Advice for finance doctoral students

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Advice for finance doctoral students

• Professor Matti Keloharju
• Helsinki School of Economics
• This presentation reflects my personal opinions
  on finance research. It does not necessarily
  reflect the policy of the Helsinki School of
  Economics or GSFFA.

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Contents

• Goal of doctoral education
• Coursework
• Licentiate thesis or not?
• How to structure a dissertation?
• U.S. style dissertation design
• How to choose research topics?
• What kind of finance research is published in the
  major journals?
• Different research strategies for a major
  publication
• Why is it difficult to publish papers in major
  journals using Finnish data?
• Key relative advantage for doctoral students over
  professors
• Types of research opportunities in Finnish
  finance research
• Where to search for information?

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Contents

• Writing a paper
• Where can you get comments?
• Conferences
• Why go to conferences?
• Which conferences to go to?
• Referee process
• How do you resubmit a paper?
• How long does it take to publish a paper?
• Journals
• Which journals should you follow?
• Journal subscriptions
• International experience
• U.S. academic finance job market

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Goal of doctoral education

• Although most students have other career goals,
  the goal of doctoral education is to train
  students to become researchers.
• A doctorate does not yet make you a mature
  researcher. Rather it is a license to do research
  on your own.

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Coursework

• Coursework is not only obligatory but also useful
  in identifying research topics. Therefore, and
  because it may be difficult to do good research
  until one has grasped all the fundamentals, it is
  often not advisable to hurry with thesis topic
  selection.
• Particularly students with ambitions for staying
  in the academic career are encouraged to
  strengthen their analytical and finance skills
  with additional methods and finance courses, and
  by acquiring fluency at least in one programming
  language.

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Licentiate thesis or not?

• Pros
• If the study is not good enough to be a doctoral
  dissertation, it may be good enough to be a
  licentiate thesis
• Salary increase and merit in certain academic jobs

• Cons
• Involves significant fixed costs / often
  inefficient use of time and effort
• Licentiate degree relatively unknown outside of
  Finland

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How to structure a dissertation?

• Monograph
• Difficult to get comments because
• No one wants to read over 30 pages
• Difficult to present in a seminar
• Requires additional work in rewriting the papers
  into article format for journal submission
• Greater focus means smaller fixed costs
• Greater effort in one project may make project
  management more difficult

• Collection of essays
• Easier to get comments from others
• Papers are readily in journal format
• Greater fixed costs in becoming familiar with
  several topics
• You learn more if you become familiar with
  several topics
• May be difficult to find a sufficiently narrow
  topic that captures the essence of all essays
• Easier to divide research effort into manageable
  projects

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U.S. style dissertation design

• Three essays of which one is really good (truly
  novel with good results)
• The two other essays also need to be solid work
  but not of similar quality as the lead essay
• The total impact of one really good and two
  mediocre essays is usually greater than that of
  three good essays.
• (Not often applied in Finland the dissertation
  includes both theoretical and empirical analyses.)

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How to choose research topics?

• Krishna Palepu (HBS) 75 of contribution of the
  paper has been fixed once you fix the topic
• Be VERY careful in determining the topic
• More experienced researchers can often very
  easily judge whether a research topic has
  potential or not
• There are significant fixed costs involved in
  every research project, yet the credit from top
  quality research can be (should be) very much
  higher than from mediocre or low quality research
  gt It may make more sense to do fewer superb
  research projects than more mediocre research
  projects!

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How to choose research topics?

• The topic should be of interest to other
  researchers and, preferably, also to
  practitioners.
• However, it may not be optimal to choose your
  topic based on your current job or current
  interests
• Most topics are not suitable for a PhD
  dissertation
• The time you are likely to spend for preparing
  your dissertation is much longer than the time
  you are likely to spend in your current job.
• Some research areas mature very fast. Students
  who cannot work on a full time basis on the
  dissertation should avoid such topics (or, at the
  very least, base their dissertation on essays so
  that they can focus on a sufficiently narrow
  project).
• The dissertation often forms the basis for the
  publication record. For students with ambitions
  for an academic career, it is thus very important
  to carefully assess the publishability of the
  dissertation work before fixing the topic.

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What kind of finance research is published in the
major journals?

• Theoretical research analytical models
• Empirical research
• Rarely research design / simulation studies
• Rarely case studies (in practice, JFE only)
• Rarely experimental work
• Almost never questionnaires
• Almost never conceptual studies (JFE only)

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Different research strategies for a major
publication

• Use of Finnish data
• Identify hypotheses which
• Are of interest to U.S. researchers
• Cannot be tested with U.S. data
• Can be tested with sufficient Finnish data
• Note that these criteria often lead to a niche
  strategy
• Use of U.S. data
• Very competitive
• Use of data from several countries
• Very competitive, used to be less competitive
  than use of U.S. data
• Theoretical research
• Problem lack of theoretical finance research /
  advice in Finland

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Why is it difficult to publish papers in major
journals using Finnish data?

• Tundra bias
• Often very small samples by international
  standards
• Remember that it is difficult to publish in major
  journals using any data

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Key relative advantage for doctoral students over
professors

• Time gt Doctoral students may afford to take
  meaningful but very work intensive projects that
  professors (unless equipped with the necessary
  research assistance) would never take

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Types of research opportunities in Finnish
finance research

• Non-canned data more easily available than in the
  U.S.
• Legal liabilities small sensitive data better
  available
• Small country everybody knows everybody
• Very large market shares data from one source
  may give a good idea of the entire market
• Executives respond surprisingly positively to
  data requests and well structured surveys.
  Example Mervi Niskanens dissertation. The flood
  of research in the last few years has probably
  decreased this willingness, however.
• Interesting institutional features, e.g.
• Allocation patterns in equity offers public
  information
• Brokerage codes publicly available in stock
  market transactions (market microstructure
  research)

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Types of research opportunities in Finnish
finance research

• Changes in institutional setting, e.g.
• Change in corporate governance culture / banks
  decreasing role / foreign investors increasing
  role
• Change in regime from rights offers to
  book-building offers
• Evaporation of voting premiums
• Tax reform
• Nokia interesting as such!
• Identify interesting and untested hypotheses that
  can be quantitatively tested within Nokia.

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Where to search for information?

• Published papers in most journals can be
  relatively easily retrieved from databases
• Check references of published studies
• Identify first a key paper in the literature.
  Then use ISI Web of Knowledge to list all papers
  that cite this paper.
• Finance Literature Index (by Jean Heck,
  McGraw-Hill)
• Working papers are often most important. Apart
  from using a search engine, they can be found
  from
• SSRN.com
• Conferences web sites
• Universities and NBER (National Bureau for
  Economic Research) working paper series
• Individual researchers web sites

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Writing a paper

• Introduction is the most important, yet often
  most ignored part of the paper. Most researchers
  only read the introduction (if even that).
• Remember that a good introduction should include
  a very good motivation for the paper (Why is the
  paper important? How does it contribute to the
  literature?) and essentially a full description
  of the main results and conclusions. Example
  Rajan et al, JF, February 2000.
• Particularly in corporate finance studies, a
  quote from a prestigious business magazine (e.g.
  Business Week, Economist, Euromoney) can be a
  very useful motivational tool. Example Torstila,
  2001.

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Writing a paper

• Remember that the clarity of your writing has a
  very important impact on how others (including
  the referee, particularly in major journals) view
  your paper. Good research results do not speak
  for themselves they need to be spelled out!

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Where can you get comments?

• Own advisor(s)
• It is very important to have an advisor who (1)
  knows the research subject (2) is interested
  in/committed to the advisory work on a regular
  basis (3) shares the same paradigm.
• Colleagues
• Remember reciprocity!
• Seminars
• MUCH more important than conferences because
  there is much more time per presentation and
  audience is focused on just one paper
• When you are a more senior researcher or on the
  job market, you may get seminar invitations from
  abroad

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Where can you get comments?

• (Other researchers interested in the same
  subject)
• Often difficult to persuade foreigners to give
  comments. Demonstrated ability to do good work
  and reciprocity may help.
• Dont ask the same person to comment on the same
  work twice unless the person explicitly asks for
  that!
• The Foundation for the Advancement of Finnish
  Securities Markets provides grants for advisors
  that come outside of the home university.
• (Conferences)
• (Tutorials)

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Why go to conferences?

• Meet other people
• Make yourself known (respect, references,
  refereeing etc.)
• Potential data sources
• Potential co-authors
• Useful contacts for later administrative purposes
• Get new ideas (most papers are available on the
  web)
• Get comments on own research (rarely good
  comments)
• Get a job (AFA)

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Which conferences to go to?

• American Finance Association
• Huge conference in early January in some large
  U.S. city
• Part of Allied Social Science Association at the
  same time in the same place conference for
  American Economic Association, Econometric
  Society etc.
• Affordable but luxurious conference hotels,
  nominal conference fee
• Excellent paper quality gt very difficult to get
  your own paper into program (deadline for papers
  in March on previous year)
• Lots of interesting sessions in other
  simultaneous conferences as well
• Huge job market for graduating PhDs for North
  American and some European Schools
• Everybody is there, but everybody is
  interviewing job market candidates so you dont
  meet them

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Which conferences to go to?

• Western Finance Association
• Small finance-only conference in late June in
  some idyllic city in Western U.S.
• Everybody is there, and you actually see them
  because there is no ongoing job market
• Excellent paper quality
• Very difficult to get your own paper into program
  -- but perhaps somewhat easier than in AFA
  because the refereeing process is blinder
• Deadline for papers in November on previous year
• Often expensive and luxurious conference hotels,
  nominal conference fee

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Which conferences to go to?

• European Finance Association
• Financial Management Association
• European Financial Management Association
• Conferences on special issues
• Worth considering, but paper quality is typically
  much lower than in AFA and WFA. However, own
  chances in getting the paper in the program is
  much greater (and it is good practice for more
  demanding audiences).
• May have high conference fees gt Less bang for
  buck!
• If you want to socialize with Europeans, go to a
  European conference.

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Referee process

• When you submit your paper to a refereed journal,
  it will go to the editor. The editor will ask for
  opinion from one or more referees. Referees are
  (in prestigious journals) typically researchers
  who work in the same area (and in less
  prestigious journals they may be almost
  anything). The editor will make the publication
  decision based on the referee reports and his own
  assessment.
• Many, if not most, referee comments are stupid
  (and some are utterly stupid). The level of
  stupidity is inversely related to the quality of
  the journal and the clarity of your writing.
• Even if your paper has been rejected on stupid
  grounds, dont complain about your treatment to
  the editor!

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Referee process

• The referee has much less time to become familiar
  with your paper than what you have had during the
  research process. Although the referee is likely
  to be more interested in the topic than the
  average finance scholar (because of self
  selection in specialization), he/she is likely
  to be much less excited about your paper than
  what you are.
• Incentive problem in most journals, particularly
  in good journals, it is a smaller reputational
  risk to reject a good paper than to accept a bad
  paper. Moreover, it often takes much less time to
  write a report that identifies a few reasons why
  the paper should be rejected than by writing a
  report that tells in sufficient detail what the
  author needs to do to improve the paper for the
  next round (and, perhaps, in subsequent rounds)
  gt The referee has an incentive to reject your
  paper.

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Referee process

• The referee may make the rejection decision on
  different grounds than what is written in the
  referee report. For example, after having read
  the introduction, the referee may simply think
  that your paper is boring, or that you are sloppy
  (grammatical errors or otherwise sloppy writing)
  and then quickly find a few excuses based on what
  the paper can be rejected.
• A paper is almost never accepted to a journal as
  such because
• Most papers are not that good
• The referee wants to signal to the editor that
  he/she has read the paper and can contribute

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How do you resubmit a paper?

• If the editor asks you to resubmit a paper, and
  you choose to do so, remember to write a polite
  reply letter to the editor and the referee(s)
  which detail (comment by comment) how you
  addressed their criticism.
• It is advisable to apply this practice also to
  the pre-examination process.

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How long does it take to publish a paper?

• Prepare yourself that it will take on average
  five years from the start of the project until
  you see your paper published.
• In addition to doing the research, the
  following takes time
• Obtaining comments from other researchers
• Obtaining editorial feedback
• Revising the paper according to editorial
  feedback
• You may have to try several journals until the
  paper is accepted
• You may have to refocus the paper because of
  competition that pops up during the research
  process
• Publication lag after the acceptance of the paper

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Which journals should you follow?

• Journal of Finance (JF, AFA association journal)
• Very broad journal, and also the best
• Includes both technical and less technical papers
• Very fast journal (on average about 2 months)
• Journal of Financial Economics (JFE)
• Publishes all kinds of papers but has a clear
  bias towards empirical corporate finance papers
• Publishes also clinical papers
• The fastest journal (editorial decision in less
  than 2 months)
• The least technical major finance journal
• Requires editorial assistant with superb command
  of English language

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Which journals should you follow?

• Review of Financial Studies (RFS, WFA association
  journal)
• Publishes all kinds of papers but has a clear
  bias towards theoretical and asset pricing papers
• The most technical major finance journal
• Slower than JFE and JF
• Journal of Financial and Quantitative Analysis
  (JFQA)
• Not quite as prestigious as JF, JFE, and RFS, but
  improving
• Focus perhaps somewhere between JF and RFS
• Slower than JFE and JF
• Journal of Business (JB)
• Relatively prestigious journal with mostly
  finance focus
• Terrible publication lag newly admitted articles
  are unlikely to be published until 2008

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Which journals should you follow?

• Top economics journals
• Journal of Political Economy, Econometrica,
  American Economic Review, Quarterly Journal of
  Economics
• Top accounting journals
• Journal of Accounting Research, Journal of
  Accounting and Economics, Accounting Review
• Good but less prestigious finance journals from
  your own field
• E.g. Journal of Empirical Finance, Journal of
  Corporate Finance, Financial Management, Journal
  of Financial Markets, Journal of Futures Markets
• Practice oriented journals
• Journal of Applied Corporate Finance, Financial
  Analysts Journal, Journal of Portfolio Management
• Practitioner magazines
• Business Week, Economist, Euromoney,
  Institutional Investor

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Journal subscriptions

• If you plan an academic career in Finance, it may
  make sense to make a personal subscription (cheap
  for students) of some of the major journals.
• Subscribe to Social Science Research Network
  (SSRN.com) electronic journals of your choice.
• Check also their web site frequently to look for
  additional interesting papers

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International experience

• If possible, try to get into some prestigious
  university as a visiting student/visiting scholar
• While this may not necessarily directly help you
  in your research (a half a year or full year
  visit may not be sufficient to make the necessary
  connections, and you may not be treated as well
  as regular PhD students), a visit will surely
  shape your view of how research should be done
  and help you in the idea generating process.

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U.S. academic finance job market

• Caveat very difficult (but not impossible) to
  get a job without a degree from a prestigious
  school / similar program
• The most important market is the rookie market
  for PhD candidates in the academic year they are
  about to get their degree
• Send applications by about late November
• Interviews, if any, at AFA in early January
• Best candidates from interviews invited to campus
  visit (costs paid)
• Best candidate(s) on campus, if any, given an
  offer in March
• Work starts in July/August
• Salary for newly minted finance assistant
  professors at top schools about 180,000

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Further useful advice

• Check out How to get ahead in graduate school
  without actually cheating, and the related links
  in the web page, at
• http//www.cob.ohio-state.edu/fin/phdadv.htm
• Check out How to publish in top journals, at
  http//www.ag.iastate.edu/journals/rie/how.htm
• Hamermesh, David, 1992, A young economists guide
  to professional etiquette, Journal of Economic
  Perspectives, Winter 1992.