ACADEMIC ROUNDTABLE
having a profound impact on our understanding of fi nancial
markets. Th e key realisation is that we should be less concerned
THE PANEL
about mathematical tractability and more concerned to make
assumptions that are realistic. Examples include the
acknowledgment that private information and heterogeneity of
investors’ expectations are critical for determining asset prices, and
that the trading mechanism and the institutional features of a
CHAIRMAN
MARK TAPLEY, CFA, FSIP
market are an essential part of the dynamics of prices and their Board member CFA UK
relative degree of effi ciency. Th is approach has led to major Mark Tapley is chairman of Henderson
theoretical and empirical advances in asset pricing, investment
Eurotrust, and has been a board member at
management and risk assessment. It is shocking how much
CFA UK since 2002. During his career he has
worked at JPMorgan, American Express Asset
consumption-based asset pricing theory and portfolio choice have Management, London & Bishopsgate
ignored these key ingredients of fi nance for so long.
Investment Management, New York Life and
West LB.
SEFTON – I would like to see more research on why markets are
structured as they are. Is this just a historical accident or are
there good reasons why they evolved to the current state. Why LUCIO SARNO
are the markets in Risk Linked Securities (RLS) and longevity
Head of the fi nance faculty, Cass
Business School
instruments so thin? Why do private equity managers specialise
rather than diversify their portfolios? What is the process
Lucio Sarno is professor of fi nance and head of
the Finance Faculty at Cass Business School,
underlying the price discovery of new information? City University London. He previously held
teaching and research positions at several
universities. He was also the director of currency

research at AXA Investment Managers during
TAPLEY – Is it possible to rid the economy of boom/bust 2007-08. He is the author of over 60 articles in
cycles without dramatically decreasing the structural
leading economics and fi nance journals,
and has authored several books.
economic growth rate, going forward?
SARNO – In theory, this is possible. In practice, aligning the
incentives of politicians, policy-makers, regulators and the fi nancial
JAMES SEFTON
Professor of economics at Imperial
industry in a way that avoids extreme boom/bust cycles is very College Business School
diffi cult. It does not make sense to expect any of these stakeholders
James Sefton is professor of economics at Imperial
to act in a way to avoid booms/busts, given the power of short-term
College’s Tanaka Business School and a senior
incentives for politicians (whose horizon is the next election) and
visiting fellow at the National Institute of
Economic and Social Research. He is currently a
fi nancial practitioners (whose horizon tends to be next year’s bonus). consultant at UBS, but previously worked at
Booms and busts are an integral part of the fi nancial cycle, and I
Winton Capital Management. He has published
doubt that they will disappear during my lifetime.
widely in academic journals in areas as diverse as
mathematical analysis, control feedback theory,
econometrics, economics and fi nance. He was
SEFTON – A recent presentation by Robert Shiller serves as a
educated at Christ’s College, Cambridge, where he
received a PhD in Systems Theory.
good illustration of academics’ schizoid attitude towards markets
and in particular derivatives as devices for sharing risk. In the
fi rst half of his presentation, he argued that we have seen two
pricing bubbles in the last 10 years as investors chase quick STEVE SATCHELL
returns using levered investments. In the second half of his talk,
Reader of fi nancial econometrics,
University of Cambridge
he argued that a market in GDP bonds would allow countries to
Stephen Satchell is the reader of fi nancial
better share risks. It was like off ering a recovering alcoholic an
econometrics at the University of Cambridge
even wider selection of drinks!
and a fellow of Trinity College, Cambridge. He
Sophisticated capital markets enable individuals to share risk.
has PhD degrees from the Universities of
London and Cambridge and is an honorary
Th ey also enable the almost instantaneous fl ow of capital to new
actuary. He has published over 150 articles and
ventures across the globe. However, it seems that the more
10 books in the areas of econometrics, fi nance
fi nancial markets are highly engineered to serving these primary
and risk and is a frequent speaker at
international fi nancial conferences. He is editor
needs, the more likely they are to break. Maybe we need to of Journal of Asset Management and Journal of
introduce certain frictions into the system. But, before this, we
Derivatives and Hedge Funds. He is also editor of
need the research to guide the design.
Journal of Risk Model Valuation.
WWW.CFAUK.ORG PROFESSIONAL INVESTOR 9
08-1108-11 academic roundtable.indd 9academic roundtable.indd 9 1/6/091/6/09 11:25:3811:25:38Professional Investor Summer 09.11 11 4/6/09 15:40:44
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