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Economics in The Economist 2

2.Financial economics
7/16号の特集(批判)記事
・[EMH (efficient-markets hypothesis)] had come to prominence only a decade or so before. Eugene Fama, of the University of Chicago, defined its essence: that the price of a financial asset reflects all available information that is relevant to its value.

・On such ideas, and on the complex mathematics that described them, was founded the Wall Street profession of financial engineering. The engineers designed derivatives and securitisations, from simple interest-rate options to ever more intricate credit-default swaps and collateralised debt obligations.

・That is why many people view the financial crisis that began in 2007 as a devastating blow to the credibility not only of banks but also of the entire academic discipline of financial economics.

・The EMH, to be sure, has loyal defenders. “There are models, and there are those who use the models,” says Myron Scholes, who in 1997 won the Nobel prize in economics for his part in creating the most widely used model in the finance industry―the Black-Scholes formula for pricing options. Mr Scholes thinks much of the blame for the recent woe should be pinned not on economists’ theories and models but on those on Wall Street and in the City who pushed them too far in practice.

・He has also been “criticising for years” the “value-at-risk” (VAR) models used by institutional investors to work out how much capital they need to set aside as insurance against losses on risky assets. These models mistakenly assume that the volatility of asset prices and the correlations between prices are constant, says Mr Scholes.

・In the early years of the EMH, researchers spent little time worrying about the workings of financial institutions―a weakness of macroeconomics too.

・However, a second branch of financial economics is far more sceptical about markets’ inherent rationality. Behavioural economics, which applies the insights of psychology to finance, has boomed in the past decade. In particular, behavioural economists have argued that human beings tend to be too confident of their own abilities and tend to extrapolate recent trends into the future, a combination that may contribute to bubbles. There is also evidence that losses can make investors extremely, irrationally risk-averse―exaggerating price falls when a bubble bursts.

・Yet EMH-ers and behaviouralists are increasingly asking the same questions and drawing on each other’s ideas. For instance, Mr Thaler concedes that in some ways the events of the past couple of years have strengthened the EMH.

・Mr Thaler also says that only some of the recent problems were behavioural. Many were due to things that are open to non-behavioural economics, “like better risk analysis, how we identify hidden correlations.”

・One task, also of interest to macroeconomists, is to work out what central bankers should do about bubbles―now that it is plain that they do occur and can cause great damage when they burst.

・Another priority is to get a better understanding of systemic risk, which Messrs Scholes and Thaler agree has been seriously underestimated. A lot of risk-managers in financial firms believed their risk was perfectly controlled, says Mr Scholes, “but they needed to know what everyone else was doing, to see the aggregate picture.” It turned out that everyone was doing very similar things. So when their VAR models started telling them to sell, they all did―driving prices down further and triggering further model-driven selling.

2009/09/02(水) | Economics | トラックバック(0) | コメント(0)

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