Where does the United States sit in the global financial system today? Toss out any old assumptions you hold.
“The system is changing right in front of us,” says Mila Getmansky Sherman, Isenberg’s Ju
Where does the United States sit in the global financial system today? Toss out any old assumptions you hold.
“The system is changing right in front of us,” says Mila Getmansky Sherman, Isenberg’s Judith Wilkinson O’Connell Faculty Fellow and a professor of finance. “In the past, the U.S. was the undisputed center, the driver of financial returns and news, but now that’s not true.”
In “Global Realignment in Financial Markets,” a working paper that made a splash at the American Finance Association annual meeting, Sherman and colleagues documented the waning of United States dominance and China’s increasing influence and centrality by tracking daily global market returns across 11 industrialized countries. In the study, she sees the “first signals that the global financial system is moving from a unipolar to a bipolar (or multipolar) world.”
Sherman and colleagues cite the U.S.-China trade war and the Covid-19 pandemic as two factors that have decreased the relative power of the United States and “increased the centrality of China.”
“The centrality of the United States in the global financial system is taken for granted, but its response to recent political and epidemiological events has suggested that other industrialized countries now hold a comparable position,” Sherman writes with colleagues Monica Billio (Ca' Foscari University of Venice), Andrew W. Lo (MIT), Loriana Pelizzon (Ca' Foscari University of Venice), and Abalfazl Zareei (Stockholm University).
The dynamic goes beyond just China-U.S., they argue.
By mapping the data, “we can see countries coming together in a tighter web of influence,” Sherman says. In the past, when the U.S. experienced a boom or a crisis, the rest of the world was directly affected, either prospering or slumping in turn. Now, the work of Sherman and her colleagues shows that other countries are much more relevant to the global financial network. A crisis in one country can propagate to other countries, and the effects often get magnified. For instance, the data show a substantial amount of “negative contagion” when Covid-19 variant waves swept the globe, and countries “caught” market slumps from each other.
Sherman sees global finance research itself changing too, broadening to weigh up the impact of political turmoil, climate change, and other factors that affect markets.
“In the past, if you uttered the words epidemiology and finance in the same sentence, people would say, ‘what are you talking about?’ Now we are really looking at interconnectedness and realizing we are less buffered,” she says.
Pursuing Interdisciplinary Expertise and Varied Interests
Sherman is one who can think global and act local. She earned her undergraduate degree at MIT in chemical engineering with an economics minor, and studied system dynamics and finance while completing her PhD there, so she is used at looking at interconnectedness of disciplines and methodologies from seemingly unrelated fields.
She credits her success to the steady mentorship that she received both as a student and as a junior faculty member, and she works to be effective mentor to students and faculty in turn. Despite a schedule packed with teaching and research, Sherman is bringing along the next generation of finance experts at UMass Amherst, mentoring both undergraduates and PhD candidates and serving as faculty advisor to the UMass chapter of Smart Woman Securities, a national organization focused on educating undergraduate women in finance. To raise awareness of gender inequality, she and colleague Heather Tookes (Yale) recently published research in the Journal of Finance quantifying how underrepresented women academics are in finance, making up a mere 16 percent of finance professors in the top 100 U.S. business schools. She has given a TEDx talk on how women can develop financial skills and social networks to support each other.
Her efforts span beyond adults. During Covid lockdowns, she took on a deeply personal project and advised the student members of Smart Woman Securities in creating a five-week, free financial literacy Zoom course for public school children in middle and high school.
“I spend so much time analyzing global financial markets for my academic research, but I think it’s really important to be aware of how the big picture affects individuals,” Sherman says. “Helping young people—particularly girls—function within the financial systems is vitally important to my work.”
