Impact factor

What Is Impact Factor?

The impact factor (IF) is an academic metric that quantifies the average number of citations received per paper published in a particular journal over a specific period, typically two years. Within the realm of financial research and academia, the impact factor serves as a widely used indicator of a scholarly journal's influence and prominence within its field. A higher impact factor suggests that a journal's articles are frequently referenced and are therefore considered more influential and relevant by other researchers. While primarily associated with academic publishing, the concept of assessing influence and significance through quantifiable measures resonates with various aspects of quantitative analysis in finance, particularly in evaluating research trends and the diffusion of financial theories. The impact factor helps researchers identify reputable publication venues and assess the visibility of their work, which can influence career progression and funding opportunities²⁹.

History and Origin

The concept of the impact factor was developed by Eugene Garfield, the founder of the Institute for Scientific Information (ISI), now part of Clarivate. Garfield introduced the metric in the 1950s as a tool to help librarians make decisions about journal subscriptions, but it soon gained traction as a measure of journal influence in the broader academic community. Impact factors began to be calculated and published annually starting in 1975 in the Journal Citation Reports (JCR). This standardized measurement provided a systematic way to compare the citation performance of journals across various disciplines, including economics and finance. Over decades, the impact factor has become deeply entrenched in academic evaluation processes, influencing decisions related to publishing, tenure, and research funding globally. The Journal of Financial Economics, for instance, is considered a premier finance journal and has consistently held a high impact factor, underscoring its influence in the field²⁶, ²⁷, ²⁸.

Key Takeaways

• The impact factor measures the average number of citations articles in a journal receive over a specified period, typically two years.
• It is a widely used metric to gauge the relative importance and influence of academic journals within their respective fields.
• A higher impact factor generally indicates a journal's greater visibility, reputation, and the frequency with which its published research is cited.
• While a useful indicator, the impact factor has limitations, including variations across disciplines and potential for manipulation.
• It is calculated annually by Clarivate's Web of Science.

Formula and Calculation

The two-year impact factor for a journal in a given year is calculated as follows:

For example, to calculate the 2024 impact factor, Clarivate would divide the total number of times articles published in 2022 and 2023 in that journal were cited by indexed journals during 2024 (A), by the total number of "citable items" (e.g., articles and reviews) published by that journal in 2022 and 2023 (B)²⁴, ²⁵.

Here:

• A = Number of citations in the current year to items published in the two preceding years.
• B = Total number of citable items published in the two preceding years.

This formula provides a quantitative measure of a journal's recent citation activity. The "citable items" typically include original research articles and review articles, while excluding editorials, corrections, or news pieces. The data for these calculations are derived from Clarivate's Web of Science database. This approach is a form of data analysis that helps assess research dissemination.

Interpreting the Impact Factor

Interpreting the impact factor requires understanding its context. A journal with a high impact factor, such as a major publication in financial economics, typically signifies that its articles are frequently referenced by other researchers. This suggests the journal publishes highly influential and relevant work that shapes discourse in the field. For instance, an impact factor of 10.4 for the Journal of Financial Economics indicates a high level of influence compared to other journals²³.

However, the "goodness" of an impact factor is relative to the specific academic discipline. Fields with rapid publication cycles and extensive citation networks, like molecular biology, often have higher average impact factors than fields like mathematics or certain areas of behavioral finance, where citation patterns differ. Therefore, comparing impact factors across different disciplines is generally not meaningful. Instead, researchers often compare a journal's impact factor to others within the same subject category to evaluate its standing²¹, ²². A high impact factor can enhance a researcher's visibility and credibility²⁰.

Hypothetical Example

Consider a newly launched academic journal focusing on investment strategy. In its first two full years of publishing, 2023 and 2024, the journal releases a total of 100 "citable items." By the end of 2025, Clarivate compiles citation data. During 2025, articles published by this journal in 2023 and 2024 collectively receive 150 citations from other journals indexed in the Web of Science.

To calculate the 2025 impact factor for this hypothetical journal:

1. Count citations (A): 150 (citations received in 2025 for articles published in 2023 and 2024).
2. Count citable items (B): 100 (total articles published in 2023 and 2024).
3. Calculate Impact Factor: ( \frac{150}{100} = 1.5 )

Thus, the journal's 2025 impact factor would be 1.5. This figure would then be compared to the impact factors of other journals specializing in investment strategy to assess its initial influence within the asset management community.

Practical Applications

While primarily an academic metric, the underlying concept of "impact" has parallels in various financial applications, particularly in assessing the effect of events, policies, or trading activities.

For instance, in financial modeling, financial impact analysis (FIA) is used to quantify the monetary effects of business decisions, projects, or changes on a company's revenue, expenses, profit, and cash flow¹⁸, ¹⁹. This type of analysis helps businesses evaluate potential risks and benefits, informing choices related to resource allocation.

Similarly, economic impact assessments examine the effects of projects or policy changes on the broader economy, often measuring changes in GDP, employment, and tax revenues¹⁶, ¹⁷. The Securities and Exchange Commission (SEC) also conducts extensive research and analysis on market structure to understand the impact of various regulations and trading practices on equity markets¹⁴, ¹⁵. This includes studying the real effects of financial markets, such as how market prices reflect information useful for real economic decisions¹³. Furthermore, central banks, like the Federal Reserve, analyze the impact of monetary policy decisions, such as interest rate changes, on inflation and economic activity¹¹, ¹². The CME Group, a leading derivatives marketplace, also provides market impact analytics for its clients to understand how their trades influence prices and to optimize trading strategies⁹, ¹⁰.

Limitations and Criticisms

Despite its widespread use, the impact factor faces several limitations and criticisms. One significant concern is that it can vary substantially between disciplines, making cross-disciplinary comparisons misleading. Journals in fields with more rapid publication cycles and higher average reference counts tend to have inherently higher impact factors.

Another criticism revolves around the potential for manipulation. Journals might adopt editorial policies that inflate their impact factor, such as publishing more review articles (which tend to be highly cited) or encouraging self-citation. Furthermore, the impact factor measures journal-level influence, not the impact of individual articles or researchers. A highly cited paper published in a lower-impact journal may still have significant individual impact. Conversely, an article in a high-impact journal might receive few citations.

Academics also highlight that the two-year window for calculation may not be appropriate for all fields, especially those where research impact unfolds over longer periods. Over-reliance on the impact factor can lead to an emphasis on publishing in high-impact journals, potentially at the expense of novel or interdisciplinary research that might not immediately generate high citation counts. Critics argue this singular focus can distort good scientific practices and promote a narrow view of research quality. Concerns also exist regarding the transparency and reproducibility of impact factor calculations.

Impact Factor vs. Market Impact

While "impact factor" assesses the influence of academic journals, "market impact" refers to the effect that a trading order has on the price of a financial asset. Both terms quantify a form of "impact," but they operate in vastly different domains and with distinct mechanisms.

Impact Factor is a measure in academic publishing, indicating a journal's citation frequency and prestige. It reflects the influence of research dissemination.

Market Impact, in contrast, is a concept within market microstructure and trading. It describes the temporary or permanent price change that occurs when a large trade or series of trades is executed in an equity market, fixed income, or derivatives market⁶, ⁷, ⁸. For example, a large buy order can push prices up, and a large sell order can push them down⁵. Investors and traders, especially those engaged in algorithmic trading, are keenly aware of market impact as it directly affects transaction costs and the profitability of their trades⁴. Understanding market impact is crucial for optimal order execution and portfolio management. While impact factor evaluates intellectual influence, market impact evaluates the direct price consequences of financial transactions.

FAQs

What does a good impact factor mean for a finance journal?

A good impact factor for a finance journal, such as the Journal of Financial Economics, indicates that its published articles are frequently cited by other researchers in the field. This signifies that the journal is a highly influential and reputable source of financial research, and its findings are widely recognized and built upon by the academic community.

Is the impact factor the only way to measure a journal's quality?

No, the impact factor is not the sole determinant of a journal's quality. While widely used, it has limitations. Other metrics exist, such as the CiteScore, SCImago Journal Rank (SJR), and Source Normalized Impact per Paper (SNIP)¹, ², ³. Additionally, qualitative assessments, like the rigor of its peer-review process, the reputation of its editorial board, and its relevance to emerging areas in capital markets or risk management, are also important in evaluating a journal's overall standing.

How does the impact factor affect financial professionals?

While the impact factor directly relates to academic journals and researchers, it indirectly affects financial professionals by identifying the leading sources of new financial theory and empirical findings. Staying abreast of research published in high-impact finance journals helps professionals understand cutting-edge economic indicators, models, and trends that can inform their strategies and decision-making in areas like asset allocation and financial engineering.