Financial Markets and Macroeconomic Dynamics

Researchers in this cluster are working on three parallel themes: Financial market integration and resilience; Stochastic financial modelling and simulation; and Dynamic atmosphere and economic growth. Each is briefly described below.

Financial market integration and resilience has become increasingly important since the Asian Financial Crisis and more particularly the Global Financial Crisis, the results of which are still apparent in all economies. Assets with identical risk should command the same expected return in countries with fully integrated financial markets, but when is a market sufficiently integrated? Market integration exposes financial institutions to extended risks, so the resilience of financial systems is a major concern for regulatory authorities, even if the effectiveness of regulations is open to question. Researchers are exploring market integration, regulations and resilience.

With the advance in technology and emergence of new products in financial markets, more sophisticated stochastic models are consistently sought to capture appropriately price evolution. The sub-cluster of Stochastic Financial Modeling and Simulation focuses on modeling high frequency financial data for the microstructure of target markets and exploiting more appropriate stochastic processes for describing the macrostructure of price evolution.

In relation to macro-economic growth, researchers are exploring alternatives to simplistic GDP measures, broadening the concept of economic growth to include human development in studying dynamic systems. This approach recognises that economic growth may increase environmental pollution and pose a threat to sustainability. Consequently, researchers must develop strategies to allow a country to achieve economic growth that can be sustained for an extended period of time.

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