Discover the laboratory

In each crisis, the functioning of financial markets and the products traded therein are called into question. New regulations are supposed to mitigate the loopholes highlighted by the crisis. The valuation of assets and the measurement of risk, as well as their management, are undergoing profound changes, new products are being offered to investors. Institutions, existing or newly created, are called upon to play a key role in restoring a new balance based on the return of investor confidence and the credibility of the institutional framework. 

A first part of the work developed by researchers on this theme aims to broaden knowledge of the way in which ethical, socially responsible, or even non-conventional finance can help to restore financial markets to their initial functions of financing, diversifying, and valorizing risks. The financial manifestation of sustainable development, the concept of Socially Responsible Investment (SRI), refers to forms of investment that include, as well as the performance dimension in terms of profitability – risk, extra financial criteria, in particular social, ethical, or environmental considerations. SRI has gone from being a niche investment to that of a genuine style of investing in a very short time. Interest in this style of investing is supported in part by reported performances: investing in a socially responsible way appears to provide financial performances that are equal or superior to traditional investments. Such findings run counter to the foundations of modern portfolio theory and, even more generally, the principle of financial orthodoxy. We must therefore study the real impact of the emergence and proliferation of ethical assets, their long-term viability, as well as the exact scope of the criteria that govern the term “ethical” attributed to certain financial assets. 

At the same time, the dynamic of ethical fund flows, as well as investor perceptions of ethical screening, can be affected by cultural factors. The importance of culture in determining the organization of society is now recognized. Thus, national culture can also play a role in corporate governance, especially in the structure and functioning of boards of directors. It is natural to think that the cultural context can influence, for example, the promotion of women to positions of responsibility. This diversity of the board of directors can be a lever for increasing the potential for value creation by prioritizing skills, learning, and the capacity for innovation.

Finally, while climate change caused by human activities is increasingly being felt, greenhouse gas emissions are continuing their upward trend. On this note, companies have a significant share of responsibility with negative externalities, in particular environmental ones, that they cause in their economic activities. However, this damage represents a huge amount for society. At the same time, institutional investors hold a significant proportion of listed equities in the world. Therefore, by virtue of their significant weight on the financial markets, these long-term investors have a role to play to influence the environmental policies of companies in which they have shareholdings. It therefore becomes essential to analyze the levers that can explain the commitment of these funds against the environmental and social externalities produced by companies.

In addition, the significant technological innovations which accompany the development of contemporary financial practices (ex: big data, blockchain, crowdfunding, cloud computing, regtech, assurtech, neobank, etc…) can be significant levers for the greater integration of ethical and social issues. Faced, for example, with the asymmetry of information which constitutes a significant source of financial risk, the use of big data can offer a means of better appreciating some of these risks through a more precise and extensive analysis of individual behaviors and characteristics. Indeed, with an increasingly refined granularity of available information, it becomes possible today to apply statistics at the individual level. Companies are also sitting on a wealth of information about their operations which, once collected, organized, and cross-referenced with other external data, can provide a quantified and expanded vision of their footprint. It is therefore easy to predict the extent of possible uses of these “new data” through their algorithmic processing, artificial intelligence, and advances in quantum computing. In asset management, big data could also complement the measurement of financial risks by using portfolio modeling and optimizations that integrate all kinds of data linked to the social and external externalities of companies.

The deployment of new means of coordination through digital technology can facilitate inclusive managerial practices that promote the ever-greater participation of stakeholders in the management and decision-making process of companies. Crowdfunding illustrates the potential of these new uses in the democratization of certain functions of economic intermediation (lender, investor) hitherto reserved for insiders. It also allows an interpenetration of economic and social objectives by promoting the sharing of non-strictly quantitative information with the aim of (re)creating the levers of collective action that bypass traditional institutions. Thus, paradoxically, the use of digital technology is part of an increasingly marked desire of savers to anchor their economic choices in a quest for socialization, meaning, and a return to Humanity.

Our work therefore proposes to question the way in which the new uses of digital technology can contribute to a better integration of environmental and social issues as new risk factors in financial practices.

Finally, international asset management allows investors to diversify their wealth in several financial markets. This management has become internationalized thanks to the dismantling of barriers to international investment, the fall in transaction costs, and the strong interconnection between different financial places.  In this logic of market globalization and in the light of the health crisis, we will be able to question the traditional methods of the allocation and modeling of asset prices. At this level, several questions will be addressed: how has the health crisis affected the stock markets? How can we measure the gains or losses of sector diversification in times of a health crisis?  How can we model the informational effects on the prices of financial assets in times of crisis and post-crisis? Insofar as the stock markets are considered to be efficient, can we verify information integration by traditional methods such as event studies? Can we propose conditional models to estimate abnormal returns in the context of event studies? Does modeling stock prices on the basis of a jump or a Poisson process enable us to capture the positive and/or negative effect of the crisis and to propose an asset valuation model adapted to this context?

A key player in the financial markets is the State. The issue of managing the over-indebtedness of sovereign debtors and the resulting defaults comes up very often in debates. The way in which the default is managed (restructuring, renegotiation, debt reduction), the amount of reductions potentially granted by creditors, the timing of operations, represent crucial points. Part of the work developed by the members of this theme aims to explore these questions in the context of the sovereign debt crisis in Europe. Our questioning concerns the way in which belonging to the monetary zone influenced management of the difficulties of ensuring the debt service of member countries of the union, as well as the mechanisms by which this crisis of sovereign debtors was transmitted within the union.

Exploring the dynamics of financial crises, as well as the role that the State and other institutions can play in restoring confidence on the financial markets, understanding innovations in the field of financial practice, but also at the level of regulation, cannot be done without a solid knowledge of history. Indeed, « History has a way of repeating itself in financial matters because of a kind of sophisticated stupidity » said Kenneth Galbraith. This is the reason why a significant part of the work of this theme uses the historical approach in finance (or historical finance), which seeks to understand the experiences of the past in relation to contemporary experiences in order to achieve a better understanding of the functioning and the dynamics of financial markets.

Analysis of the dynamic of financial crises involving sovereign debts is closely linked to the role played by governments, national and supranational institutions, as well as by their political and economic decisions. The credibility of decisions taken is just as important as the content of these decisions. Institution building can help to alleviate this problem of credibility. Our work explores the role that institutions can play in restoring the credibility of a sovereign debtor and, at the same time, in reducing the cost of its debt. However, it is also questionable if, in some cases, institutions might not give too much power to creditors by offering them the opportunity to extract an annuity from their position. Credibility can also be enhanced by the presence of guarantees. Even if the use of collateral has become rarer today, there are still a number of sovereign debt default and restructuring situations (mainly due to legal causes but also the presence of vulture funds) which lead to disputes with and between creditors and in which the question of the guarantees associated with the debts in dispute becomes crucial. These situations are all the more complex as the identification and evaluation of such guarantees remains an extremely complicated task. In addition, seizing such guarantees raises questions beyond the financial and economic sphere, since they may even affect the political sovereignty of the debtor State. A cross-analysis of the proposals and practical modalities, both over the course of history and in the contemporary period, for the management of sovereign debts, referring to collateral, could make it possible to draw important lessons on the impact of these guarantees on the economic/financial but also political sovereignty of a State.