Market Shaping as an Answer to Ambiguities: The Case of Credit Derivatives

Organization Studies, Forthcoming

30 Pages Posted: 4 Feb 2009

See all articles by Isabelle Huault

Isabelle Huault

Université Paris Dauphine

Hélène Rainelli

Université Paris I Panthéon-Sorbonne - Institut d'Administration des Entreprises de Paris (IAE Paris)

Date Written: February 4, 2009

Abstract

Building on Smith (1989), we describe the social processes surrounding a new financial OTC derivatives market, the market for credit derivatives. We show that in contradiction with more traditional derivatives, credit derivatives generate ambiguities of a cognitive and political nature. By conducting an in-depth longitudinal qualitative study from 1996 to 2004, we document the efforts made by the promoters of the market to alleviate these ambiguities and show how the amount of resources needed results in the leadership of the most powerful. We thus provide a socially based explanation for the concentration and lack of transparency of the market. Our research exemplifies the contradictions between the rhetorical justification of financial innovations provided by financial theory and the empirical realities of a modern derivative market. It suggests that the actual structure of the market might best be understood by paying attention to the way different cognitive and political communities react to these contradictions.

Keywords: Social studies of finance, social construction of value, financial innovation, OTC markets, cognitive and political ambiguities

Suggested Citation

Huault, Isabelle and Rainelli, Hélène, Market Shaping as an Answer to Ambiguities: The Case of Credit Derivatives (February 4, 2009). Organization Studies, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1337626

Isabelle Huault

Université Paris Dauphine ( email )

223 Rue Saint-Honore
Paris, 75775
France

Hélène Rainelli (Contact Author)

Université Paris I Panthéon-Sorbonne - Institut d'Administration des Entreprises de Paris (IAE Paris) ( email )

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