Their thesis, "The Cost to Carry: Investor Uncertainty and the Currency Risk Premia" was crowned the winner by a committee consisting of representatives from the Norwegian University of Science and Technology (NTNU), the Norwegian School of Economics (NHH), the University of Stavanger (UIS), BI and Norges Bank Investment Management (NBIM).
“It is definitely a feather in our cap and the best way we can think of to start our career. It felt like a perfect meeting of preparation and opportunity, so it feels great to see that others are equally interested in our topic,” the winners says.
The pair were MSc in finance students until the summer of 2020, after which Asja has started her journey as a Ph.D. candidate in Finance at BI while Nicoleta secured herself a position within corporate finance at the Swedish company SEB.
“News about winning the award came at a time I was under a lot of pressure, so it was a great reminder that I am capable of doing solid research and it motivated me to not let up on the hard work. I am currently looking into expanding on the thesis and developing my foundation in international finance research, something the thesis definitely motivated,” says Asja.
They agree that winning an award was gratifying after long days and late nights working on their thesis.
“Even though I went into another field when graduating, the teamwork was the best we’ve had, so we often talk about doing research together again in the future,” says Nicoleta.
Relevant for foreign exchange markets
In their thesis, the two authors study the news implied volatility index (NVIX), a text-based measure of investor uncertainty, as a potential explanation of the carry trade puzzle.
This is an investment strategy that involves borrowing money in low-interest countries and investing in high-interest countries and yields high empirical returns.
Asja and Nicoleta show that NVIX can be linked to a global equity factor proposed by Lustig and Verdelhan (2007). This result is striking because NVIX is constructed from front-page articles of the Wall Street Journal and, thus, exogenous to the returns on the currency portfolios underlying the carry trades.
This clearly distinguishes their approach from the literature in which most factors are endogenous as they are calculated from returns, which makes them inherently difficult to explain in terms of economic fundamentals.
“Asja and Nicoleta’s thesis is highly relevant for everyone interested in foreign exchange markets. Their data handling is solid, their econometric analyses use advanced methods and are very well executed, and their economic arguments show deep insights into the subject,” says Patrick Konermann, Associate Professor at BI’s Department of Finance and supervisor for Nicoleta and Asja.
Building the foundation of an impressive thesis
One of the graduate students’ strengths with their thesis was the ability to adapt to the writing style of numerous research articles, holding themselves to the standards of already published papers.
“Reading quality papers on your topic will also help to understand how to structure ideas and to start early to develop a clear framework for a thesis”, is another recommendation they have for other students looking for tips to get started.
“I would recommend having a clear framework for your thesis very early on so that you are confident that your idea is feasible and can focus on its delivery," says Nicoleta.
Due to good planning, the pair dedicated a lot of time to focus on the details of their writing, often keeping a critical eye on every sentence since the questions of a paper might change as your understanding of the subject deepens.
Trust and feedback is key
Working together with a research partner over several months demands a lot of coordination, but also trust.
“The most important factor for our success was the trust we had in each other. We both wanted the thesis to be great, and so it was perhaps easier to yield to each other’s wishes in times of disagreement,” says Asja and Nicoleta.
For someone who has never done research at a Master’s level before, nor been dependent on others for academic success, another common challenge involves navigating through new academic terrains.
Asja and Nicoleta both highly appreciate the feedback they got from their supervisor, who applauds their motivation and curiosity for their thesis topic.
“It did not take long before they had some preliminary results which looked promising. Hence, it was clear early on that this would be a very good thesis. Therefore, I urged them to step it up a notch and to commit to the NFI master thesis award as their joint goal, which they did. Hence, they held themselves to higher standards than most students,” says Patrick Konermann.
NFI Master’s Thesis Award
- In 2020, the decision about the award was made in November
- The 2020 NFI Master’s Thesis Award Committee consisted of Bruno Gerard (BI), Frode Kjærland (NTNU), Francisco Santos (NHH), Michael Chin (NBIM), and Bernt Arne Ødegaard (UiS) (chair).
- The deadline for 2021 submissions ends in October.