fmc research theme1
The cluster’s research themes of performance, trading and risk are at the heart of modern finance and related activities in financial markets. Risk is at the centre of the most celebrated asset pricing models in the literature, the Sharpe (1964) – Lintner (1965) – Mossin (1966) Capital Asset Pricing Model, Ross’ (1977) Arbitrage Pricing Theory, and the Black and Scholes (1973) – Merton (1973) option pricing model and all subsequent important frameworks. In recent times we have seen a revolution in securities trading with large increases in trading volume driven by algorithmic traders who are exploiting technological and procedural developments and using information to have significant and permanent effects on asset prices. In addition, we are re-examining performance measures and their applications as there is an expansive literature that has questioned the use of standard metrics such as Jensen’s alpha. Today, on-going work continues to deepen our understanding of how these three overlapping themes interact with asset prices and financial markets and is central to our research programme.