Dr. Jihad S. Nader, Vice President for Institutional Advancement and Development and Professor of Finance, was an invited Keynote Speaker at the conference on “Leveraging Knowledge in Financial Markets to Grow Personal Wealth,” which was held at the Dubai International Financial Center on January 28, 2019. In his presentation, titled “Financial Modeling in a World of Disruptive Change,” Dr. Nader focused on the rapidly diminishing usefulness—in an environment of ongoing rapid disruptive changes—of classical financial models which purport to set expectational equilibrium values for security prices and returns by using historical values of the variables that are assumed to be determinants of these prices and returns.
I have seen yesterday, I know tomorrow
Dr. Nader referenced an engraving on King Tut’s tomb: “I have seen yesterday, I know tomorrow,” to demonstrate that the belief in and the use of past experiences (e.g., historical financial data) as a basis for predicting future events and outcomes can be traced back to the dawn of time.
Dr. Nader’s main proposition was that finance professionals and educators alike should find alternatives to this approach that can be used even with relative effectiveness in our age of ever-accelerating, disruptive change. Dr. Nader concluded by proposing that the complex tasks of data analysis in such an environment should perhaps be relegated to innovative applications in the evolving fields of artificial intelligence (AI) and machine learning, and that business schools should focus more on developing students’ soft skills including the use of sound judgment in making business decisions that are based on the outcomes generated by AI and machine learning.
A panel discussion followed. Responding to a question about what the “best” investment vehicles might be for investors who would like to grow their wealth, Dr. Nader explained that the answer depends on each investor’s degree of risk aversion which would determine where they should be on a spectrum that ranges from risk-free vehicles (e.g., treasury bills) to the riskiest equities, and that for a middle-of-the-road approach, investing in an “index” mutual fund might be the most appropriate strategy.