Financial Pundits Propel Isenberg Research Conference

“Fragile Markets, Financial Bubbles and Credit Markets” was the central theme of the Center for International Securities and Derivatives Markets’ (CISDM)* annual research day on October 9th. At the day-long gathering, a standing-room-only audience, including prominent Isenberg alumni and other influential industry practitioners, exchanged insights with the event’s principal speakers, headlined by Nassim Taleb, author of The Black Swan and other high-profile studies.

Apart from his own presentation, Risks, Black Swans, and Fragile Markets, Taleb joined forces with National Bank of Greece chief risk officer Alexandros Benos, Bloomberg journalist and commentator Justin Fox, and Babson Capital managing director Dave Nagle in a panel discussion that explored financial bubbles, volatility, and contagion. Moderated by Isenberg finance professor Ben Branch, the discussion touched on a host of issues, including different flavors of liquidity during normal versus extreme times, investment timing around bubbles, and the fragility and freefalls triggered by excessively optimized financial markets.

Countering Fragility

In his keynote talk, Taleb, a former lecturer at Isenberg, further explored the relationship between fragile financial systems and extreme “black swan” financial events—happenings that can take an investment bank, financial district, or economy down like a house of cards. “You can model everything that’s fragile as short volatility,” he told the gathering. Better to bake in judicious long-term doses of volatility that will secure “antifragility” in the system, he advised.

The collapse in Greece runs deeper than financial, debt-driven concerns, observed Alexander Benos in his dissection of that country’s sovereign debt crisis. At bottom, the crisis is economic and cultural, reflecting a failed state where tax collections and debts are inconsistent and inconsistently buttressed by the rule of law. As a solution, austerity alone is insufficient; debt, he emphasized, must be serviceable.

Complementing the event’s stellar guest speakers, Isenberg finance professor Nikunj Kapadia presented a paper that explored financial volatility. “It highlighted some of our own timely research in that critical area,” observes CISDM director Hossein Kazemi, who is Michael and Cheryl Philipp Professor of Finance at Isenberg. “Our last two research conferences have emphasized themes with public policy implications,” Kazemi continued. “Last year, our speakers tackled development and sustainability issues. The bottom line for us is to convey the central, significant value of our research for all of our stakeholders.”

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*For two decades, CISDM has been at the forefront of research, education, and practical applications involving derivatives, alternative investments, and asset and risk management.