Research Master student Roy Verbeek wins NWO Talent Grant

“Never have stock markets been as volatile as during the financial crisis,” argues Roy Verbeek, who is a second-year Research Master student at ERIM. The Netherlands Organisation for Scientific Research (NWO) awarded him a Talent Grant to study the volatility of assets during a three-year PhD project at ERIM.

“I am very happy,” <link people roy-verbeek>Roy Verbeek says. He is one of only 37 students to be awarded the grant nationwide, selected from among 111 proposals. The NWO Talent Grant will fund Verbeek’s appointment as a PhD candidate at ERIM and will also cover € 10k for research expenses and organising a workshop to disseminate his findings.

Verbeek is currently a second-year student in ERIM’s Research Master programme. “Being interested in how financial markets work, I decided to do my undergraduate studies in international business administration and my graduate studies in finance and investments,” Verbeek explains. The degrees he earned for both programmes were awarded Cum Laude. “During my studies I became intrigued by the complex world of science and decided to pursue an academic career.” Hence he enrolled in the ERIM Master of Philosophy in Business Research, where, having completed a regular Master’s programme, he could start in the second year.

How to write a research proposal

Verbeek wrote the proposal for the NWO Talent Grant as part of the Research Master course, "How to write a research proposal," taught by Veerle van Laere and Roel van den Berg, funding experts at ERIM and ESE respectively. “Of course, you write about your own subject,” Verbeek says. “They won’t help you in terms of content. But they did teach us what a research proposal should look like and how to define the relevance of a project.”

Verbeek teamed up with Marno Verbeek, Professor of Finance (unrelated). “You need to find a professor who could be a supervisor of your potential PhD project, and whose expertise fits well with the subject,” the young researcher explains. “I consulted Dion Bongaerts, who is the coordinator of the Finance & Accounting track within ERIM’s Research Master, and he recommended I approach Professor Verbeek.” The professor then successfully applied on behalf of them both.

<link people marta-szymanowska>Dr Marta Szymanowska, who is an expert in asset pricing, and <link people mathijs-van-dijk>Mathijs van Dijk, Professor of Finance, will join the supervision team once the research kicks off.

Firm-specific volatility

The PhD research upon which Roy Verbeek is about to embark is entitled, “Towards a better understanding of aspects that trigger firm-specific volatility.” It builds upon a well-known model – the Capital Asset Pricing Model – which distinguishes between ‘systematic’ market-oriented volatility and firm-specific ‘idiosyncratic’ volatility. In this model, the first fluctuates, while the second remains constant. “The idiosyncratic volatility of shares refers to firm-specific conditions such as the introduction of a new product or the dismissal of a CEO,” he explains. “Although it represents the largest share of the total volatility of a stock, it has received little academic attention so far.”

Macroeconomic variables, such as the Gross Domestic Product (GDP) and Consumer Price Index (CPI), account for variation in idiosyncratic volatility, Verbeek argues; he is determined to find out why. He will apply two methods to do so: a quantitative analysis using four different asset pricing models, and a qualitative analysis by means of interviews with managers in order to understand the financial decisions they make that lead to idiosyncratic volatility. In the end, the project will allow for a better understanding of the underlying conditions that trigger market volatility and, indirectly, financial crises.

Verbeek’s research outcomes will not only contribute to the academic debate, but they will be of use to investors and managers.  “Investors can use my research to make more informed investment decisions,” according to Verbeek. “They should realize that systematic volatility is not the only component that should be considered when trading securities.” Managers, in turn, might want to use the knowledge to manage idiosyncratic volatility. “They might postpone or alter decisions that would have been made if they were not aware of the behaviour of idiosyncratic volatility,” the young researcher says.

PhD at ERIM

Verbeek is looking forward to his PhD research: “Doing a PhD in asset pricing will allow me to research financial markets, to become part of a challenging learning environment, and to make a valuable contribution to it.”

His choice for ERIM was a conscious one: “I am convinced that doing research at the Erasmus Institute of Management is a great opportunity as it is one of the most celebrated research institutes in the world. I think I will be offered the perfect environment for doing research.”