Finance Theory

Institutional Investors and the Offshore Hedge Fund Industry: Investigating Patterns of Linkage, Organization, and Governance

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This study combines the expertise of social anthropology, social network analysis, portfolio theory, and computational social science with the treasure-trove of a wholly unique database on hedge funds compiled by the Foundation for Fund Governance to examine the organization and governance of the offshore hedge fund industry.

Despite the substantial exposure of pension funds (including those of near-retirement or retired baby boomers), endowments, charities, and other institutional investors to hedge funds, little research has been done from this perspective on the market and other risks that surround the industry. Yet the implications for financial stability are considerable.

Safe Assets and the Evolution of Financial Information

Assets that are perceived as “safe” play a vital role in financial markets – serving, in particular, as high-quality collateral for transactions in repo and OTC derivative markets.  The global financial crisis and the problems in Europe have raised concerns that ongoing imbalances in the demand and supply of safe assets could have unhappy consequences for global financial stability and macroeconomic prospects.

Steve Keen: A Computer Simulation of Monetary Dynamics

The financial crisis that ran from 2007 to 2009 has been called a "Minsky Moment," meaning it offered a much-needed reminder to all economists of Hyman Minsky's neglected dictum that "capitalism is essentially a financial system." 
 
But even with this reminder, it is hard to know what to do next, since it is difficult to express Minsky's vision using the standard equilibrium methods of economics. Arguably that is one reason that Minsky has remained a minority taste in economics.  
 

Let Them Eat Credit: Has Financial Capitalism Failed the World?

Did the financial crisis of 2008 represent a failure of the capitalist system?

That crucial question was in the air when Institute for New Economic Thinking Senior Fellow Lord Adair Turner spoke in May at a special Head to Head debate hosted by Al Jazeera at England’s legendary Oxford Union. Read more

Dirk Bezemer - Debt: The Good, the Bad, and the Ugly

The last five years after the financial crisis have made clear that the workings of money, credit, and debt have profound consequences for the functioning of our economic system. But for many, the fundamental principles that make money work remain opaque.

Is it possible to create an economic system that does not produce bubbles and crises? And is it possible to solve our current debt crisis? Read more

Grantee Steve Keen at INET Hong Kong

INET Grantee Steve Keen speaks at INET's "Changing of the Guard?" conference in Hong Kong about his work on modeling disequilibrium. 

What Financial Regulators Can Learn from Network Theory

When regulators seek to identify systemically important financial institutions (SIFIs), they tend to focus on an institution’s size and connectedness. But this approach mises an important dimension of systemic risk, according to Imre Kondor, Stefano Battiston, Giorgio Fagiolo, and Alan Kirman. Read more

What is Shadow Banking? ft. INET's Perry Mehrling

Defining shadow banking is still a nightmare. Read more

Contagion of Sentiment, Investor Trading Activities, and Financial Crises

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We study the pricing and liquidity implications of sentiment and disagreement as origins of radical uncertainty in financial markets. We address this question in two ways. First, we propose a unified theoretical framework to explore how sentiment and disagreement affect the trading behaviors of market participants and hence asset prices and liquidity. Second, we use various data sources to investigate the model-generated empirical predictions on how disagreement-sentiment dynamics can explain certain patterns in stock return predictability and liquidity in the cross section and in the time series.  

Does Financialization Contribute to Growing Income Inequality?

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The financialization of the US economy and rising income inequalities are two of the most profound economic developments of the last fifty years. In this project we ask if the financialization of the US economy has contributed to rising income inequality.  We propose to answer this question with complementary analyses at the individual, firm and industry levels.  We focus on three components of the earnings distribution: employment earnings distributions, executive compensation, and capital/labor shares of value added. For firms we also examine the consequences of financialization for global and domestic employment and for domestic employment separately for various occupational groups.