20. The Policy Conundrum of Financial Market Complexity

36 Pages Posted: 4 Feb 2011 Last revised: 28 Feb 2012

See all articles by Hilton L. Root

Hilton L. Root

George Mason University - School of Policy, Government, and International Affairs; George Mason University - Schar School of Policy and Government

Date Written: February 3, 2011

Abstract

The first global financial sector crash eludes conventional assessments of sector risk. Singling out the usual culprits – the housing bubble, executive pay, regulators, rating agencies, risk models, and global imbalances – fails to explain either the unpredictability or the rapidity of the collapse of 2008, which in many ways resembled the avalanche of a sand pile, where at some point of criticality, avalanches occur that bear no relationship to the grain of sand that triggered them. Since appropriate financial regulation is part of the remedy, policymakers should recognize that success will depend on a more refined knowledge of why some initial events may have prompted an avalanche, while others did not.

Keywords: Financial Crisis, Financial Market Complexity, Volatility, Governance Regulation Democratic Capitalism

JEL Classification: G01, A12, D53, P16, G18

Suggested Citation

Root, Hilton L., 20. The Policy Conundrum of Financial Market Complexity (February 3, 2011). GMU School of Public Policy Research Paper No. 2011-10, Available at SSRN: https://ssrn.com/abstract=1754774

Hilton L. Root (Contact Author)

George Mason University - School of Policy, Government, and International Affairs ( email )

Founders Hall
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Arlington, VA 22201
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George Mason University - Schar School of Policy and Government ( email )

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Arlington, VA 22201
United States

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