Faculty Profile: Q&A with Daniel Graves

Graves’s research interests are focused on asset pricing, institutional and retail investor behavior, behavioral finance, and household finance. In his first year at Harvard Economics, he will teach an undergraduate course on capital markets. His work with graduate students will comprise a combination of teaching on asset pricing and behavioral finance. 

His recently published work in the Journal of Political Economy with Eduardo Dávila and Cecilia Parlatore, “The Value of Arbitrage,” studies how closing price gaps in financial markets can benefit society. It finds that the size of a gap reflects the marginal social value of arbitrage. The paper also shows how to measure the total social value of closing such arbitrage gaps and applies this to pricing differences in international currency markets.

Prior to the start of the academic year, Graves took time for a Q&A session to share everything from his path to Harvard, to his pearls of wisdom for job market candidates.

How did you get here and what did your path look like?

My first academic passion in life was math, which led to lots of looking at the pages filled with numbers in the Wall Street Journal and eventually a strong desire to study economics and math at Yale as an undergrad. Ever since my undergrad years at Yale, I knew I wanted to work in both industry and academia. I ultimately talked to my undergraduate thesis advisor and realized that working in industry first and then going into academia later made the most sense. It’s an unconventional path, but one I’m really glad that I took.

What made you choose Harvard?

Harvard’s economics department has a many-decade tradition of excellence in research and passion for teaching both graduate students and undergraduates. As a financial economist, the long-standing history of excellence in financial economics here at Harvard was an important factor, as is the department’s exceptional faculty in many different fields. Although my research questions tend toward asset pricing, behavioral finance, and household finance, I have benefited tremendously over the years from discussions with faculty in industrial organization, econometrics, and macro, among others, and I can tell that Harvard is a place where the economics is front and center, not the particular categorization of a topic or the methods we conventionally attach to a specific subfield. And not only does Harvard have this strong tradition of connection within the economics department, it also has a strong culture of close connection between economics and the Harvard Business School in financial economics, and with other schools at Harvard for various other fields.

How does your background impact your research and your teaching?

I think having some background in industry has influenced my academic work by motivating me to find questions whose answers would have broad appeal within economics but also, frequently, to the finance practitioner community. In research, I try to ask whether practitioners would find our answers compelling and if not, why not? Sometimes the “why not” piece leads to an exciting new avenue of research. As for teaching, I haven’t yet taught a class at Harvard, but when I do I don’t think I will approach the task much differently, except perhaps to emphasize the importance of quantitative methods and rigorous thinking whether one is headed into industry or academia. Also, I have a healthy appreciation for just how impactful intermediation and market segmentation are to asset markets, and these forces raise interesting counterpoints to traditional theories. Teaching both a standard rational benchmark along with peculiar-seeming departures from the benchmark enables the students to more clearly see the forces at work in the markets.

Fresh off of the job market, what can you share with students preparing to enter the job market?

More than anything, I’d say maintain your perspective, which is hard. Going into the market we are all determined to get the best placement possible, but keeping perspective is important to staying sane. Above all else, I’d say ask yourself if you are a good fellow job market candidate — are you supporting others and being a good citizen to the 

profession? Wherever you end up at the end of the market, you will go in as a rookie on day one and the job market will be a seemingly distant collection of interesting memories, but only memories. Once you are a rookie, all anyone will care about is whether you are doing good and thoughtful research and being a respectful, kind, and conscientious colleague both within your institution and to the profession more broadly. And above all, I’d say to enjoy the experience – the market isn’t just about the place you will eventually work, it’s about getting to meet an incredible cross-section of economists all over the country (or world, if you apply). The job market left me very excited to spend more time with faculty from each and every school I visited, so I’d tell students preparing for the market to go to every flyout and interview knowing that hopefully this will be just the first of many interactions with the interesting people you will meet.