Originality, Independence, Relevance… and more - The PhD in Finance thesis at EDHEC

Originality, Independence, Relevance… and more

The PhD in Finance thesis at EDHEC

June is the busiest month in the calendar of the PhD in Finance at EDHEC. First-year students have just finished their core coursework and, while working on their final assignments, they are also preparing for the summer comprehensive exams. As if they weren’t busy enough, first-year students must now start thinking seriously about what their thesis topic will be. Beginning in the autumn, they will hopefully get the green light to start work on producing their first piece of scientific research in finance.

And second- and third-year students have just presented the latest developments to their theses during our annual Research Presentation Series. Second years discussed their research proposal: a pitch of their research question and the method to answer it. Third years presented their progress to date, their new results, and upcoming hurdles to complete the work. With most professors of the Finance faculty and fellow students in the audience, their job was difficult. Interruptions and challenges to their propositions were the norm. By the end of the exercise, some of the presenters discovered they were close to finishing, but that more work had to be done to convince us all about the strength of their results. Others realised they must `go back to the drawing board’ and reconsider some assumptions they made to make further progress. All of them received very good feedback and now know how to improve their thesis.

The common concern to all our students now is therefore the PhD thesis. And this concern will not only linger for the summer, but remain until the date of the thesis defence. But what is a PhD thesis anyway? And what does the EDHEC PhD in Finance expect from it?

Like any world-class full-time PhD programme in Finance, the thesis at EDHEC is the essence of the PhD degree. Coursework, assignments and exams are, of course, integral parts of the training towards the degree. But they all train candidates for achieving the number one objective: to create an original, independent and relevant piece of scientific work.

A thesis by an EDHEC PhD graduate must be original. It cannot be, for example, a description of what others have already done. A thesis is precisely about what has not been done yet. It must tackle a problem that nobody has solved before; or a problem for which no existing solutions is satisfactory. In his thesis, successfully defended in March 2022, Navneesh Malhan (1) was able to better predict the stock market return with his own indicator of downside risks in the economy. Navneesh conjectured that forecasting of the stock market performance could improve if one used not the traditional macroeconomic indicators of downside risk but instead a direct measure of how anxious professional forecasters are about the economy. Navneesh’s thesis is the first to use an Anxiety Index based on surveys of professional macroeconomic forecasters. Navneesh made an original contribution.

A thesis must consist of independent thought and work by the candidate. If the Faculty supervisor provides guidance and makes suggestions, the idea must be the candidate’s own. A thesis must not be any piece of work delegated to the candidate. Indeed, a PhD degree means that the person awarded it can lead in the pursuit of new scientific knowledge. Lukas Elmiger (2), who graduated in September of 2023, wanted to understand why low risk stocks earn higher returns than riskier stocks after adjusting their returns for differences in risk. Instead of immediately looking for an alternative explanation to the several existing ones, Lukas chose instead to decompose first a stock’s market risk, or beta, into two components:  the stock’s return volatility and its correlation with the market. Thus, he detected that the low-risk stocks’ excess returns were partly due to the already known return premium earned by low volatility stocks and partly to the mechanical momentum premium of low correlation stocks. Lukas’ independent contribution was to reduce the number of asset pricing puzzles, or `anomalies’, by proving that some puzzles are subtle manifestations of others.

Finally, an EDHEC thesis must be relevant to the practice of finance. Financial market participants must find a use for the insights or solutions advanced in a thesis by an EDHEC PhD in Finance graduate. We must all agree that the question is not only original, but that it needed answering. Maximilian Sauer (3) wanted to help portfolio managers using machine learning techniques to better understand how the computer algorithms were picking amongst the vast number of combinations of multiple return factors, in their search for improved portfolio performance. His results, presented during his defence in May 2024, are highly relevant to portfolio managers, he showed that much of the superior performance gained by machine learning algorithms comes from parsimonious pairwise combinations of small sets of factors. Thus, the portfolio manager can interpret the economics behind improved performance, as opposed to relying solely on the black box power of the computer and its learning algorithm.

Writing a thesis at EDHEC involves other challenges too. By design of the programme, our students are not full-time researchers. Most of them have full-time jobs to do while writing their thesis. In addition, their progress is under constant scrutiny, by their advisers, other EDHEC professors, peer students and External Examiners, who are world-leading experts on the thesis’ subject. It is clear then that writing a PhD thesis is a very difficult endeavour. Scientific discovery involves a long and often tedious or frustrating process. During it, we try, and we err a lot. Progress is almost surely slower than we hope or expect at the start. So why do we do it? I suppose it is for the same reason artists, artisans, or builders do it: To enjoy the immense satisfaction one gets from creating something original, ordered and beautiful from chaos. So my message to all our PhD students, especially to our first years, and to potential applicants, at this time of the year when the path towards the thesis defence surely looks dark, is to always remember the purpose of the journey: to achieve clarity. For some of us, few other goals in life are as important or rewarding. So look-up, give it your best at all times and enjoy the process, because it is supposed to be hard anyway.

(1) Essays on the Predictability of Asset Returns

More information on the programme curriculum is available here. 

Enrique Schroth joined EDHEC Business School in July 2019 as Professor in Finance. Previously, he held research and teaching positions at the Cass Business School, City University of London, the Amsterdam Business School and HEC Lausanne. He received his PhD and MA in Economics from New York University. His current research focuses on liquidity management, on value creation by shareholder activists and on CEO successions. His past research, in topics such as financial fragility, innovation, debt enforcement, and the value of corporate control, has appeared in leading academic journals, including the Journal of Finance, the Journal of Financial Economics, the Review of Financial Studies and the Review of Finance. Enrique won the prize for the best symposium paper at the European Finance Association Conference in 2009 for his research on the relationship between the bankruptcy code and the return premium across countries. He is Research Fellow at the Center for European Policy Research (CEPR).