Jason Hsu is challenging the commonplace observation in financial circles that consumer behavior doesn't respond to changes in the stock market. The idea is "that other facets of life seem to have a much bigger impact on consumption than stock investment,"says Jason, a doctoral candidate in the Anderson School at UCLA. "It's almost as if people don't mind the risk of stock market investments."

Jason disagrees. To reach their conclusion, the experts compare stock market fluctuations with aggregate measures of consumption, and Jason believes that this is where they go wrong. Only 20% to 30% of Americans own stocks or mutual funds in their own name (rather than, for example, shares in corporate retirement funds). It's these people who bear the actual burden of risk, as Jason sees it.

Focusing on "the selective fraction of the economy that actually holds stock," Jason says, produces empirical evidence that stock market fluctuations produce significant effects on consumer spending. "The people who matter to the stock market, who have the money and the background to invest, are changing their consumption profile as bull and bear markets come and go," he says.

In his study of equity investment, Jason also found that many Americans are effectively barred from the stock market by their lack of available cash. "Even if they understand that wealth accumulation is greatly facilitated by participating in the equity market," Jason says, "it's simply too hard for them. The amount of their disposable income doesn't permit it."

This kind of social conclusion, although it's a small part of his equity study, provides a common thread linking the seemingly diverse research topics bound together in Jason's dissertation. Another part of his work looks at how to encourage large pharmaceutical companies to do research in socially useful but not very lucrative areas.

Pharmaceutical companies "would be happiest if they could spend all their time looking for a cure to the common cold or creating drugs that help people in the United States," Jason says, "but then there's the rest of the world." While other countries depend on U.S. research for advances in medical treatment, their people often lack the income to pay for new and expensive drugs.

Grants and extended patent protection are the most common incentives used to persuade pharmaceutical companies to look beyond U.S. borders. Jason's analysis suggests that "a type of co-payment plan"—in which a government or foundation would pay the difference between what customers can afford and what companies need to turn a profit—"has superior properties for inducing research activity."

Jason's interest in finance began during his undergraduate years at the California Institute of Technology, where he earned degrees in both economics and physics. He elected to do graduate work in economics. "I could have gone either way and been happy with the choice," he says, but "pursuing a business education appeared to be a better career move."

After a year at Stanford University, Jason spent a couple of years in his native Taiwan, where he was a research fellow and visiting lecturer at Taiwan National University and did some business consulting.

Returning to the United States, he decided to pursue a doctoral degree rather than a master's because he wanted to teach. He came to UCLA because he admired the work of two faculty members, Eduardo Schwartz and Dick Roll, who became his advisers. Professor Schwartz first got to know Jason as a teaching assistant in a basic corporate finance class. "He was incredibly good," Professor Schwartz says. "The students loved him."

This may stem in part from the fact that Jason loves teaching. Being a lecturer at the Taiwan National University "was a blast," he says. "That's when I knew that I would really enjoy teaching and that I was pretty good at it." His success as a teacher, he says, comes from "knowing what people might be confused about or might not understand. I go through the same process with the material, so I can empathize."

His empathy also arises from his experience at age 11, leaving Taiwan, where he was always first in his class, and coming to the United States, "where I had no idea what was going on," he says. "When it came to doing homework, I had the most basic limitation of not knowing what was assigned." Although learning English was an enormous challenge, history was actually "my most dreaded subject," he says. "Most people knew who George Washington was. For me that was a brand new thing."

By the time he entered junior high school, Jason was up to speed, and he credits the teachers in his public schools, who "were so unbelievably supportive," taking time with him instead of just sending him off to ESL classes. He is also a big fan of the professors in the Anderson School. Their support and counsel during his years at UCLA "are more than I could ever ask for."

Where is he now?

Dr. Jason Hsu oversees the research and investment management areas at Research Affiliates. He directs research on the asset allocation models and equity strategies that are built on the Research Affiliates Fundamental Index® (RAFI®) concept. Jason worked closely with Robert Arnott to originate the RAFI methodology and to popularize the alternative equity beta concept. For his work at Research Affiliates, he has won the 2008 Institutional Investor 20 Rising Stars of Hedge Funds and the 2005 William F. Sharpe Award for Best New Index Research. Jason has also been appointed to the Board of Directors for the UCLA Anderson Business School and to the Board of Advisors for the Journal of Investment Management.

In addition, Jason is a professor in finance at the Anderson School of Business at UCLA and a visiting professor in international finance at the Taiwan National University of Political Science (NCCU). He has also taught financial management at the Merage School of Business at UC Irvine and at the Shanghai University of Financial Economics. For his service to the university, Jason received the 2009 Outstanding Service Award from UCLA Anderson Business School.

He is co-author of The Fundamental Index: A Better Way to Invest (Wiley 2008) and a contributing author in The VAR Implementation Handbook (McGraw-Hill 2009), Stock Market Volatility (Chapman & Hall 2009), Model Risk Evaluation Handbook (McGraw-Hill 2010) and Shadow Banks and the Financial Crisis of 2007-2008 (Chapman-Hsll/Taylor & Francis 2010). Jason has also authored more than 20 academic and practitioner journal articles appearing in journals such as the Financial Analyst Journal, the Journal of Portfolio Management, the Journal of Fixed Income and the Journal of Investment Management.

How has UCLA graduate school shaped your life?

I have learned many things, which have been invaluable for me as a working professional and a business owner today, as a Ph.D. student at UCLA. First of all, the professors, whom I studied under, continue to be my mentors, friends and allies. Professor Eduardo Schwartz and Dick Roll, whom were my committee co-chairs, continue to be my go-to people when I need to get advices on the finance literature and the latest research. Other finance professors have become good friends as well; being able to tap them for recommendations for recruiting UCLA Anderson graduates into my firm is incredibly valuable. The UCLA graduate programs produce some of the best, brightest and fun to work with students. More than 50% of my firm (Research Affiliates®) are UCLA alums and we continue to hire 50% of our new researchers from the UCLA Anderson.

I also want all of the students to know that the "academic" theories taught in the graduate programs, which may seem "not entirely relevant for the real world" at the time, are incredibly powerful and useful, especially when one advances in his/her career. I can say with certainty that I benefit every day from have a logical and consistent framework for understanding the economy, markets and investors. This framework is large owed to the UCLA Anderson curriculum, which emphasized very heavily and rigorously on the theoretical foundations and on how to think abstractly in order to solve practical and specific problems.

Lastly, the students that I have met while I was a Ph.D. students, many of them continue to be my very best friends and a number of them are actually my colleagues at Research Affiliates®. The UCLA graduate programs recruit great students and produce fantastic professionals and wonderful human beings.

Published in Fall 2003, Graduate Quarterly
Updated Spring 2012