Who actually uses econometrics?

[cstassen]

Hi Guys

As the header sounds - who does that? I mean, in banks, quants do programming and modelling, structurers do a little econometrics but not much, and traders certainly don't. Who, except researchers, use that? And who do economic analysis?

I know it might sound stupid, but I have never met anyone who do proper statistics, econometrics etc on job!!!

 

[Dmytro]

my guess would be
people of the buy side? portfolio managers? risk managers?

 

[alain]

We use it for portfolio analytics in calculating risk, modeling the market and portfolio optimization. It is also used in Stat Arb.

There are companies like BARRA and Northfield that live and die by econometrics models among other things.

 

[Yan He]

Our Methodology team uses Econometric for VaR model.
Risk Management, sell side

 

[cstassen]

Thanks Alain - can you tell my why I don't see this in banks. Fx, the other day i read a research paper in my bank, where they tried to asses if oil was a good inflation hedge or not. They made a simple OLS regression on some data that was clearly nonstationary, and it almost made me sick - why don't they do more advanced stuff? These companies, do they hire econ-phds for these positions?

Dmytro - shouldn't buy and sell side do more or less "the same"?

 

[alain]

cstassen,

They just made an assumption and went for it. It is more common than you think. It could be wrong but at least they have an idea. Before they didn't have anything to compare with.

If that made you sick be ready to be really ill while working in Finance.

 

[cstassen]

I know what you're saying - it's better to make an assumption than do nothing. But this particular problem can actually be solved - so why don't they do it? I actually went home, made an analysis of the issue and sent it to the department, and they really liked it! But there MUST be someone who knows econometrics in that department! They just don't use it ?!?!?

And trust me - I've worked in private equity, now that's a place to get sick!

 

[vkaul]

So actually risk management needs both statistics and stochastic calculus, correct?

 

[Tram Nguyen]

If you work for economic consulting firms such as Analysis Group, NERA, or Cornerstone, you will see people using econometric seriously in their work.

 

[Ken Abbott]

So actually risk management needs both statistics and stochastic calculus, correct?

Risk uses statistics every day, especially times series. Linear algebra is handy as well.

 

[sak]

Used in algorithmic trading job for about 2 years day in and day out. Still do in electricity trading but not as much.

But not just econometrics but machine learning as well.

 

[Vinayak Maheswaran]

A lot of the usage is in forecasting and policy evaluation. There are also artificial intelligence uses such as in the case of modeling stock market behavior. Options and derivatives can be modeled and interest rates can be controlled.