Portfolios beyond Finance

Abstract

Many researchers in finance, especially as they advance in the profession, start to wonder as to what contribution the field really makes to the broader human endeavor of knowledge. Physicists uncover the truths of the quantum and the cosmos, biologists unlock the secrets of life, computer scientists discover the secrets of artificial intelligence – but what does the finance researcher contribute, if at all? Can one really ever compare talk about ad hoc heuristics like PE or EPS or YTM with discussions about atoms and genes? Among finance academics, this is jokingly described as the mid-life crisis. Yet, many researchers take this question very seriously, and a number of efforts have been made, in recent years, to distill the essence of a “finance way of thinking.” In other words, a list of techniques that are unique to finance, which other fields can borrow from us. Presently, the technique that seems to be on top of such lists is the portfolio and factor approach in finance. In fact, academics like MIT’s Andrew Lo have started advocating such approaches to distant fields like healthcare and biomedical research.