January 20, 2015
A remarkable paradox pervades executive education in finance. Most courses provide rigorous training in formal models and economic theory, which is certainly a basic condition to participate in the capital markets. But as everyone who has ever stepped into a trading floor knows, getting ahead in a bank or fund typically entails a completely different set of skills: understanding the social networks at work, the culture of the company, or how to communicate with bosses and investors. This is even more so in a post-crisis world with new and growing regulatory requirements. Hence the paradox: instead of focusing on the soft skills that make or break an executive career, finance courses continue to teach the technical.
Given this gap, the LSE is launching a new Executive Summer School in Leadership in Financial Institutions. I am very pleased to serve as Instructor and Course Leader. Other instructors include heavyweights from the LSE such as Michael Power (LSE Accounting), Paul Willman (LSE Management), Sandy Pepper (LSE Management) and Connson Locke (LSE OB). Guest speakers will complement the academic sessions by lending their insights about best practices in the City of London.
The course aims at providing participants with the tools to lead and manage employees in financial organizations in an environment with unprecedented change. This change not only includes political risks such as last week’s fluctuations of the Swiss franc, but also regulatory trends such as changing European regulations on bonus caps.
The course is also designed to be an integral experience for participants. They will be expected to attend to lectures at our London campus, discuss case studies, gain experience with industry guest presenters and relate to the best practices with a field visit. It aims to explore three types of perspectives: a cultural perspective, a psychological perspective and a social network perspective that examines the role of financial intermediaries.
Participants can expect to:
• Access to cutting-edge research in a financial context on networking, managing through culture and effective communication.
• Learn how to translate leading management frameworks in areas such as compensation and promotion.
• Acquire experience with new tools to handle finance-specific problems such as a bonus-centric culture, the risks posed by financial models, and the challenges posed by global-scale operations.
• Engage with best practices in the City of London across trends such as responding to regulation, cultural transformation, and responsible investment.
• Improve their decision making capabilities through learning how to identify behavioural biases within themselves and their team/ organization.
For those interested in taking their financial career to the next level, this might be the place. For more information, dates and a longer description, see here. And for even more information, just drop me a line at firstname.lastname@example.org
December 13, 2014
Senator Elizabeth Warren speaks out on the power of the Citigroup lobby in Washington. See it here on HuffPo.
December 10, 2014
The Institute for Money, Technology and Financial Inclusion is live streaming its annual conference from California at this link. The event is being held today and tomorrow. On Twitter at #imtfi
What causes asset price bubbles? The paper below (just released) by Sheen Levine and David Stark looks into the issue in an original way. Findings: ethnic homogeneity promotes conformity and leads to misplacing; diversity disrupts conformity and leads to better information processing.
Here’s the longer summary:
In this paper from the Proceedings of the National Academy of Sciences, Sheen Levine and I (together with other co-authors) examine a prominent market failure: price bubbles. We propose that bubbles are affected by ethnic homogeneity in the market and can be thwarted by diversity. Using experimental markets in Southeast Asia and North America, we find that market prices fit true values 58% better in ethnically diverse markets. In homogenous markets, overpricing is higher and traders’ errors are more correlated than in diverse markets. The findings suggest that homogeneity promotes conformity. Price bubbles arise not only from individual errors or financial conditions, but also from the social context of decision making. Informing public discussion, our findings suggest that ethnic diversity disrupts conformity and leads to better information processing.
Congratulations, Sheen and David!
See here for more information:
October 2, 2014
There are three things wrong. The first is that risk management has become too bureaucratic. It emphasises a controls-based approach, characterised by excessive box-ticking. The second is in the financial arena, where banks and other financial institutions became reliant on value-at-risk models. Those models were dependent on a range of assumptions, not least an implicit assumption about liquidity and the real availability of interbank funding.
In hindsight, we can see there was insensitivity to the limitations of those models. And the third thing to go horribly wrong was focusing on entities in isolation, rather than the relationship between entities. Banks and insurers all used the same risk management model. But they didn’t consider what would happen if they all acted in the same way and how that would create a systemic problem.
See the full interview with Professor Mike Power here.
September 19, 2014
In this issue of the London Review of Books, Donald Mackenzie describes the communication technologies that help high frequency traders do their thing (Be Grateful for Drizzle, v. 36:17). After an extensive discussion of how fibre-optic cables, microwaves, millimetre waves, and laser transmission through the atmosphere move information between the exchanges, Mackenzie asks a relatively straightforward question:
The right question to ask about high-frequency trading is not just whether high-frequency traders are good or bad, or whether they add liquidity to the markets or increase volatility in them, but whether the entire financial system of which they are part is doing what we want it to do.
Compare and contrast to Vasant Dhar, former HFT trader and Head of Information Systems at Stern School who wrote in a commentary at CNBC:
Let’s not risk our markets to a populist-based reaction that asks whether HFTs do any “social good,” but rely instead on an objective analysis of the “big data” that emanates from the markets.
On the one hand science studies says that technologies can be designed to accommodate a variety social visions. On the other, once in place, material infrastructures do constrain the kinds of choices we can make.
I definitely think we have to treat big data analytics as a space where political battles can happen in data-saturated systems, but it can’t be the only one. And yet, the dominance of digital data must neutralize some of the tools that social scientists usually deploy to contribute to the conversation. Not all conversations about the social good are possible, but which ones are…?
Since exchanges are not my topic of research, I’m sort of off the hook on this one. But still, I’m left wondering how to go about taking a position.