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Testing Hypotheses on the Stock Market

After finishing his PhD at the University of Cambridge , former astronomer Keith Lipman made a career transition into the world of finance. He first spent 8 years at an investment bank and then moved to a hedge fund, where he has worked for the past 3 years. His career in banking, he says, has its rewards--including financial ones. But it has some disadvantages, too.

Why did you choose to do a PhD in astronomy?

Interest in the subject and lack of interest in anything of a corporate nature at the time of finishing my first degree. Many friends became management consultants or went into finance as investment bankers. ... I interviewed at some [companies] but just came out wondering why I should bother; it just did not interest me. In the end, I realised that doing a PhD would not limit me--many of the banks and consultants mentioned during the milk round [a tradition in which companies visit universities to recruit new talent] that they actively hired PhDs, so I figured that doing a PhD was a good way of doing something that interests me and also keeps my options open for later.

Did you move directly from your PhD into your current position?

I moved from my PhD into an investment bank and was there for 8 years. How come a bank when I didn’t fancy it 3 years earlier? ... I met a couple of other physicists who had gone into derivatives groups in banks who said the work was similar in terms of analysis and research, but the challenge was more "fast-paced" and the money was great. Derivatives is basically physics--Brownian motion, all that kind of stuff. So it is full of scientists doing their thing with a load of computers. [There's] very little culture shock in moving into that environment.

I traded derivatives for a number of years, then moved into "quantitative research," that is, analysing data to deduce profitable trading strategies. Then I moved to set up a fund using these quantitative research methods.

Did you previously seek an academic career, or were you always interested in a career in a nonacademic sector?

50/50. Before university, I didn’t know. At university, [I] found research interesting--but ... realised that it probably wasn’t for me. The really impressive researchers--my supervisor included--were those who had an all-pervading interest, not only in their field, but across many different disciplines. That really didn’t match with me at the time.

Has your research training been useful for the career path that you have taken?

Enormously. Research methods are fundamental to my work, in everything I do. In fact, when I hire people, I look for scientific training and research. In building our firm, we have hired to recreate the feeling of a scientific research department--the value of throwing ideas around, and using evidence-based methods to determine strategies, and directions for further research is the building block of our business.

There is a range of disciplines that are relevant to the kind of work I do in the City [the financial heart of London]. From observational astronomy--in particular, the interpretation of the data to determine what you can and can’t deduce--to theoretical astronomy, building complex models of stock market interaction. Let's face it, although finance professors might try and persuade you otherwise, the stock market is hardly going to be as complicated as galaxy formation? To me, finance research is at about the level of A-level physics. So, for a physics graduate, you have an advantage from the start.

What nontechnical skills are important for the type of work you do?

Ability to communicate, work efficiently under pressure, ability to deliver to targets.

Do you know if many others of your fellow postgraduate colleagues took a similar career path?

One or two that I knew at Cambridge at the time. But there are a huge number of scientists in the City. Most of the people I have worked with in the City have degrees in science. In fact, it is even more common in New York--there are many physics PhDs wandering around in banks and hedge funds.

Do you find your career rewarding, and, if so, in what ways? What advantages does it offer compared to academia?

Advantages? One: the time scale of discovery to implementation. In my job, I research signals and trading strategies in the financial markets. When I discover it, I test it, and I put it into action the next day--if you like, same-day testing of the hypothesis. The stock market is, if you like, a live testing field for researchers all developing new predictive signals. Hypothesis, testing, data analysis, feedback, tuning--a continuous cycle.

Rewarding? Well, the money doesn’t hurt. The financial rewards can be very large compared to academia.

And the downsides?

For many people working in the City (fortunately not me), the workload is tremendous, and the stress intense. The other disadvantage is that at the end of the day, I can never think, "I've discovered something about how the world works." A part of me still feels torn when you see all these scientists who are moving from doing research into the unknown into researching how to make a buck.

Is there enough information about nonacademic career opportunities available for PhDs?

There is not that much around. On one hand, it would be useful to tell students, "Study maths, physics, engineering, computing--there are lots of well paid jobs for you at the end." The thing is, for most places in the City, you want someone who has the initiative to find out about the City and decide what they want to do. The days of rocket scientists moving into the City being a new phenomenon are long gone--it is well known. Read about the City; there are many different jobs. Speak to all the contacts you can.

Anne Forde is Next Wave's European Editor, North and East.

Comments, suggestions? Please send your feedback to our editor .

See also:

UK GRAD Careers Chat: Investment Banking Careers in Focus

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