What is shadow banking?

Shadow banking is a term that was invented by Paul McCulley, the former chief economist of the giant fund manager PIMCO, in 2007. He was one of the first to identify and analyse the growth of chains of financial transactions in the US that had the economic substance of commercial banking but weren’t regulated, andContinue Reading

The hunt for a monopoly position in business

Economics students learn early in their microeconomics course that there is a desirable market condition called perfect competition, which consists of large numbers of more or less identical firms competing aggressively to meet the customer’s wants. The competition is so fierce that no firm has any ability to charge a price above the absolute minimumContinue Reading

The decline in volatility: measuring risk aversion from option prices

Although the world appears a very turbulent place, financial volatility is currently rather low. How do we know this? One method widely used by commentators and market analysts is to refer to a measure of global risk aversion called the VIX. This post explains how can we infer something about market participants’ attitudes to risk, based on option pricing theoryContinue Reading

Historic street names in the City of London

The City of London is the oldest part of greater London, yet has many of the newest buildings. Tiny, winding medieval streets are preserved next to the latest office blocks, built rapidly on the ruins of older, less efficient blocks that are ruthlessly torn down when the economic case dictates. The streets have curious names:Continue Reading

Would you choose a degree based on a newspaper’s ranking?

In mid-June 2014 the Financial Times (FT) will publish its latest rankings for Masters in Finance degree programmes. The Cambridge MFin may be included for the first time. The FT rankings are divided into exclusively post-experience programmes (where prior work experience is required for entry) and pre-experience (where it is not). Last year there wereContinue Reading

How useful are teaching evaluation scores?

In recent weeks I have taken part in meetings to discuss: student feedback on MFin teachers; teaching procedures across all programmes at Cambridge Judge Business School; the selection of winners of annual teaching prizes; and the results of a Cambridge University teaching and learning review of CJBS. In all four the main information used to assess teaching qualityContinue Reading

What makes nuclear power different?

I recently took part in an interesting one day workshop at Churchill College on the future of nuclear power. My small contribution was a short presentation that tries to identify what it is that makes nuclear power currently all but impossible to finance through conventional private finance. I argue that it’s not the scale, capitalContinue Reading

US government bonds no longer have to be fixed income

Bonds, which are debt securities, are often known as “fixed income” investments. This is mostly correct but not strictly accurate. A typical bond pays a fixed coupon, which is an amount of money normally paid twice a year, for a set number of years after which the bond principal is repaid. But it is possibleContinue Reading

Liberalising the Chinese banking system: necessary but dangerous

I recently gave a presentation to the Cambridge China Business Network, a student club. The title is “Like dismantling a nuclear bomb: liberalising the Chinese financial system”. The slides are shown below. Summary Liberalisation of a market means removing most or all regulatory and legal restrictions on market forces. Most countries that have liberalised their financialContinue Reading

Letter from Dresden

The city of Dresden, capital of the Free State of Saxony, in the east of Germany, has a grimly melancholy reputation in the UK as the town most comprehensively destroyed by Allied bombing during World War II, a level of destruction with little military or strategic necessity. Over three days in February 1945 British andContinue Reading

Letter from Shenzhen

I have at last visited Shenzhen, one of China’s four first tier cities (along with Beijing, Shanghai and Shenzhen’s neighbour Guangzhou), as part of the Cambridge EMBA International Business Study Trip. It’s a likeable and impressive city, much greener and cleaner than Beijing and less crowded than Shanghai. It’s also the centre of the ChineseContinue Reading

Slow progress in reforming the IMF

The International Monetary Fund (IMF) is a great example of an institution that was created for one purpose – to police the system of fixed exchange rates set up in the 1944 Bretton Woods treaty – which has survived and evolved to do something quite different – provide emergency lending and financial advice to countriesContinue Reading

Improving prospects for market-based reform in China

Ahead of attending the Cambridge-Beijing Forum on market reforms in China, hosted by Cambridge Judge Business School next month in Beijing, I thought I should check the official Chinese government position. The Chinese Premier (head of the State Council, loosely “Prime Minister”) annually reports on the work of government to the National People’s Congress (NPC).Continue Reading

Meeting Merton

It is rare to meet your heroes. I wouldn’t exactly describe Professor Robert C. Merton as one of my heroes – I’m not sure I have any heroes actually – but he is somebody I admire greatly. He is probably the most distinguished financial economist in the world today. He won the Nobel prize (*) Continue Reading

Suggested reading on China

I was recently asked to recommend blogs and other resources on the Chinese economy. In case other people would find it useful, I list the main ones here. Bear in mind that, not reading Chinese, I’m confined to English sources so there may be many excellent Chinese resources that I’m unaware of. A good startContinue Reading