Expanding the financial field
Michael Susser, left, and Murray Palay of Quadrant Asset Management. (photo from QAM)
The first-ever Quadrant Asset Management Investment Conference was held on Oct. 2 at the University of Manitoba’s James W. Burns Executive Education Centre in downtown Winnipeg. It will be a recurring event, happening at least once every two years, according to Murray Palay of Quadrant Asset Management, which has committed to five conferences in the next 10 years.
Even though the conference was their idea, Palay and business partner Michael Susser were taken aback by how quickly the idea was accepted and how speedily it has taken form – a year ahead of schedule.
Both graduates of the U of M, Palay and Susser wanted to support the Asper School of Business in its desire to hold a conference on behavioral finances.
“We felt it was appropriate to give back, particularly in the area of finance,” said Palay about the decision to support the conference. “But really what we wanted was more academic…. We wanted a program that we could kick-start and that would build over the years.”
Quadrant covers 60% of the cost, with the remaining amount covered by partners in the industry, Tetrem Capital Management and CI Investments. Michael Benarroch, dean of the Asper School, and Dr. Gady Jacoby, the Bryce Douglas Professor in Finance, were involved, and U of M assistant professor of finance Chi Liao organized the conference.
Behavioral economics, or finance, incorporates other factors, such as psychology and emotion, into conventional economic theory – which assumes that people always behave rationally, in a way that maximizes their wealth – in an effort to explain why people often make decisions, or behave in ways, that seem unpredictable or irrational. It does so not just to understand individual behaviors, but their effect on the market at large.
About that general definition, Liao said, “I’m not sure if I agree with the term ‘irrational.’ It may be more measured to say that behavioral finance uses psychology to understand how human behavior influences financial decisions.”
A major question the conference examined is whether or not people make decisions based on emotions as well as financial considerations.
“I had the liberty of choosing the speakers, so I chose people who I thought had very cutting-edge, very talk-able research topics – researchers like Dr. Hersh Shefrin of Santa Clara University, the conference’s keynote speaker,” said Liao. “He was an obvious choice, as he really pioneers the field of behavioral finance.”
Shefrin’s 1999 book Beyond Greed and Fear: Understanding Behavioral Finance and the Psychology of Investing has become a standard text used around the world in behavioral finance courses, as well as being part of the CFA Institute curriculum source material, among others. As it happens, Shefrin is a former Winnipegger and a U of M graduate.
Other conference presenters included Amos Nedler of the University of Western Ontario, who spoke about The Bull of Wall Street: Experimental Analysis of Testosterone and Asset Trading; Rawley Haimer of the Federal Reserve Bank of Cleveland on YOLO: Mortality Beliefs and Household Finance Puzzles; Jawad Addoun of the University of Miami, who discussed Local Bankruptcy and Geographic Contagion in Loan Characteristics; and Vicki Bogan of Cornell University on the Importance of Mental Health and Retirement Savings: Confounding Issues with Compounding Interest. Capping off the conference were speakers Scott Hsu of the University of Arkansas, who spoke about Beauty is Wealth: CEO Appearance and Shareholder Value; and Lisa Kramer of the University of Toronto, who discussed Examining the Effect of Social Distance on Financial Decision Making.
“Martin Wayngarten, who heads our investment management group, could have listened to Dr. Shefrin all day,” said Palay. “His explanation of the behavioral aspects, how sentiment and emotions factor in, and how they correlate or don’t to rational investors, this is all stuff that we live and breathe.
“Being on the front lines, we recognize that behavioral issues, such as sentiment and emotion, are very much a part of what we have to deal with. It’s just not all numbers.”
Palay felt some of the other speakers’ topics were a bit more esoteric, such as those discussing testosterone in traders, but still very interesting.
One major takeaway for Palay from the conference was a newfound understanding of the nature and depth academics go through to prove their theories through clinical studies.
“We would have never really seen this kind of a presentation if not for Jacoby and Liao,” said Palay. “The presentations you would get industry-wide would be a lot more practically oriented and more numbers-oriented.”
In addition to what he learned at the conference, Palay was also glad to have had the opportunity to spend time with his son, who is a student in Liao’s class, as the whole class came to the conference.
“I should mention, by the way, the bias I have in terms of how good Dr. Shefrin was,” said Palay, noting that Shefrin is his wife’s second cousin. Palay learned of this connection shortly before the conference, when sharing some information with his wife, Ivy Kopstein (of Winnipeg’s Jewish Child and Family Service), about the then-upcoming conference and the keynote speaker. Kopstein said Palay must invite Shefrin home over for dinner.
Rebeca Kuropatwa is a Winnipeg freelance writer.