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The Quantitative Revolution and the Crisis
The popular press and a recent spate of remarkable books have pointed critically to the contribution of financial innovation and quantitative models to the financial crisis. The broader critiques doubt the risk management capabilities of firms and regulators to understand and evaluate complex financial instruments, such as synthetic securities.
These critiques cut at the core of the Basel II international regulations which permitted banks to create their own models to value illiquid and risky assets. They also have major implications for the design of a regulatory system and regulations regarding whether regulation is at all possible, who is best able to do it, and ultimately if complex financial innovation should be sharply curtailed.
Research Insights on Leadership and Ethics
Assistant Professor of Finance and Economics
"Banks in India...the accounts are not well used...This may be because they have to walk the 3km to the bank; or it may be due to other obstacles, such as procrastination.”
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Jack R. Anderson Professor of Business
"The industry has developed general principles on which portfolio risk should be decomposed but actually determining the risk contributions can be difficult in complex portfolios.”
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Senior Vice Dean and Paul Calello Professor of Leadership and Ethics
"Those in a homogeneous group put much less effort into the task at hand in part because they were more interested in avoiding conflict. Diverse environments allowed people to focus on the task instead of their social relationship."
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Professor of Finance
“What makes countries rich is how productively they use their resources…Once a (more productive) technology is introduced, do people use it? Why aren’t people using the most improved technologies to begin with?”