A whiteboard is penned with neat rows of financial formulas and a Vivaldi concerto plays softly from the laptop nearby. Dr. Mahmoud Qadan enjoys the rhythmic structures of both. In terms of musical form, we won’t argue. But in this world of unstable global markets and financial turbulence, could there be reconciliation with pattern and rhythm? Qadan recently joined the senior faculty of the Department of Business Administration after completing his postdoctoral studies at Columbia University, New York, and is researching two different, if somewhat related financial fields. One is asset pricing models and the second is behavioral finance; and in both he examines relationships between variables that indicate systematic patterns.
“When I was a teen, I allocated part of my pocket money to buy newspapers so that I could improve my Hebrew. I was always asking myself what the small numbers were that appear on the last pages of the newspaper. My father told me it was something to do with the stock exchange. But even the local banker who came to our school to encourage pupils to open bank accounts did not give me an answer that could satisfy my curiosity. That was when my financial trek began and I chose an academic path that would eventually enable me to examine the dynamics and forces, behaviors and patterns that manipulate those numbers.” Growing up in a home with wall-to-wall bookshelves and as the son of an English teacher, Qadan developed a passion for study, instruction and the arts. He enjoyed physics lessons, intrigued with how the entire universe, the sun and stars, can be modeled by mathematical equations. He fell in love with music; and to him, mathematical and financial modeling formulas too are like sheet music. “I am glad to have found my academic home at the University of Haifa. Here I am able to pursue international collaboration, research and instruction that can follow original and creative trajectories in a field that is relatively restrained,” he says.
“Generally, asset pricing is concerned with explaining the reasoning behind the price of financial assets such as stocks, bonds and derivatives, under uncertain conditions. Behavioral finance posits psychology-based theories to explain asset price movements and repeated patterns in capital markets,” he explains. With regard to asset pricing, Qadan seeks to model the relationship between real economic variables (GDP or industrial production) and financial variables (such as share and corporate bond prices). In parallel, he examines the impact of investor sentiments on asset prices when classical asset pricing theory fails to explain price movements. “I devote a great deal of attention to exploring the dynamics of asset pricing and how information is transmitted under extreme conditions such as market panics and extreme volatility in market returns.” This work indicates patterns of investor behavior as influenced by the way financial changes are communicated. “In the wake of the 2008 sub-prime crisis and the 2010 debt crisis, financial asset pricing theory has come under serious fire, presenting an opportunity for consideration of other perspectives,” he says. “In a recently published work co-authored with Prof. Yossi Yagil, former Dean of the Faculty of Management, we take up one aspect of this challenge. We examine the nature of international comovements of real economic activity, on the one hand, and financial variables such as stock returns, interest rates, inflation rates and risk premiums on the other.
The study points out that the inception of the Euro Zone and the adoption of an inflation targeting policy in many OECD countries are among the leading factors behind the hike in the international co-movement of capital markets in recent years.” “Management of mutual and pension funds depends on research such as this,” Qadan adds. “Both industries aim at managing long-term public savings and this research can help them understand the interaction between the real economy and the capital market, given the behavior patterns of retail and institutional investors.” Something like a concerto for four violins.