Area 2: Financial Market Failures and Regulation

This area proposes to solve three main challenges:

  • Providing tractable frameworks to help policy-makers understand interbank linkages and deal with extreme risk. Using datasets from existing exchanges, the role of collateral rules on the probability of a breakdown is particularly under scrutiny.
  • Mastering complexity inherent to modern finance with the leading example being automated trading which may destabilize markets and exacerbate volatility with potential macroeconomic consequences. Combining econometrics, game theory and stochastic modeling, studies are carried out to assess its overall impact. The complexity of financial products is on the increase but this implies studying the welfare gains from such products as well as new efficient pricing techniques that better incorporate the notion of risk.
  • Financing innovation. Here, the research area studies the impact of regulatory changes on firm creation designed to reduce entrepreneurial liability, public policies to promote venture capital funding, the role played by the specific contractual features in venture capital in screening firms with the most promising potential.

This research requires a combination of field knowledge in entrepreneurial finance and management, and state-of-the-art econometric techniques to evaluate the causal impact of public policies. To organize this research area, a Center for the Prevention of Financial Market Failures will be set up.

There are 42 researchers affiliated to this area.
The Prinicpal Investigator is François DERRIEN (HEC).
And his to Co-PIs are: Jean-David FERMANIAN (GENES) & Pierre PICARD (X).

Here is an updated list of the Area publications.