HIM Program Benjamin Croitoru
Desautels finance professor Benjamin Croitoru’s research explores complex theoretical issues. His published articles are punctuated with esoteric mathematical equations. What drives him, however, is relatively simple: “I like to solve challenging problems.”
Nonetheless, doing the math is not enough, he says. “I will only write a paper if I also have an original story to tell, and if I believe that story can teach us something valuable about the real world.”
Consider, for example, this conundrum: two financial assets that are essentially identical should have the same price – that’s one of the first things finance students learn – but frequently they don’t. Why might that be?
Croitoru and a research collaborator pondered the question and came up with some tentative explanations. Among them: most financial models assume that investors are identical. But in reality, investors tend to be “heterogeneous” -- they have different personalities, different appetites for risk, different views on what will happen with the economy. Enough diversity among investors – combined with restrictions on trading activities, such as short-selling and leverage – lead to inconsistencies in pricing, Croitoru and his London-based colleague demonstrated.
While Croitoru’s work is heavy on quantitative analysis, it involves more “scratching on paper” than computerized number-crunching, he says.
Indeed, the financial crisis that has rocked the global economy in recent months “shows the limits of empirical models.” The econometric models “only tell you about what happens most of the time.” In other words, while essential, they’re not much good for understanding unprecedented developments, such as the global shock waves from the U.S. subprime-mortgage debacle.
To fully appreciate market risks, “you also need some economic understanding of what’s going on,” Croitoru says. In that sense, the recent volatility “should be encouraging to theorists.”
Prof. Croitoru, who grew up in Paris, joined McGill in 2000 after earning a PhD in finance at the University of Pennsylvania’s Wharton School. At Desautels, he teaches fixed-income analysis classes for undergraduate and MBA students, as well as PhD classes in theoretical asset pricing. He has also taught at McGill’s MBA Japan program in Tokyo, and will spend several months on sabbatical in China during 2009.
Like a number of other native Europeans teaching at Desautels, Croitoru appreciates Montreal’s lively cultural scene – with its many links to France – along with the convenience that comes with a North American lifestyle.
And while his narrow Desautels office is cluttered with finance books and journals, it is also testament to his fondness for much vaster spaces. One wall is dominated by landscape photos that he took during his several visits to California’s Death Valley -- a region marked by sand dunes, canyons and ghost towns. “I love the wide open spaces of the American West, its sweeping vistas, and its unending variety of landscapes,” he says.
-- Chris Chipello
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