Systemic Risk in the Financial Industry: Mimetism for the Best and for the Worst
In the wake of the worst financial crisis since 1929, economists are revisiting the received understanding of how financial markets and institutions actually operate. This paper aims to contribute to this reexamination. It builds upon the traditional and widely-accepted mean-variance approach to the processing of information under conditions of risk while reconsidering an inadequately contemplated premise: the actual organization of the financial market. Now, a lot has been said about perverse incentives and contracting arrangements, firms with oligopolistic power, the pricing and market advantages of being too big to fail, and the associated inefficiencies of the regulatory and supervision systems. While we believe that much of that work is valid, we also believe that too little has been done to meld modern portfolio theory (MPT) with insights that can be drawn from recent developments in Industrial Organization. In the model presented here, the MPT finds its place through the "coordination"" mechanism, which is the transmission of financial information among agents. The IO perspective finds its place in our model through a variable capturing the fragility of the system: the probability that the quality of information can itself be altered by the system's ""complexity,"" which in its extreme from can be described as ""opacity."""
|Date of creation:||01 Aug 2013|
|Date of revision:|
|Contact details of provider:|| Postal: 1130 rue Sherbrooke Ouest, suite 1400, Montréal, Quéc, H3A 2M8|
Phone: (514) 985-4000
Fax: (514) 985-4039
Web page: http://www.cirano.qc.ca/
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Thierry Warin & Andrew Blakely, 2009.
"Choice or Mimetism in the Decision to Migrate? A European Illustration,"
CIRANO Working Papers
- Warin Thierry & Blakely Andrew, 2012. "Choice or Mimetism in the Decision to Migrate? A European Illustration," Global Economy Journal, De Gruyter, vol. 12(2), pages 1-32, June.
- Philip Arestis & Santonu Basu, 2004.
"Financial Globalization and Regulation,"
- Robert E. Prasch & Thierry Warin, 2012. "Moral Hazard and the Mounting of a Crisis: A U.S. Narrative," CIRANO For discussion... 2012dt-03, CIRANO.
- Jézabel Couppey-Soubeyran, 2010.
"Financial Regulation in the Crisis Regulation, Market Discipline, Internal Control: The Big Three in turmoil,"
Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers)
- Jezabel Couppey-Soubeyran, 2010. "Financial Regulation in the Crisis Regulation, Market Discipline, Internal Control: the Big Three in Turmoil," International Economics, CEPII research center, issue 123, pages 13–29.
- Whitehead, Charles, 2010. "Reframing Financial Regulation," Journal of Financial Transformation, Capco Institute, vol. 29, pages 57-69.
- Andre Fourcans & Thierry Warin, 2010.
"Tax competition and information sharing in Europe: a signalling game,"
International Journal of Economics and Business Research,
Inderscience Enterprises Ltd, vol. 2(1/2), pages 76-86.
- Thierry Warin & André Fourçans, 2006. "Tax Competition and Information Sharing in Europe: A Signaling Game," Middlebury College Working Paper Series 0605, Middlebury College, Department of Economics.
- Coskun, Yener, 2011. "Financial Engineering and Engineering of Financial Regulation," MPRA Paper 34838, University Library of Munich, Germany.
When requesting a correction, please mention this item's handle: RePEc:cir:cirwor:2013s-29. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Webmaster)
If references are entirely missing, you can add them using this form.