Professor Kevin Aretz, Programme Director for MSc Quantitative Finance, has discussed his experience working in asset management and the finance sector before moving into academia, and how this experience has shaped his teaching methods for MSc Quantitative Finance, as well as for other finance courses within the division. You can read more about Professor Aretz’s experience on his website.
“One of my lifelong beliefs is that, for teaching to be relevant, it has to directly influence what practitioners do. As a result, I am extremely happy to say that this is the case for the teaching in the MSc programme for which I am ultimately responsible, which is the MSc in Quantitative Finance, but also for the other MSc programmes offered by the Division of Accounting & Finance.
I was able to see that first-hand when, directly following my PhD studies, I worked at a large and well-known asset management company in London, close to the Bank of England. I was employed in their research department, the “Research Lab.” Most colleagues in that department, luckily including me, spent a large chunk of their time looking into exactly the academic research on which the teaching in the MSc in Quantitative Finance in Manchester is based.
To be more specific, our job was to scan the academic literature for hot recent papers in asset pricing and investment, often published in the leading finance journals in the world, and to find out whether the trading strategies explicitly or implicitly suggested in those papers could be turned into profitable trading strategies in practice. To that end, we started with “back-testing” the strategies. Back-testing implied that we, for example, reran those trading strategies on only those assets we deemed to be investable (e.g., the highly liquid assets of large well-established companies).
We also reran the strategies on alternative asset classes and sample periods. If the academic work had, for example, only studied the profitability and risk of some strategy using stocks over the 1980-2008 sample period, we also evaluated it on bonds, interest rates, options, commodities, etc. and over sample periods often going back much further than 1980. To do so, we had access to the large proprietary investable asset database of the company, carefully built up over many years. Once we were satisfied that a trading strategy was sufficiently robust in practice, we built a case for the strategy to be implemented on a trial basis, which we formally presented to senior managers and desk traders. If we were able to convince senior managers and desk traders too, the trading strategy would “go life,” initially only for a short time window and using only a restricted amount of capital to keep risks low.
Having returned to academia many years ago, it still gives me great pleasure to see how closely aligned the teaching in the MSc programmes in Accounting & Finance is with the experiences I made working in the financial industry. In my class “Derivative Securities” (taught in the first semester), for example, I talk about many trading strategies which my “Research Lab” colleagues and me evaluated all those years ago. Perhaps more importantly, students also learn how to “risk manage” the strategies (making them, for example, immune to general market developments), which was the job of the colleagues from another department in the company.
In the MSc dissertations supervised by me (written in the third semester), students come even closer to experiencing the trading strategies first-hand. In those dissertations, the students often take on my old job, with them initially identifying hot and topical trading strategies in the recent academic literature and them then extending those trading strategies along various dimensions. Just like I did so many years ago, students usually greatly enjoy that work.”