So You Wanna Be a Finance Ph.D. Student?

Every now and again, I get asked whether I liked being a Ph.D. student and what it takes to get a Ph.D. in Finance. Here’s my general spiel…

To answer your questions directly–I love my job. It’s excruciatingly challenging and often frustrating, but by and large I get to work with smart, friendly people and explore topics of my choosing.

Ph.D. students aren’t particularly old. The average ages of first-year students (at Florida) is probably about 24. We have a girl who’s in her third year and she’s 23 or 24. If your candidacy is compelling, age doesn’t matter.

Frequently, interested applicants don’t have a good sense about why they’d want to get a Ph.D. Why not an MBA? What do you want to do with yourself? A PhD in finance is basically shoe-horning yourself into a professor job. In fact, if you want to go into industry jobs, you might find that employers give you grief for having a PhD–why would you waste all that time in school when an MBA would have been perfectly sufficient? Moreover, Finance PhD programs generally don’t have an abandonment option, i.e., if you were an econ grad student and hated it, you could at least get an MS in Econ after a couple years. Finance doesn’t tend to do that, though there are some options.

In the spirit of compiling some collective wisdom for prospective Finance PhDs, I compiled some thoughts. The notes below are compiled from talking with faculty and students, and apply specifically to research-oriented schools.

Also, take a look at Greg Mankiw’s advice for aspiring Econ PhDs. (The advice he gives on his blog seems pretty good.)

1. Why do you want to be a finance PhD student?

Someone a lot smarter than me wisely observed that a PhD in Finance is not “super-college” or a “super-MBA”. Not only is it vastly more difficult, it requires a quantum shift in how you approach ideas. Historically, you’ve been taught to reason deductively–here’s a general theory, now use it to determine what will happen, i.e., here’s a theory of gravity, what will happen when you kick a ball up in the air? But suddenly, a PhD program is all about developing a new skill–inductive reasoning–here’s a set of observations, let’s create a hypothesis to develop a theory. I kick a ball up in the air repeatedly and it always comes back to earth, therefore there must be something pulling it down. It’s a lot harder to adjust to that than many people perceive. (Moreover, people tend to be overconfident in their own abilities and underestimate how difficult it will actually be.)

If you’re considering pursuing your finance PhD at a research-oriented school, then your goal should be to produce publishable research (in top-tier journals) in finance. The name of the game here is getting your work published. The number of articles a professor publishes is the basic metric used to evaluate how successful they have been. Getting tenure, receiving promotions, etc. is primarily based on your publications. Since teaching and other job responsibilities take your focus away from research, these things often get pushed to the back-burner.

If you’re interested in teaching, then you should strongly consider applying to schools that are more focused on producing graduates that go to teaching schools.

2. What is a finance department looking for in a candidate?

Brainpower, initiative, evidence of hard work, creativity, math skills, stats skills, computer programming skills/experience.

On some basic level, brainpower is measured through your performance on the GMAT. Short of a 680, which I think is about the 90th percentile, and you’ve got some serious ground to make up. Clearing the 700-bar is a major step in validating that you have the raw horsepower to do the work. Your undergrad grades illustrate the level of persistence and diligence you possess. Your grades also give the faculty some insight into the quality of your math and stats background and whether you sought out the challenging material or simply took things as they were given to you.

3. What does a a PhD student do?

Your primary job is to do research. Both your own (for your second-year paper, your dissertation, your future work) as well as assisting your assigned faculty member with their research. A lot of that is grunt work–hand collecting data, writing SAS or Stata code to analyze data, and evaluating the result. In addition, there’s other grunt work–grading papers, doing random projects, holding office hours for their classes, etc. that take time away from your primary job. Somewhere, in all of that, you should be able to find some time to do your own classwork and work on your own papers.

In addition, you may be asked to teach some classes. Usually, the grad students teach a couple of classes at a time, once or twice through their four or five years.

4. So you’re still interested in doing this. What’s the best way to prepare?

Take math classes. A solid foundation in math will prepare you well for courses in asset pricing, microeconomics, statistics, and econometrics. Seriously, knowing linear algebra, differential equations, and advanced calculus is critical. I didn’t have that coming in, and I was way behind the 8-ball. Consider taking some first-year PhD courses, if possible. That has a couple of advantages–you can get a good sense of the kind of work that you’ll be asked to do and figure out if that’s really what you want to do, and you have the opportunity to show schools that you have the mental wherewithal to do PhD-level work.

Hope that helps…And good luck.