs.edu/fit/public/facultyInfo.do?facInfo=pub&facId=15705]George”>http://drfd.hbs.edu/fit/public/facultyInfo.do?facInfo=pub&facId=15705) provides access to many links to his SSRN’s or final prints on his public website.

DrExPat · January 18, 2012, 6:44am

XaviFM

PhD programs want students that they can place well upon graduation. Being an under-represented minority generally helps with that. It helps more to the extent that the group is under represented in the professorate relative to its representation in the student population. For example, it is probably more helpful to be African-American or Hispanic than Hmong.

I agree with both sakky and BanjoHitter. That is, if you want to be a Finance professor and work in a b-school, you’re far better off going the direct route. You could get there by going the econ route, but that would be much harder and much riskier.

Your strong geographic preferences are likely to be a problem. Searching for an academic position is not at all like a typical industry job search. If you ultimately graduate from one of the schools that you specifically mention, you are going to face some serious challenges when it comes time to find an academic position. If geography is very important to you, I would advise you to attend the best program that you can get into, regardless of geography, as that will open up more options and give you more control over your geography when it comes time to get a job. You’ll only be in your PhD program for 4-6 years and you should expect to spend virtually all of that time in your office working. Not that you’ll have any more time for family once you graduate, but in the unlikely event that you do get tenure, it is probably better to do so at some place that you want to live longer-term.

One big advantage of a good MS program is that it would give you an opportunity to focus and to bring your GPA up. Real-world experience will not be of much value should you ultimately succeed in getting an academic position. The classes may sound the same as PhD foundation courses, but at better schools the two will be separate. Mixed MS and PhD classes are something that I’ve never seen. PhD foundation classes go at a pace that would leave all but the top students from an MS program behind by the second week. The exceptions might be some of the basic econometrics.

UW has top-30ish Finance PhD program, but an MS from UW in Math, Econ, Stats or Finance would certainly help your chances of getting into a solid PhD program. You should be talking to research faculty at UW who can give you the best guidance. You’ll need them to write LsOR anyway, so the sooner you get to know one another, the better for you.

Good luck.

XaviFM · January 19, 2012, 7:55pm

Thanks. I appreciate it. The UW does not offer masters in Finance or Econ, but I would be graduating with UG degrees in Econ and Math (albeit fashioned to enhance the Econ).

I’ve got an idea for UG research I’ve been talking with an instructor about and I’m going to see about doing more research. So we shall see.

Thanks again.

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