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Understanding and Governing Complex Financial Instruments

Investigators: Donald MacKenzie and Iain Hardie

This project, which is funded by the UK Economic and Social Research Council, is investigating how market participants understand (and especially how they work out the economic value of) complex financial instruments, such as Collateralised Debt Obligations.  We are also investigating how the markets in such instruments are governed, both in the form of official regulation and also via 'private authority' such as credit ratings. 

Our initial intention had been to concentrate purely on Collateralised Debt Obligations (CDOs) and similar credit derivatives, but we have also developed work on Asset-Backed Securities (ABSs), because an early finding of our research was that ABSs were understood by market participants in ways quite different from how CDOs were evaluated.  We have discovered that this difference in evaluation methods, and how it mapped on to the organisational structures of banks and rating agencies, played an important role in the genesis of the credit crisis.

To find out more, see the publications below. 

Articles in the Financial Times:

Unlocking the language of structured securities.  Donald MacKenzie

Beneath all the toxic acronyms lies a basic cultural issue.  Donald MacKenzie

Academic Articles and Working Papers:

The Lemon-Squeezing Problem: Analytical and Computational Limitations in CDO Evaluation, Donald MacKenzie and Iain Hardie, May 2014

'The Formula That Killed Wall Street'? The Gaussian Copula and the Material Cultures of Modelling
Donald MacKenzie and Taylor Spears, June 2012

The Credit Crisis as a Problem in the Sociology of Knowledge.  Donald MacKenzie, American Journal of Sociology, May 2011.

Knowledge Production in Financial Markets: Credit Default Swaps, the ABX and the Subprime Crisis.  Donald MacKenzie, Nov 2010

'Market-Based Banking and the Financial Crisis', 2011 - Working Paper by Iain Hardie and David Howarth

'Die Krise but not La Crise? The Financial Crisis and the Transformation of German and French Banking Systems' in Journal of Common Market Studies 2009 (Iain Hardie and David Howarth)

Evaluation Cultures? On Invoking ‘Culture’ in the Analysis of Behaviour in Financial Markets. Donald MacKenzie, Sept 2011

Drilling Through the Allegheny Mountains: Liquidity, Materiality and High-Frequency Trading, Donald MacKenzie et al, January 2012

Other publications:

'Safer than Safe', essay review of Tett, Fool's Gold, for London Review of Books, Donald MacKenzie, June 2009

'The Five-Second Pause', essay for London Review of Books, Donald MacKenzie, April 2011.

 

 

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