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A model of imperfection

Mainstream finance theory offers an idealised view of how financial markets work and, as a result, fails to provide practitioners with a useful basis for decision-making. By studying the effects of delegation from asset owners to asset managers, we develop a more realistic and useful understanding of financial markets and point towards actions that would improve outcomes for savers and wider society.

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Stabilising and destabilising strategies

The social utility of an ever-expanding asset management industry is rarely discussed. In this note we distinguish between different strategy types on the basis of their impact on market stability. We argue that destabilising strategies impose a largely unrecognised negative externality on society.

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Innovation and shirking in financial markets

Innovation is usually viewed by economists as a productivity-enhancing force, powering economic growth in modern capitalist societies. This is just as true in the investment industry, where new products are assumed to help consumers meet their individual financial needs. This optimistic view ignores the damage that can be done by innovations, especially in the financial sector, where agency issues create the potential for negligence and rent extraction.

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Paul Woolley Centre for the Study of Capital Market Dysfunctionality

The PW Centre produces and disseminates high-quality research focused on the workings of capital markets and the social efficiency of allocations achieved in these markets.

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Long-term investors using short-term strategies

Large institutional investors who claim to invest with a long horizon and who wish to be seen as champions of a socially responsible form of capitalism, may in fact be contributing to dysfunctional capital markets in which short-termism dominates long-term thinking.

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50 years of efficient market thinking

Fifty years on from its inception, the efficient markets hypothesis still exerts a powerful grip on investors. The widespread reliance on market cap indices as benchmarks for active manager success creates a pervasive tendency towards performance-chasing across the industry. Large asset owners have the power to change this dynamic by changing the way that they engage with and monitor their managers.

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