Regulation and governance of financial markets
Globalisation of capital markets that arise from financial liberalisation across the world and the breaking down of barriers to communication have led to profound changes to the working of financial markets. Advances in communication and markets laid the foundations for the heyday of the 19th century spurt to internationalisation, but this still pales in comparison with the technological innovations in communications that the world is witnessing today. However, the incidence of financial crises and their contagious effects in the international financial markets have been a constant reminder that the globalisation of financial markets is not without its costs. The growing frequency of financial crises in recent decades suggests that the causal relationship between crises and globalisation is complex. A full understanding of this interplay between the perceptions of market players, the effects of one player on other players' strategies, and the combined influence on the final market outcome requires an intelligent and market-savvy understanding
of the forces at work in shaping market outcomes. The Lab's research programme examines the causes and dynamics of financial crises, and addresses the attendant policy questions: How can crises be averted, and at what cost to the smooth functioning of markets? Once a crisis has erupted, what should be the policy response? What should be the role of international organisations, and what role can private sector participants play in the process? The emphasis is very much on the systemic implications of this interplay.
Our research on international financial stability will provide research-based intelligence on organisational asset allocation and exposure risk management practices, their interaction with regulatory activity and the systemic impact on the global financial environment.
The role of financial markets in delivering effective sources of savings for retirement and investment will also figure centrally among our research themes. Following generous support from UBS/PaineWebber, we are launching a pensions research project to study an array of important issues concerning the future of provision for old-age. The research programme will bring together researchers on financial markets with those on demography and social policy and links closely with work in the Social Exclusion programme.
The key motivating questions include:
- How do fund managers' new risk management strategies adapt to the new environment?
- What is the role of government supervision in pension management?
- What is the policy framework necessary to allow a transition from the current system to one that is sustainable, fair and efficient?
- How should tax and social security laws interact to create the optimum incentives for the best personal savings instruments?