Schreyer Scholar looking to see if there are ways to beat the stock market

UNIVERSITY PARK, Pa. — Jonathan McKellar has always found a certain comfort in mathematics.

"I liked the black and white nature of it," the Penn State junior said. "Being able to say, this is right, this is wrong, being able to objectively support something just based on the math behind it."

He also likes being able to take math and use it to creatively solve other sorts of problems, which is one of the reasons the Schreyer Honors Scholar is majoring in both mathematics and economics, with a minor in statistics. As part of his honors thesis, McKellar is using math to test one of Wall Street's long-held investment theories.

Using time series data analysis, McKellar is putting the efficient market hypothesis, or the idea that stocks always trade at fair value on stock exchanges, to the test.

"It's basically just testing whether or not you can actually forecast changes in stock prices," he said.

Working with thesis adviser Russell Chuderewicz, Teaching Professor of Economics in Penn State's Department of Economics, McKellar conducted time series analyses of periods before the Great Recession, during it and after it, looking for periods of momentum or mean reversion that would violate the efficient market hypothesis.

"We started thinking about particular sectors that might have been affected in a non-normal way during the financial crisis," Chuderewicz said. "We were trying to figure out whether or not you could beat the market."

McKellar is on pace to graduate from Penn State in just over three years — he arrived at Penn State with 42 credits from advanced placement courses — and has had to move up the timetable on his thesis, which Scholars usually complete late in their senior year.

"I've thus far generally been able to confirm that markets seem to be efficient overall," he said, "but there are certainly specific trends that could be profitable if properly executed."

McKellar, who graduated from West Chester East High School in three years, originally was going to graduate in May, but discovered he wouldn't be eligible for McKinsey & Company's internship program if he did so. Instead, he will spend the summer at McKinsey as an intern, then graduate in August.

He doesn't know exactly what will come next, and he is more than OK with that.

"Three years ago, I would have thought it was a Ph.D or a master's in financial engineering or something like that and then go on to Wall Street," said McKellar, who has completed three of five preliminary actuarial exams. "One year ago, it would have been: 10 years from now I'll be a fellow on the Society of Actuaries, be done with the exams, working for an insurance company or an actuarial consulting practice. Now, I don't know exactly, and that's one of the great things about McKinsey — it could lead me anywhere."

McKellar is a member of the Alpha Kappa Psi business fraternity and the Penn State Investment Association, thanks in part to connections he made through the Schreyer Honors College.

"I've met so many different people that have been great friends, but have also helped me network professionally," he said.

Chuderewicz has been impressed with the way McKellar seeks out new challenges.

"I think the consulting thing will get him out into the open where he can start making his own decisions and start solving his own problems," Chuderewicz said. "He's smart enough that he can do anything he wants."

Last Updated February 08, 2018