Financial market behaviour

This platform explores financial market behaviour, broadly defined. A recurring theme is the role of financial market behaviour in financial stability. Research within this platform covers asset pricing and measuring and managing different financial risks. By studying systemic risk, risk spillover and investor behavior, insights into the determinants of financial stability will be gained. The platform has a multidisciplinary nature combining finance with microeconomics, experimental economics, advanced statistics and mathematics, cognitive psychology and demography. In recent years, rapid increase has been witnessed in the number of new and complex derivative instruments both for financial and non-financial assets. Research projects within this platform cover a verity of the available assets, such as equity, fixed income and commodities, as well as their related derivatives.

The traditional models in finance rely on the belief that all the agents involved in the financial markets are rational and the price of a financial asset reflects the discounted value of its expected future cash flows, where the discount rate reflects different risks associated with the cash flows. On the other hand, the behavioral finance model argues that some financial phenomena can be understood using models in which agents are not fully rational and their decisions are affected by cognitive biases in information processing. A number of projects in this platform analyse asset-pricing and portfolio selection based on these two contrasting views. The studies are based on real field financial data as well as experimental data from controlled decisions, micro data on individual investors’ characteristics, and a large corpus of news articles.

The global financial system is exposed to a variety of risks. Measuring and managing these risks is important not only for banks or corporations within the financial industry, but also for firms and organizations in general. In this platform, we are undertaking a number of projects with the common aim of investigating financial risks, above all market risk, liquidity risk and credit risk. Among other things, we investigate the risk-spillover among different sectors/markets and the implications of various risks for portfolio selection.

Principal Investigators: Hossein Asgharian and Håkan J. Holm