How has the 2011 European sovereign credit crisis changed the pricing relationship between sovereign bonds and credit default swaps written on those bonds? Why do 401(k) investment options offer daily liquidity when such liquidity is expensive and unnecessary? If one wants to back-test a long-short investment process, how should the fall of 2008 – when shorting in many stocks was banned – be treated in the back-test?
These are just a few of the many fascinating questions our Master of Finance students will study in the 2012 Finance Research Practicum. The Practicum is an action learning course in which students work on research questions posed by external clients, clients for whom an answer to the question is a key element of an important business decision.
MIT Sloan’s approach to action learning is often structured with three stages. The first stage is the learning of tools and concepts which are broadly applicable, such as valuation, portfolio theory, and econometrics. The acquisition of these tools in stage one prepares students for the second stage when they use the tools to solve a specific real-life problem.
Since the real world always turns out to have nuances that were not anticipated in the classroom, students must figure out how to use their toolkit in a new, more complex context. They also must figure out how to use their toolkit on behalf of a real client with a real business problem to solve. This requires improvisation and innovation, as the tools are necessary but not sufficient. They must also understand the client’s circumstances and be creative in finding a solution.
The third stage involves students reflecting on and communicating what they have learned. We believe that by reflecting on and communicating one’s learning — especially the lessons that were hard-won and required many hours or days of frustration before a solution came together – students build the capacity to be an innovative leader.
The 44 Master of Finance students and 4 Ph.D. students participating in the practicum this year are working on 16 projects from 14 sponsoring businesses. Sponsors range from the largest investment banks and asset management firms to the smallest entrepreneurial firms. Students work in teams on their projects full-time during January, and then spend the first half of the spring semester presenting their findings and reflecting on and solidifying their learning.
Action learning is a key part of our educational philosophy at MIT Sloan and in the Master of Finance Program. By providing students with an opportunity to apply their skills to real problems, we’re helping to develop innovative leaders who will improve the world.
John Minahan is a senior finance lecturer and the instructor for the Finance Research Practicum
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