In this, the third paper in the Economists’ Hubris series, we highlight the shortcomings of academic thought in developing models that can be used by financial institutions to institute effective enterprise-wide risk management systems and policies. We find that pretty much all of the models...

In recent years, a large number of IPOs of public exchanges have been announced. These were mainly in response to growing pressure from the institutional investor community and intense competition from Alternative Trading Systems, such as ECNs. When these announcements were initially made, most...

Over the past decade, European exchanges have undertaken enormous reforms in their trading platforms and internal governance. Automation of trading combined with the internationalization of the major trading institutions has significantly intensified pressures for the consolidation of exchanges...

In this paper, we have highlighted the potential implications of a move in the U.S. to T+1 on European financial institutions. We explain that while many European institutions feel that they are sheltered from this move, those that undertake trading activities in the U.S. will find that they...

This paper provides a taxonomy of market imperfections built around the economic forces underlying them. Market imperfections affect virtually every transaction in some way, generating costs which interfere with trades that rational individuals make, or would make in the absence of the...

The new Basel III rules for liquidity and funding will have an impact on several areas of the banking business. As a consequence, it is useful to identify the key areas within a bank where Basel III has the biggest impact and to define the necessary strategies, processes, and new products to...

Starting in September 2008 stock market regulators across the world introduced, at different times and for different durations, bans on short-selling financial institution’s shares. The argument for the bans is that short selling increases the volatility and contagion risk of financial...

The link between investor sentiment and asset valuation is at the center of a long-running debate in behavioral finance. Using a new composite sentiment indicator, we show that the conventional risk does not explain the abnormal returns of portfolios most sensitive to the sentiment factor. Our...

The authors build on research into the African equity universe to recommend a more appropriate index for investment. Three different methodologies were investigated, namely capitalization, equal, and fundamental weighting of index constituents. The authors conclude that diversification is not...

In this paper, we investigate whether the international version of CAPM can price rational and irrational sentiments of U.S. individual and institutional investor sentiments. The results show that the CAPM prices rational sentiments driven by fundamentals and irrational sentiments not driven by...