From Nathan Coombs:

As readers of Socializing Finance will be well aware, the nexus of finance and society is increasingly subject to critical attention from a range of commentators. Economic sociologists and political economists have been at the forefront of such investigations, but they are increasingly accompanied by a wider array of theorists, activists, playwrights, novelists, and artists.

Finance and Society is a fully independent and open-access journal, dedicated to bringing together these diverse voices and generating new insights into how money and finance organise social life. Above all, the journal’s aim is to publish research in which the social substance of finance itself takes precedence over the canons and controversies of the academy.

In keeping with this overarching aim we have two ancillary goals for the journal. The first is to facilitate an extensive development of finance studies as a field. If present modes of inter-disciplinary exchange see cutting-edge research dispersed across a range of platforms, then our aim is to provide a place where these diverse research agendas can come together. We therefore welcome and invite contributions from scholars working with concepts or methods from political economy and the social studies of finance, as well those who draw on philosophical or aesthetic registers.

Our second and related goal is to facilitate an intensive development of the field. In particular, we invite and encourage research that grapples with synergies and tensions between new trends in finance studies. This includes (but is by no means limited to) the question of foundation and structure within the performativity paradigm, which we discuss in our inaugural editorial. How, for example, do representations of finance interact with the technical devices used by market participants and regulators, and what are the emergent structural properties of such interactions? The future of finance studies will be forged through questions like this, and we offer this new journal as a site where more such questions might be asked and answered.

Our first issue, ‘Hard Cash’, draws together scholars from a range of different fields to reflect on the nature of money in the context of contemporary finance. So, while Bob Jessop reflects on the money-form in cash, credit, and capital, Max Haiven explores the role of money as a medium for contemporary art practices.

Looking towards the future, Finance and Society is keen to receive articles, essays, and review articles from any scholars exploring the social foundations or consequences of finance. We also invite proposals for special issues and suggestions for fora on emerging themes or ground breaking new publications.

Finance and Society is very much a collective endeavour, tapping into an existing groundswell of bold post-disciplinary scholarship on the sociality of finance. Whether as reader or contributor, we hope you will see the journal as a collaborator in your own innovative explorations within the field.

Sincerely,

The editors

Angus Cameron (University of Leicester)
Nathan Coombs (University of Edinburgh)
Amin Samman (City University London)

In light of recent events in Greece, last week’s post by Emilio Marti seems strangely prescient. Emilio called for more research on the wider societal implications of financial markets: how, he asks, are people ultimately affected by financial markets? How is financial innovation impacting actual investors?

Emilio’s call is part of a broader call for a political turn in SSF. His arguments build on a terrific paper with Andreas Scherer, forthcoming in the Academy of Management Review, as well as numerous comments made in the past by Fligstein, Williams, Roscoe, and others. The AMR piece charges that existing analyses of HFT within the social studies of finance (Beunza and Millo 2014, as well as others) fail to address the problem of social justice. As they see it, sociologists of finance reinforce a technocratic system — different from economists in their sociological interest in stability, but servants to “the system” nevertheless.

Flattering as it is to have my work critiqued on AMR, I respectfully disagree with the diagnosis. As I see it, the transformations that are entailed in High Frequency Trading — the displacement of traditional floor intermediaries by algorithms — turns existing conceptions of what is fair on its head, calling for an entirely new critical agenda. And this is not just about finance. Algos are not just taking over trading, but also hiring, teaching and a wide range of other activities in society. The implications of my argument about ethics and financial algos, I hope, extend to all these industries.

HFT and the need for a new critical agenda

First, why do Marti and Scherer argue that sociologists are reinforcing technocracy? They make three points. First, that research ought to examine the consequences of the rise of HFT for income distribution, especially as it between those who benefit from the high compensations that an expanding financial sector affords and those groups outside of the financial sector that lose in relative or absolute terms. Second, that the design of financial regulation ought to financial regulation should include all affected societal groups, as anything else will only reflect the views of the elite members of society — regulation, again, for the one percent. And third, that financial innovation like HFT might not actually add any value, causing them to worry about where all this money flows (into the compensations of some financial-sector employees) and how this money increases income inequality. In short: existing regulation is technocratic, elitist and protective of tricksters… and sociologists of finance

I disagree on all three counts. I believe examining the distributive consequences of HFT regulation is an unnecessary burden, as governments have multiple levers at their control to achieve different societal goals. If a policy change (e.g. trade liberalization) generates so much welfare gain that the losers could in principle be compensated by the winners (by e.g., tax transfers) then governments should go ahead with it. That bigger pie can then probably be better redistributed with other tools.

Second, including non-professional traders in the regulation might sound like a good idea, but I do fear that the wider public might not add much. Some issues call for technical training. Even Habermas has changed his views on this, and his later work argues that the technically untrained public may not be able to have a productive voice in dialectical deliberation. What I would argue below, instead, is that the regulation of financial innovation (and automation in general) needs to include the voice of the profession that is being displaced.

Third, and most importantly, Marti and Scherer have not touched on the most critical concern raised by automation: ethics. What my research with Yuval shows is that finance is no difference from what Lawrence Lessig has found in other instances of automation. Automating, he found, replaces the old informal norms by the hard rules of computer code. In this process of translation, automation gives technologists a lucrative loophole: the ability to do things legally that were previously shunned as inappropriate by the community of industry actors. In the case of HFT, for instance, their work replaces traditional market-makers on the floor. But whereas the latter were subject to informal norms of proper behavior – the obligation to step in during spells of illiquidity, etc. – the new ones are not. As Yuval and I show in our paper, this contributed to the Flash Crash. Yet the Flash Crash is just one manifestation; there are many other socially destructive algorithmic trading activities that are not illegal. One is latency arbitrage, masterfully described by Michael Lewis. Another one is spoofing. And it is no coincidence that the defense of Sarao, the devil genius spoofer from Hounslow (London) was “I did nothing illegal.” And so forth.

The real problem with automation

The problem goes beyond finance. Whether it is in the music, book selling, dating or the taxi industry, automation has created a social distance between industry participants, potentially turning markets into a Hobbesian nightmare of “every algo for itself.” The original goal was to reform society through the codification of behavior, hoping that its constraining effect would purify dirty business practices. In reality, codification has afforded new types of opportunism and eliminated society’s ability to control opportunism through informal means, as it had traditionally done. This goes back to Durkheim’s core sociological insight: the existence of an informal basis for formal contracts. Put differently: that formal law, by itself, cannot govern a society. The contemporary problem is this something like, computer code, by itself, cannot govern society.

Hence the title of this post – ethics and algorithms. The distinction between norms and rules is at the heart of ethical behavior at work. Norms and principles, rather than legal standards, are what differentiates ethical from unethical. Put differently, automation runs the risk of entailing moral abdication to the computer code.

To make matters worse, technologists make a moral case for automation. See for instance, this proposal to replace HR departments with algorithms. It starts from moral denunciation that human hiring is discriminatory, and HR departments incompetent. Fueled by such well-crafted moral outrage, a lay audience will gobble up the huge and obvious canard that an algo can seriously assess someone’s expert skills. In fact, more recent evidence suggests that algos can even engage in racially offensive profiling on a level that only seriously racist humans would be capable of. Or get very close to gender discrimination, for that matter.

A challenge to sociology

At the core of moral denunciations like the above lies a dangerous ideology, going back to Adam Smith. The idea, often put forth by social scientists in economics and behavioral economics or psychology, is that social structure is the root of all evil. The business people that have dinner with each other? Surely they are price-fixing. Those traders on the pit? They probably are colluding, otherwise why would they be nice to each other. Taxi drivers? All corrupt, but an app will see them right. This demonization of social structure is a direct challenge to sociology and its ability to see nuances, that is, structures (roles, patterns of ties) that are positive and others that are negative. It is sociologically naïve, false, and dangerous — the equivalent of sociologists thinking that all commercial activity is unethical.

By the same token, sociologists should not demonize automation either. Their challenge is to be able to distinguish between good and bad automation designs. In our paper, Yuval and I identify automation designs that draw creatively on the original social structure of the market (allowing, for instance, for human market makers on the trading floor to take over from the algos in times of crisis). Others call for incorporating reputation mechanisms into algorithmic trading.

In sum, as automation becomes widespread, sociologists face what is probably the biggest challenge to their discipline in more than a century, akin to the move from the village to the city that spawned the birth of their discipline in the 19th C. Markets are being redefined. Economic interaction is shifting online, onto algos. Second Life, that failed and boring video game-like virtual society, is actually happening for real in the stock market and other industries, although with no fancy 3D graphs. Traders have, in effect, created avatars of themselves that are interacting in an invisible limbo, with rules that the HFT entrepreneurs mostly came up with, or shaped through lobbying, and with limited control by the rest of society. It’s this barely-visible world that sociologists need to make visible and problematize.

From Emilio Marti, Cass Business School

I learned more about high-frequency trading from scholars, who do social studies of finance (SSF), than from any other discipline. SSF scholars reconstruct the history of this financial innovation, bring in the perspective of practitioners, take into account and weigh insights from economic theory, and discuss the implications of high-frequency trading for the social construction of liquid markets. So I learned a great deal about whether high-frequency makes the economy more efficient and stable (the short answer: yes for efficiency, no for stability). At the same time, many people are also concerned about how financial markets and financial innovations are transforming the economy and society. Unfortunately, SSF scholars hardly talk about these bigger societal implications. In this post I show why this is a pity, and how SSF scholars could help illuminate these bigger societal implications.

My ideas partly build on a paper, co-authored with Andreas Scherer, on financial regulation and social welfare that is forthcoming in the Academy of Management Review (for an unedited and publicly available version of the paper see SSRN). Our starting point is that existing research shows that the growth of the financial sector is one of the major drivers of income inequality. In the US, investors spend around $528 billion (4% of GDP) for financial services each year (Bogle 2008). These fees feed the super-high wages of some finance employees. In the US, wages from the financial sector account for 25% of the rising GDP share of the top 0.1% (Bakija et al. 2012). For the UK between 1998 and 2008, super-high wages from the “City” account for 60% of the rise in income among the top 1% (Bell and Van Reenen 2010).

What is puzzling, however, is why investors (both private and institutional) are willing to spend so much on financial services. Indeed, over the past 50 years (back to Fama 1970), financial economists have consistently shown that low-fee/passive investment solutions make more sense for most investors, compared to the high-fee/active investment solutions that most investors end up buying. Kenneth French (2008), in his presidential address to the American Finance Association, speaks of “a futile search for superior returns” in which investors lose an average of 0.67% of return per year.

In our paper, we argue that financial innovations such as high-frequency trading may help why financial service firms can sell so many high-fee products. Financial innovations keep financial markets in a constant state of flux, thereby creating new opportunities and threats for investors. For example, some ten years ago, many investors saw mortgage backed securities as an excellent opportunity that they would miss with a passive investment strategy. Today, many investors perceive high-frequency trading as a threat and they seek “active” help from dark-pool providers and algorithm developers to fend off “predatory” high-frequency traders (Foresight 2011). By keeping financial markets in a constant state of flux, financial innovations allow financial services firms to showcase their expertise and to sustain demand for their services.

We argue that researchers from different disciplines should further explore whether financial innovations help sustain the growth of the financial system and, if so, how. And I think that the SSF could contribute to this endeavor in important ways. At the moment, however, SSF scholars rarely connect their studies of the emergence of new financial tools and practices to broader questions about the size of the financial system. Indeed, as Philip Roscoe notes in a 2010 post on this blog: “There is not, as far as I’m aware, any surprise registered in Donald MacKenzie’s work – or Yuval’s or Daniel’s – that derivative markets exist at all.” This narrow focus relates to the fact that SSF scholars mostly analyze how sell side people and brokers interact with each other.

Who is missing? The buy side! Investors! They are the customers of financial service firms and they pump hundreds of billions into the financial sector each year (as mentioned, $528 billion for the US alone) in what French (2008) describes as a “negative sum game.” Here, SSF scholars should follow the money. This would require that SSF scholars extend their focus and also include the buy side into their analysis. So far, SSF scholars have at most studied retail clients (see Poon 2009), but ignored big investors and the fee streams they generate. Specifically, I would be highly interested to learn how new tools help financial service firms sell ever new products. With this, SSF scholars could start to explore how financial innovations and the tools they produce contribute to the growth of the financial sector.

Ultimately, these ideas link back to the debate about whether the SSF are merely, as Karel Williams formulated it, “nerdish case studies” that neglect the “political” dimension of what is going on around financial markets (see Daniel’s 2010 post). I think that taking into account how tools shape the interaction between the buy and sell side would preserve the distinct SSF approach – ethnographic studies focused on tools – while producing insights that are relevant for the broader community of scholars interested in how financial markets are transforming the economy and society.

From Paula Jarzabkowski

Dear Socialising Finance Community,

As you know, our book on  Making a Market for Acts of God has recently been released. It has certainly raised controversial comment in the press, from the FT to the BBC and, most lately, Bloomberg TV: http://bloom.bg/1IxMXOi with much industry debate about the implications of bundling risk, and the influx of alternative capital underpinning the growth of insurance linked securities. Certainly, the potential for market failure arising from changes to existing changing trading norms and practices is one aspect of the book’s ‘call-to-arms” for the industry.

I therefore invite you, as members of the socialising finance community to hear what the book is really about, and to have your say. Please do feel free to also forward this invitation to any colleagues who might be interested to know more. You can register to attend on the link below.

You are invited to:  Reinsurance markets and the future of trading large-scale risk

Tuesday 9th June 2015, 6-7.30 pm 

Cass Business School, 106 Bunhill Row, EC1Y 8TZ

The global market for large-scale risks has never been more important, as climate change exacerbates natural disasters and concerns arise over new threats such as cyber-risk.

Join us for a drinks and canapé reception as we launch our Oxford University Press book: Making a Market for Acts of God: The practice of risk-trading in the global reinsurance industry (authored by Paula Jarzabkowski, Rebecca Bednarek and Paul Spee)

The event will present the findings about the practice of trading risk in the global reinsurance industry and will also feature an expert panel debating the implications for the future of trading in large-scale risk and reflect on the lessons we can learn from other markets.

To register and learn more about this event click: http://www.city.ac.uk/events/2015/june/reinsurance-markets-and-the-future-of-trading-large-scale-risk; #CassReinsurance

  • ​Speaker: Paula Jarzabkowski, Professor of Strategic Management at Cass Business School, City University London

Expert industry and academic panel:

  • Tom Bolt, Executive Team member and Director of Performance Management at Lloyd’s of London
  • Clem Booth, (re)insurance industry veteran, formerly executive board member of Allianz SE and CEO of Aon Benfield Global Inc and many other executive positions in the industry.
  • Michael Power, Professor of Accounting, and former Director of the Centre for the Analysis of Risk and Regulation at LSE

Event information

Date: 9th June, 2015 6pm registration, presentation and panel 6.30-7.30 pm, drinks 7.30-8.15 pm

Location: Room LG001, Cass Business School, 106 Bunhill Row, London, EC1Y 8TZ

The PRI Call for Papers is now open – EXTENDED DEADLINE 18 MAY 2015

From awareness to impact: mechanisms of change in responsible investment

We are delighted to announce that this year’s the PRI Academic Network Conference will be part of PRI in Person for the first time, with a full stream dedicated to academic research. The conference will be held on 8 – 10 September at the ICC, ExCeL London, enabling academics and investors to engage, learn and discuss the latest insights, and to network.

The PRI is also proud to collaborate with The Systemic Risk Centre, based at the London School of Economics and Political Science (LSE) for the PRI Academic Workshop. This additional event is for PRI signatories, other responsible investment professionals and academics to enhance their knowledge and practices, but also for deeper interactions in a distinct community setting. The Workshop will be held on 11 September.

Both PRI in Person and the Academic Workshop will showcase selected research papers from the call.

We invite submissions of full papers (but extended abstracts are acceptable) that focus on the following areas:

  •         ESG integration
  •         Long term investment
  •         ESG engagement
  •         Financial performance
  •         ESG impact

For more information and to apply, please visit our website or contact academic@unpri.org.

The extended deadline for submissions is 18 May 2015.

Conference committee:

Michael Barnett, Rutgers Business School

Daniel Beunza, London School of Economics

Fabrizio Ferraro, IESE Business School

Jean-Pascal Gond, City University London, Cass Business School

Michael Viehs, Oxford University, Smith School of Enterprise and the Environment

From Paula Jarzabkowski

You are invited to:  Reinsurance markets and the future of trading large-scale risk

Tuesday 9th June 2015, 6-7.30 pm 

Cass Business School, 106 Bunhill Row

The global market for large-scale risks has never been more important, as climate change exacerbates natural disasters and concerns arise over new threats such as cyber-risk.

Join us for a drinks and canapé reception as we launch our Oxford University Press book: Making a Market for Acts of God: The practice of risk-trading in the global reinsurance industry (authored by Paula Jarzabkowski, Rebecca Bednarek and Paul Spee)

The event will present the findings about the practice of trading risk in the global reinsurance industry and will also feature an expert panel debating  the implications for the future of trading in large-scale risk and reflect on the lessons we can learn from other markets.

To register and learn more about this event click: http://www.city.ac.uk/events/2015/june/reinsurance-markets-and-the-future-of-trading-large-scale-risk

  • Speaker: Paula Jarzabkowski, Professor of Strategic Management at Cass Business School, City University London

Expert industry and academic panel:

  • Tom Bolt, Executive Team member and Director of Performance Management at Lloyd’s of London
  • Clem Booth, (re)insurance industry veteran, formerly executive board member of Allianz SE and CEO of Aon Benfield Global Inc and many other executive positions in the industry.
  •  Michael Power, Professor of Accounting, and former Director of the Centre for the Analysis of Risk and Regulation at LSE

Event information

Date: 9th June, 2015 6pm-7.30pm

Location: Room LG001, Cass Business School, 106 Bunhill Row, London, EC1Y 8TZ

About Making a Market for Acts of God:

We thought that the risk society would cause humanity to ponder the sustainability of the conditions of its existence. The book shows, however, that the risk society is also, above all, a formidable opportunity for financial markets. By analysing how reinsurers turn natural disasters unpredictable and theoretically incalculable Acts of God into tradable objects, the authors provide a major contribution to understanding the marketization of our societies and its implications. Michel Callon, Professeur à l’Ecole des mines de Paris, CSI. Ecole des mines de Paris.


This astonishingly thorough global ethnography, involving fieldwork in seventeen countries and over four hundred interviews, paints a fascinating picture of the practices of a unique, and hugely important industry. Donald MacKenzie Professor of Sociology, University of Edinburgh.

From London to Honk Kong and Monaco to Australia, the authors cast an ethnographers eye on the practice of reinsurance, extending the strategy as practice paradigm into the terrain of insurance and finance. In doing so, Making a Market for Acts of God provides a unique material portrait of how markets and organizations deal with risk at a global scale, offering a new and important contribution to the social studies of finance. Daniel Beunza, Assistant Professor of Management, London School of Economics.

For further endorsements, see:  http://ukcatalogue.oup.com/product/9780199664764.do

It’s spring in London, and the beautiful weather this week reminds me that the LSE is now taking applications for my favorite Summer School, “Firms, Markets and Crises: Foundations of the Social Studies of Finance.” The course is due to start on July 6th, and runs till July 24th. See the official site here.

The backbone of the course is a distinct approach to financial markets that is neither orthodox finance (with its emphasis on impersonal markets) nor behavioral finance (and its focus on individual mistakes and psychological biases). Instead, the course is premised on the idea that social relations matter to the functioning of banks and financial markets. Their influence includes the effect of social networks among bankers, the tools used by traders (technology, after all, is socially constructed), and the culture of financial institutions such as the values, beliefs and attitudes in them. The course can be taken by undergraduates in finance who want to differentiate themselves from their peers with broader exposure to sociology and anthropology. Alternatively, it serves as a great introduction to the City and Wall Street for undergraduate students in business, economics or social sciences like sociology and anthropology. Master’s students are also welcome and typically make up one third of the class.

Here’s how the typical day works. Class starts at 10.00 am in our very Victorian 32L building, with one hour and a half of lectures where I teach the content of a given topic in an interactive manner (PowerPoints are for losers!). We then have a half-hour break, and then I facilitate a session with speaker form the industry for another hour. We’ve had people from Barclays, the FCA regulatory authority, the PRI, a fintech incubator, a hedge fund, investment firm Pimco, the Bank of England… everyday, a different speaker. There’s an hour for lunch, and in the afternoon there are cases for one hour and a half with our TA, Megan Peppel, who is flying from New York to teach in the course. The rest of the afternoon is dedicated to reading ahead of next day’s lecture (the park at Lincoln’s Inn Fields serves as a great library) though students have sometimes been spotted at The George, our local pub at the LSE.

The course is demanding. There is a quiz, a midterm and a final exam. The readings are long, and  challenging. But I can promise the effort is worth it. Those who come will find an exciting environment of incredibly international and smart students. Long-lasting friendships are formed. Last year the percentage of satisfied/ very satisfied students was a whopping 100 percent. And I’m hoping it will be at least as good this year.

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