Professor Eric Renault tells us how his work brought economic theory to bear on the newly developing financial markets in Paris

What research projects are you currently involved with?

My research has two sides - one side is econometric methodology; the other side is more on financial markets and asset pricing. I have a special interest in econometric inference on asset prices.

When you want to be an active researcher you are always involved in several projects! I co-author a lot with colleagues or PhD students – so I have ongoing projects all around the world.

How did you choose this area of interest?

I started in the French system with a background in maths. In France, when you are good at maths you can go to the Ecole Polytechnique or other schools of engineers - but engineering was not really my cup of tea. I like maths a lot but I am not very interested in technical things. I was more interested in statistical inference and I also had some interest in the organisation of society, and econometrics brings together these two things.

I came to finance later - I was making my choice of career as a student in the mid-70s. Ten years later there was a huge development of the financial markets in Paris – and I was asked by the school I was working with to help with that. With my background in maths and economics it was natural.

I wasn’t especially interested in finance in the beginning - I was more interested in the techniques that could be used in the markets. Finance in the 1980s was changing – innovation was not coming from the banks but from the markets, new financial products were being introduced, and we could use economic and mathematical techniques to work out how to price them properly. What was exciting was that it was a field where economic theory had a direct connection with the real world. It was great to see that people in the real world were interested in theoretical work like mine.

At this time I was based in the Paris School of Statistics and Economics. There was a huge demand to train students to go and work in the financial markets and I created a new diploma for that. Really I was in the right place at the right time, because I had this background in statistical inference and price theory, and the banks wanted to talk to me. Since then a significant part of my research has remained in the field of financial economics – not always, but I have kept this interest.

What was exciting was that it was a field where economic theory had a direct connection with the real world. It was great to see that people in the real world were interested in theoretical work like mine.

What impact does your work have on society?

Sometimes the connection is not direct and there is nothing wrong with that – you do something theoretical, it will be used by someone else, and after ten steps you go to practice! You may sometimes do something very abstract, and there is a long way to go before it has an impact. With my work in the 1980s there was a direct connection between the theory and the markets – but these were fairly exceptional circumstances.

Why did you join the Economics Department at Warwick?

Warwick is a young university and the Department of Economics has been very active since the beginning. I had not particularly planned to leave the US but I heard that the Department was looking for a senior econometrician – I visited and I liked the group and the fact that I will have the opportunity to supervise a strong field of PhD students.

Since joining Warwick I have been involved in the life of the Department and the collective decisions we are taking, particularly on the job market candidates. In France there is a mandatory retirement age – I have not reached it yet, but the advantage of Warwick is that I will not have to retire when I reach 65. I am not there yet but I see it on the horizon!

Further Reading:

• Eric Renault and David T Frazier Indirect inference : which moments to match?, Econometrics, 2019
• Eric Renault and Bertille Antoine) Testing identification strength, Journal of Econometrics, 2019 (In Press).