It is widely recognized that well-functioning capital markets are important for economic development and growth, as well as the welfare of individuals in the form of pensions and retirement security. Scientific investment management is critical to delivering on those goals on two fronts: (a) it seeks to understand and improve price formation in capital markets, and (b) helps in the design of investment products that important for investors to channel their savings.
With the above in mind, the primary purpose of the Center for Investment Engineering is to support research in quantitative investment management. There are two components:
- The science of investment management: This consists of micro-foundations of price formation in financial markets; what is often regarded as “fundamental” research in asset pricing. It includes both theory and empirical work. Much of the research in this area is done in Finance but a significant portion also takes place in Economics. It also includes the study of price discovery and frictions in financial markets (also known as market microstructure).
- The engineering of investment management: This consists of the application of these foundations to investment strategies. Applications eventually take the form of financial products and quantitative strategies that are derived from the science. The creation and study of financial products has obvious use to society and industry. Often this line of research seeks to minimize frictions that influence the manner in which the science in converted to financial products. This research is likely to be simultaneously useful to academics, practitioners and regulators.
A secondary purpose of the center is to support a student body that has the necessary micro-foundation skills as well as the technical know-how to implement investment strategies. This group of students includes but is not limited to, students in Student Investment Management (SIM) funds.
The center operates under guidance of a faculty director and serves the following functions:
- Data acquisition: Faculty who work in this area often require data that (a) are expensive, even at academic (non-commercial) rates, and/or (b) require hand or electronic collection mechanisms implemented by research assistants or automated scrapers. The center can provide funding for data acquisition under approved projects.
- Programming: Programming support is provided by Lili Ge.