What is the difference between financial economics and finance?

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    $\begingroup$ It is actually a pretty subtle and subjective difference, IMHO. What exactly people mean by these two terms varies and is hard to pin down in general, without knowing the context. My take: Finance is an older and perhaps broader term, while most of the progress in finance in the last 50 years has come from people who considered themselves 'financial economists' (Fischer Black, Ross, Fama, Shiller, etc) and thought of themselves as 'the new wave' in finance. Today does the distinction still make sense? $\endgroup$
    – nbbo2
    Commented Sep 29, 2017 at 21:52
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    $\begingroup$ Ive been working in finance for 12 years now. To me, financial economics is research orientated (theoretical) and finance is trading orientated (practical). Both require completely different skillsets, and both also typically create different career paths. $\endgroup$
    – Attack68
    Commented Oct 1, 2017 at 19:34
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    $\begingroup$ If the section on career options is dropped, I'd argue asking for the difference between financial economics and finance is a legitimate question. $\endgroup$ Commented Oct 4, 2017 at 2:08

1 Answer 1


Financial economics is what economics calls finance. Finance is what finance calls finance.

Less flippantly though, there's a long debate on whether finance is a subfield of economics, and this debate goes back at least to the PhD thesis of Markowitz. Prof. Milton Friedman famously opposed awarding Markowitz a PhD in economics from the University of Chicago for his portfolio theory because while Markowitz's work was brilliant, Friedman didn't consider it to be economics. I've heard Myron Scholes also express views that finance is to some extent distinct from economics.

Of course, you can find a huge range of views on whether finance is an economics subfield. Clearly much of the early work in finance was done by economists, and finance draws heavily from econometrics, time-series econometrics, and macroeconomics. On the other hand, risk-neutral pricing looks less like classic economics.

I'd personally argue there's some degree of economics claiming successful, related fields as its progeny. The mechanism design of Alvin Roth came out of operation research, but it's now been brought into economics.


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