A professor at the Indian Institute of Management has written a paper that concludes that the typical MBA finance curriculum is falling behind (emphasis added):
Finance has come in for a great deal of criticism after the global financial crisis of 2007 and 2008. Clearly there were serious problems with finance as it was practiced in the years before the crisis. To the extent that this was only a gap between theory and practice, there is a need for finance practice to go back to its theoretical roots. But there is a need to re-examine finance theory itself.
The paper begins with an analysis of what the crisis taught us about preferences, probabilities and prices, and then goes on to discuss the implications for the models that are used in modern finance.
The paper concludes that the finance curriculum in a typical MBA programme has not kept pace with the developments in finance theories in the last decade or more. While a lot needs to change in finance teaching, finance theory also needs to change though to a lesser extent. Many ideas that are well understood within certain subfields in finance need to be better assimilated into mainstream models. For example, many concepts in market microstructure must become part of the core toolkit of finance. The paper also argues that finance theory needs to integrate insights from sociology, evolutionary biology, neurosciences, financial history and the multidisciplinary field of network theory. Above all, finance needs more sophisticated mathematical models and statistical tools.
Read the full paper here. It is important to recognize that this paper is more of an Op-Ed piece than a study, but I think it provides some food for thought.
I wasn’t impressed with the finance curriculum in my MBA and so I ultimately supplemented it with the (far more rigorous) CFA curriculum. Does it matter that students graduate with MBAs without cutting edge integrative theory? Aren’t all the real finance guys doing an MFin or CFA? What do you think?
Author Disclosure: MBA
Talk to Frank about this study
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Frank – would you then recommend someone at 34 years old forgo an MBA and instead get a CFA certification if s/he is interested in running a hedge fund/investment advisory service? Can s/he do well with just the CFA, or does an MBA provide additional value (worth the $150k and 2 years)?
Yes, I would recommend skipping the MBA and complete the CFA curriculum. The opportunity cost both in terms of time and money is too high for the MBA, and the value in terms of breadth and depth of finance exposure is too little.
This is a broad overgeneralization. At a top tier MBA school, the finance curriculum is vastly more in depth and cutting edge than the CFA. Professors generally consult some of the most successful funds, and are out in the field actually practicing what they teach. The CFA may be better than going to anything but a top tier school, but if you can customize your experience with teachers who literally are creating the ‘cutting edge innovative theory’, you will be better prepared. Anyways, the CFA is far from being cutting edge.
Of course, finance covers more than just investment theory, but the biggest improvement that can be made to the finance curriculum is to stop promoting the Efficient Market Theory, or Hypothesis, as you like, and go back to teaching Graham and Dodd.
I was lucky enough to get through school while they were putting the finishing touches on the EMT during the mid-60′s, before it became “de riguer.” Luckily, our dean, George Kozmetsky, had been partners with Henry Singleton in the founding and building of Teledyne. Warren Buffett has called Singleton one of the greatest capital allocators ever. The professor who taught portfolio management had been in charge of the University endowment stock holdings since before the ’30′s.
We know how Buffett and the rest of the inhabitants of Graham and Doddsville regard the EMT.