Economist Andrew Patton parses the mysteries of the stock market. Photo credit: Jon Gardiner

Durham, NC - As an ordinary guy making a living, Andrew Patton is as dismayed as the next person about the downturn in the financial markets. But as an economist whose research investigates the behavior of stock markets, he sees the past year's drop in the Dow Jones and NASDAQ as a source of valuable information.

Patton's work as a financial econometrician takes a close look at the way in which the prices of stocks and other financial assets rise and fall. The goal is to construct and test mathematical models that represent the behavior of stock prices, investment funds and other assets over a given period.

"Unfortunately, stock prices are almost impossible to predict," Patton said. "But what we can look at are things like risk and correlation.

"For instance, it is well known that a given bundle of stocks often decline in value together, but those very same stocks rarely increase in value together," he said. "In other words, there's something very different going on in a bear market than in a bull market, and my research tries to capture that difference."

Another stock-market phenomenon Patton investigates is volatility, or the extent to which prices rise or fall over a certain period.

"What's intriguing is that our notion of volatility changes," he said. "A two percent shift in asset prices in one era -- say, the mid-1990s -- may hardly be news at all, when that same shift may make headlines four or five years later."

Before coming to Duke, Patton spent seven years in England at the London School of Economics and at the University of Oxford, where, he says with amusement, "I had to wear a robe to all the important functions."

He was attracted to Duke by the strong financial econometrics program and that one of his new colleagues, Tim Bollerslev, had worked with his doctoral adviser.

Patton was born in Australia, where he attended the University of Technology in Sydney. It was there that he met the distinguished financial econometrician Robert Engle, who, along with the late Sir Clive Granger, won the 2003 Nobel Prize in economics. That meeting inspired Patton to do his graduate work at the University of California, San Diego, where Engle was his primary supervisor and Granger, one of his dissertation committee members.

"I went to San Diego and began working with Rob and never looked back," he said. "Rob and Clive's winning the Nobel Prize was a real boost to the type of research that they, and their many students, were doing."

An avid tennis player and runner, Patton was also attracted to Duke by the weather.

"It's spectacular," he said. "Great tennis weather. It never got hot in Britain; it never got quite steamy enough. But it does here."

He has already found several colleagues with whom to play tennis and to run -- including one who is training for a marathon.

"We ran 12 miles this morning," Patton reported on a recent cool and windy late-September day. "For my colleague, 12 miles was a short run, a walk in the park. But for me . . . I think 12 miles is just fine."