Friday 28 May 2021

Q&A with Peter Oertmann

We asked Peter Oertmann, Chairman of the Research Committee to provide some insight into the work of the Research Committee.

The Research Committee is responsible for the selection of research projects for funding. It has direct responsibility for the solicitation, the review and the approval of these research projects. As a matter of policy, Inquire Europe tries to support continental research centres but it also funds projects from other parts of the world, provided the research is relevant to European asset managers.

Given the dynamic situation in financial markets caused by 2020’s exogeneous shock, 2021 should produce an exciting new crop of research questions. How do you anticipate this shift will impact the research proposals which are being reviewed by the committee?

A very significant part of our knowledge about how financial markets function comes from the empirical analysis of financial market data. The exogenous shock associated with the COVID-19 pandemic has generated a highly interesting new data set. Exogenous shocks on such a global scale to the economy, and to financial markets, have not been numerous. The significant amounts of fiscal stimulus, combined with the simultaneous monetization by central banks, has very much changed the financial-economic environment and thus the starting point for asset allocation. This will definitely trigger new research. I would imagine that new questions will arise in the areas of risk management, market efficiency, and asset pricing, as well as at the complex interface between monetary policy, fiscal policy, and financial markets. At the last Research Committee meeting, we already had proposals on the table related to the new data.

How do you believe the pandemic has impacted the academic field of quant investing in general (e.g. shifts in priorities, new concepts, theory etc.)?

The central question remains how quantitative models can deal with sudden structural breaks. Particularly challenging are structural breaks that occur outside the financial markets but nevertheless have a major impact on the behavior of market participants, especially their risk appetite. Such structural breaks usually become visible in the input data for quantitative models when it is already too late. The sharp market correction in 2020 and the subsequent rapid recovery in stock prices was certainly a major challenge not only for quantitative models, but also for any discretionary investment process. I believe that quantitative investing will once again become more important in the increasingly complex capital markets embedded in our globalized world. New technologies, such as machine learning from traditional and alternative data, will take quantitative investment processes to a new level and certainly enable them to better deal with exogenous shocks such as the one in 2020. Fruitful connections are just emerging at the intersection of computer science and finance that will mutate into best practices in quant asset management over the next few years. We’ve been seeing this already in  research proposals submitted over the last  2-3 years.

Inquire Europe members and industry experts have been unable to convene in person for over a year; has this reinforced the fact that gaining feedback from peers in person is one of the most valuable aspects that the organization provides researchers?

When we decide to sponsor a research project, the scientists are always accompanied by members of the Research Committee throughout the project and are provided with valuable feedback. So, it's not just the funding that opens up new opportunities for researchers, it's also rigorous scientific dialogue that keeps the studies improving in quality. The authors of the best studies are regularly invited to our conferences and are then allowed to present their results to a high-quality audience. The personal encounters and the organized exchange between academics and practitioners is very special. Countless new ideas and relationships have been forged at our conferences. We are currently presenting exciting research to our members in webinar format. We are very much looking forward to finally host real conferences again. I am very optimistic about 2022!