Interview with Jaksa Cvitanic, Professor of Finance at EDHEC

Professor Cvitanic, PhD in Statistics from Columbia University, joined EDHEC early 2012. We discussed with him his reasons for choosing EDHEC and his current research work.

You joined EDHEC as professor of finance at the beginning of this year. Could we ask what motivated your choice of EDHEC?
I was looking for a school in Europe with a strong quantitative finance group, and EDHEC is one of the very top places of that kind. The school has been expanding, in numbers, in locations and in quality, hiring superb researchers, starting a unique PhD programme a few years ago, nurturing industry connections, as well as collaborating with top institutions around the world. I have been teaching in the EDHEC PhD programme for several years now, so I have become very familiar with the people and the culture of the place, and I like the energy and the vision. EDHEC has been on its way up, and will continue to do so, and it is very exciting to be a part of it, and hopefully contributing to its growth and success.

EDHEC-Risk Institute has quite a distinctive business strategy compared to other research centres. How do you view this strategy?
From a personal point view, it is a valuable option for me to be able to participate in research driven by applications from business practice. As a strategy, I find it very intriguing. It is indeed very helpful for a researcher in finance to be motivated by real-life applications, which not only gives relevance to academic work, but often also gives  unique insights and perspectives that facilitate better formulation of a problem to be analysed and better approaches to solving it. Thus, the strategy enables EDHEC-Risk institute to keep at a high level its reputation  both among its academic peer institutions and among industry firms. The best thing about it is that it works: not only the projects run by the institute are appreciated for it usefulness in the real world, but also the results get published in top journals and  recognised by the academic community.

Could we ask about your current research work? What themes are you working on at the moment?
I am involved in a project in which, with co-authors, we model a relationship between a hedge fund and its customers. The hedge fund has the advantage of having a better information about the investment opportunities it faces, and the advantage of being the party  making a "take-it-or-leave-it" offer in terms of the compensation fees, but the investors have the advantage of being able to take (a part of) their money and invest it elsewhere. We aim to find the best compensation scheme, as well as discover what the optimal investing behavior of the fund and the investors is, in such a situation. Another theme is finding optimal ways to provide incentives to the managers for which the outcome of their work, for example the firm value, is not directly observed, and there might also be  a possibility for them to manipulate it. In addition, the manager might have an unobserved skill level, so that the contracts agreed upon have to take into account the possibility that the managers may be of low or high ability.  Still another topic of interest to me is high-frequency trading, and its effects on the market volatility and welfare of all the market participants. Finally, with some colleagues from EDHEC, we are thinking about starting a project to study the effect on the market of imposing new regulatory rules on portfolio positions, and analyse if and how, in equilibrium, such rules would change market parameters such as asset price uncertainty, asset returns,  interest rates, as well as financing, investment and employment decisions of firms.