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Magnus Dahlquist, a leader with a passion for frontier research

A visit to a top university in the US made Magnus Dahlquist change his career plans – and turn towards research. Over the past twenty years he’s been part of building an international, world class research environment at the Stockholm School of Economics.

“I’d rather be a mediocre player in Milan than a star in a local team”, he says.

A year at Duke University’s business school in the USA changed the course of Magnus Dahlquist’s career. Instead of leaving the academic world after his PhD, he decided to continue.

“I had great professors, but what I saw made me realize that the research environment could be very much improved. At Duke it was very professional, from the quality of the educational programs to the administration, and the support for the researchers. I liked it a lot. And I liked the way that big issues were discussed.”

One striking thing about the research environment Magnus saw in the USA was how international it was. Many nationalities, backgrounds and experiences were represented amongst students and teachers.

“Something in that really ‘clicked’ for me, intellectually”, says Magnus.


The start of internationalization

He returned to Sweden, earned his PhD from the IIES at Stockholm University, and then accepted an offer of employment at the Stockholm School of Economics (SSE). But the research environment there was not the same as what he had experienced in the USA.

So, he crossed the Atlantic again – but only after initiating an internationalization of the Department of Finance at the SSE.

“The development that we see today, with international recruitment and diversity in faculty, started in the second half of the 90s. Even though I was a junior faculty member at the time, I was part of that process. I’m impressed by the people who allowed us to start the internationalization, and the fact that they were open to the change it brought.”

Eventually, Magnus Dahlquist came back from the US again – and by then, the internationalization of the school was well under way. Since 2004 he is a professor at the Stockholm School of Economics and in 2014, he was appointed Head of the Department of Finance.

The size of the Department has grown dramatically in the past twenty years: In the 90s, the Department had less than ten faculty members. Now, the Department is part of the Swedish House of Finance which has more than twenty researchers and close to thirty PhD students.


Why has an international environment been important for you throughout your career?
“When my kids were younger I used to explain to them that I’d rather be a mediocre player in Milan, than a star in our local team Hammarby. There’s a difference between being locally important, and being on the international research frontier. It’s a different feeling. And that’s where the Swedish House of Finance is today.”

Magnus’s research interests are asset management, asset pricing and international finance. Some of his current research concerns individuals’ and institutions investment behavior and the design of pension plans.

“Initially it was a coincidence that I started researching pension plans, but I realized that I find it important. There are big policy issues. The design of pension plans has consequences for corporates as well as for individuals. And much of what is done in the practice is not as evidence based as it could be”, Magnus explains.

Another area of his current research concerns trading strategies and portfolio selection.

“I’ve studied how you can understand risks and opportunities in the markets, and how to measure and handle those risks. For example, how can you understand markets for exchange rates and interest rates, and how do they interact? And how can we build trading strategies based on that.”


Why is this important to research?
“Understanding what compensation you get for taking, say, interest rate risk has very large consequences for how an institution like a pension fund should invest its assets, which in turn has consequences for the protection and payment of the pensions that individuals will eventually receive. So understanding those considerations is important. It’s not about avoiding risks, but about taking the risks that are worth taking – and making sure you are duly compensated.”

Apart from his research and his role as the head of the Department at the SSE, Magnus has also served as an advisor to policy makers and industry, in multiple roles. At the Riksbank (Sweden’s central bank) he participated in an investigation on the size and investments of the foreign exchange reserves. At Premiepensionsmyndigheten (now part of the Swedish Pensions Agency), he advised on the development of the retirement system. And at Riksgäldskontoret (the Swedish National Debt Office), he participated in discussions around the national debt – to mention just a few of his assignments and appointments outside the academic world.

“The contributions go both ways. The research enables me to contribute in these discussions. But it also gives me inspiration to approach research questions in better ways”, says Magnus.


What pension funds have in common with and nuclear waste
Sometimes, his expertise in pension systems has been useful in more surprising ways. Like when the Strålsäkerhetsmyndigheten (the Swedish Radiation Safety Authority) asked Magnus Dahlquist to help them analyze the funding system for the liabilities due to nuclear waste.

“There is a basic principle, saying that those who profit on nuclear power, should also take responsibility for the cost it induces. It turns out that it is similar to a pension system: you have a long-term horizon of perhaps 20-50 years into the future, at which point the costs are due.”

“So, how do you force companies producing nuclear power to make sure there will be enough funds in the future, to pay for the costs involved in handling nuclear waste? Analyzing that was an interesting assignment”, states Magnus.


What’s most fun about your job?
“I like all parts of it – the research, the teaching, to lead a department and a research center. And I enjoy having a connection to the practical applications of the research. While I love economics in general, finance is special due to the proximity of financial markets and research. I value both theoretical and empirical research, both are very important. But for my own research I like to have a close proximity to practical applications. That gives me a kick.”


Why is Swedish House of Finance important?
“I think an active research center is important both for the educational programs at the SSE and for the dialogue with the industry and policy makers. It’s important for us to be part of the debate, and to be able to support the industry with the competence they require.”