What Academics Think About Financial Risk Management

This news article originally appeared on WealthManagerWeb.com on 4/7/2010.

A new research paper from Contango Capital Advisors examines the shortcomings of academic thought in developing models that can be used by financial institutions to institute effective enterprisewide risk management systems and policies.

In “Economists’ Hubris–The Case of Risk Management,” Shahin Shojai, global head of strategic research at Capco, and George Feiger, chief executive of Contango, conclude that most academic models fail when put under the microscope, and that the development of effective models is a long way off. But no matter which models are used, the authors say, the current IT and operational infrastructures of banking institutions do not allow management to obtain a holistic view of risk. As a result, the silos they reside in means that instituting an effective enterprise-wide risk management system is today “nothing more than a panacea.”