The extent of involvement varies considerably, from occasional consultancy work to holding down two jobs - one in academia and the other in an investment bank. James Sefton, professor of economics at Imperial College Management School, is an example of someone who manages two careers.
Sefton spends three days a week as an academic and two days doing quantitative analysis in equities for UBS Warburg. He has been there for three years. 'I did think about jumping over, but the thing is - I have always wanted to be an academic,' he says.
While the initial motivation to work in the City of London was financial, he enjoys it for its own sake as well. 'Analytical skills in the City suffer because of management pressures, day-in, day-out reports...I bring an academic perspective to what is essentially a finger-in-the-wind industry,' he says.
An entire department at Imperial College has been set up to do research for financial institutions in London. The college is hoping to pick up research projects for small clients, and enable its students to benefit from doing more 'real' work.
Academics are also finding that investment banks and other financial institutions regard formal affiliations with them as a way of gaining kudos in the industry.
David Miles worked full time from 1994 to 1996 as UK economist at Merrill Lynch in London, but decided to move back to academic life at Imperial, where he is professor of finance. But he still works one day a week at Merrill Lynch, and finds there is considerable demand for the latest theoretical developments.
'A lot of the big ideas in finance, such as options pricing and bond pricing, were developed largely in the academic world. City institutions recognise the value of knowing ahead of time why certain things happen,' says Miles.
But he adds that economists in academia work in a very different environment. 'You get more scope in academia to control your own time. You can shut the door, turn the phone off and think about the problem. This doesn't happen if you work for a financial institution,' he says.
Close ties between business and research are also evident at the options research centre at Warwick University, run by Stuart Hodges. Corporate members support the centre, which then becomes involved in projects that are motivated by real-life problems.
'I never wanted to be a mathematician: it seemed mainly aesthetic,' says Hodges.
'When I discovered operational research I thought this was wonderful, and then I drifted into finance where the best operational research lies,' he says.
Some academics maintain high profiles in financial circles by speaking at conferences and by editing journals.
Steve Satchell, a full-time academic and reader in financial econometrics at Cambridge University, is a fellow at Trinity College. He also works for banks, asset management companies, high net-worth individuals and sometimes consultants.
Satchell appears to have boundless energy for the work, which he finds 'a tremendous source of new directions of research and finance'.
He says: 'I supervise a lot of PhD students, and the extra work gives me ideas which they can then explore. So it all goes full circle.'
Investment banks are happy to take academic credibility on board, he says, and they value the links with institutions that are seen to be leading the field.
One of the best known academics in London is Steve Schaefer, the Tokai Bank Professor of Finance at London Business School. While his base is firmly at LBS he spends up to a day a week doing work outside.
LBS does not allow its staff to have another job as such, but Schaefer says all the staff are involved in consulting in one way or another.
'It would be quite difficult to teach at LBS without some real experience.
'If you are younger and teaching some more basic things, it's not so bad. But in fixed income, for example, you just can't keep up by reading a newspaper. It is also good for our research ideas,' says Schaefer.
He adds that in many cases the financial incentive of working in the financial services industry is more than matched by the interesting nature of the work.
'It is a win-win situation,' says Schaefer.