Both stock and bond markets are in bubble territory against a background of rarely seen before geopolitical risks, argues Jeffrey Frankel. If inflation increases and the major Central Banks start tightening at a quicker pace a new crisis could ensue.
So why are investors under-estimating the risks?
Financial Markets Underestimate Risk
By: Jeffrey Frankel – Harvard University
… because during bubbles it takes the market significantly longer than normal to reflect the relevant information set. With this working paper Sohn and Sornette contribute to the existing literature by providing a plausible mechanism of “bubble birth”.
Bubbles as violations of efficient time-scales
Authors: H. Sohn, D. Sornette
From: ETH Zurich
Beyond the forecasts and the models
This is a speech Luigi Zingales gave in 2015. It is a scathing critique of finance and particularly compelling since it is by a mainstream economist. Worth a read!
Does Finance Benefit Society?
By: Luigi Zingales – University of Chicago
