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Financial Models and Society

Villains or Scapegoats?

Ekaterina Svetlova

This innovative book employs the social studies of finance approach which aims to enhance the dialogue between finance and sociology by addressing the blind spots of economic and financial theories. In so doing, it challenges the accusations made towards financial models in the aftermath of the last economic crisis and argues that they cannot be condemned indiscriminately. Their influence on markets and society is not straightforward, but determined by the many ways in which models are created and then used. Ekaterina Svetlova analyses the various patterns of the application of models in asset management, risk management and financial engineering to demonstrate that their power is far more fragile than widespread criticism would indicate.
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Villains or Scapegoats?

Ekaterina Svetlova

This book is the result of ten years of research on the use of financial models in market practice. I wish to thank all of those who supported me in writing it.

The interviews that constitute the main data source for the empirical case studies used in the book were completed within the framework of the Deutsche Forschungsgemeinschaft (DFG) project “Economic calculations: Creation of the calculative realities in the financial markets” in 2007–08. I would also like to acknowledge the research fellowship awarded by the Centre of Excellence “Cultural foundations of integration” at the Institute for Advanced Study at the University of Constance, where I spent a sabbatical in 2013–14 and started to develop some chapters of this book. I would also like to thank the interview respondents and those who helped me to organize the field work for their support, effort and time.

I am also grateful to all colleagues and friends who discussed my ideas with me at numerous conferences and workshops or commented on earlier versions of the book. The comments from Dirk Baecker, Ivan Boldyrev, Maria Puig De La Bellacasa, Iain Hardie, Donald MacKenzie, Yuval Millo, Nikiforos Panourgias, Birger Priddat, Marcel Tyrell and Zsuzsanna Vargha were especially valuable. Furthermore, very special thanks are due to a particularly loyal and thorough reader – my husband, Karl-Heinz Thielmann.

As this book sums up my research on financial modelling conducted over many years, parts of it incorporate revised and reworked versions of material that was previously published. I would like to thank the editors and publishers involved for permission to use that material here. The following articles were used in this book:

Value without valuation? An example of the cocos market (2016), Critical Perspectives on Accounting (online first), special issue on Critical Finance.

Performativity and emergence of institutions (2016). In: Ivan Boldyrev and Ekaterina Svetlova (eds), Enacting Dismal Science: New Perspectives on the Performativity of Economics, New York: Palgrave Macmillan, 183–200.

Models at work: Models in decision-making (2014), Science in Context27 (4), 561–577 (with Vanessa Dirksen).

Modelling beyond application: Epistemic and non-epistemic values in modern science (2014), International Studies in the Philosophy of Science28 (1), 79–98.

De-idealization by commentary: The case of financial valuation models (2013), Synthese190 (2), 321–337.

On the performative power of financial models (2012), Economy and Society41 (3), 418–434.

Talking about the crisis: Performance of forecasting in financial markets (2012), Culture and Organization18 (2), 155–169.

Plausibility check of consensus: Expectation building in financial markets (2010), Journal of Financial and Economic Practice10 (1), 101–113.

Full references will be found at the end of the book.

Finally, I would like to thank Amanda Habbershaw for her excellent help with my English.