Financial Economics
Financial economics has been one of the most active fields of applied economics research in the last three decades, and MIT has been one of the centers for this research. The Black-Scholes-Merton option pricing formula was developed by MIT faculty members in the early 1970s. Stephen Ross, who holds a joint appointment as the Franco Modigliani Professor in Economics and the Sloan School of Management, developed the Arbitrage Pricing Theory and has made many other seminal contributions in financial economics. Today, a close collaboration between Sloan and the Economics Department provides students with an outstanding opportunity to learn about current insights and state-of-the-art methods in both asset pricing and corporate finance. The Sloan School finance group and the MIT Economics Department are located in the same building, only one floor apart. This provides a fertile atmosphere for research and student interaction.
A number of faculty members from the Economics Department and the Sloan School play a central role in teaching both undergraduate and graduate finance courses, and in supervising doctoral students. Stephen Ross teaches an introductory graduate course in financial economics. His research interests span virtually all sub-fields of financial economics. Some of his recent work tries to explain the mapping from the structure of consumer preferences to the structure of optimal portfolios.
Within the Economics Department, Olivier Blanchard, Bengt Holmström, and James Poterba also have significant interests in financial economics.
Undergraduate economics majors can enroll in the Sloan School’s introductory finance course for masters students. This is a very popular undergraduate elective.
A number of Sloan faculty members teach advanced graduate courses that are popular with Economics students interested in financial economics. Leonid Kogan works on theoretical issues in asset pricing and market equilibrium. Andrew Lo, whose research focuses on asset pricing and econometric analysis of security returns, teaches a course that emphasizes econometric tools and their application to financial markets. Stewart Myers studies a range of issues in corporate finance. Antoinette Schoar studies a wide range of issues in empirical corporate finance. Jiang Wang studies issues involving asset market micro-structure, such as the effect of transaction costs on asset prices and trading volume. Other members of the Sloan faculty offer courses that apply insights from contract theory and other aspects of information economics to problems in corporate finance. The Sloan School boasts one of the leading finance faculties in the world, and these faculty members are a valuable resource for students in the Economics Department.
Doctoral students from the Economics Department are welcome to participate in the weekly financial economics seminar that is hosted by the Sloan finance group. This seminar provides an opportunity for learning about the current state of research in the field of financial economics. Many graduates of the Economics Department Ph.D. program are now teaching finance at business schools in the United States and abroad.
