AXA Chair in Global Finance

The Chair Research Programme revolves around the theme of Global Finance. The AXA Chair’s Research fields at SOAS University of London are:

• Flow of funds: Identifying mega trends
• Bank risk and regulatory architecture
• Inclusive finance and growth
• Financial technology (fintech) revolution

The scientific aims of the research programme provide a step enhancement on Murinde’s earlier work in at least four main dimensions:

1. Introduce dynamics and uncertainty to a static flow-of-funds framework, to investigate mega trends in global finance and risk, given evolving competitiveness, institutional change and technological innovations
2. Build large datasets and apply new developments in econometrics to research bank behaviour in the evolving global financial regulation
3. Track megatrends and model their impact on global financial systems
4. Contribute to ongoing developments in the area of financial technology (fintech)

The research outputs, for academia, policy makers and practitioners include:

1. Articles published in top-rated journals
2. Large datasets, real time indicators, forecasts and simulations, and policy/practitioner briefs, on emerging mega trends
3. Evidence for new financial products and instruments (for example, from RCT).
4. Research workshops and events throughout the year

The research by the AXA Chair in Global Finance uses the flow-of-funds framework to construct a large database for econometric work (estimation, simulation and forecasting) in order to identify and monitor mega trends in global finance, allowing for dynamics of competitive conditions (among households, firms, banks, and governments), which are engendered by the interplay between institutional economics and technological innovations.

We conceptualise mega-trends as clear, persistent and long-term trajectories which dominate and influence many other financial outcomes; a historical example is the sharp rise in petrol prices in the 1970s that led to the recycling of petro-dollars, followed by the debt crisis in the 1980s. In our scientific program, identified mega trends provide an input into the process of building theory and specification of econometric models. Recent developments include the outbreak of Covid-19 pandemic in 2020, the Ukrainian-Russian conflict and subsequent distortions in the global financial system.

The step change in our scientific work involves: the construction of large flow of funds datasets; identification and analysis of mega trends; internalising the permeating power of uncertainty as well as the mega trends in dynamic models; the explicit incorporation of non-price factors especially the endogenous role of government in models of regulation; non-linearity and configuration of thresholds in modelling key finance metrics; and the fintech revolution as well as new developments in AI and ML methodologies.

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The research by the AXA Chair in Global Finance uses the flow-of-funds framework to construct a large database for econometric work (estimation, simulation and forecasting) in order to identify and monitor mega trends in global finance, allowing for dynamics of competitive conditions (among households, firms, banks, and governments), which are engendered by the interplay between institutional economics and technological innovations.

We conceptualise mega trends as clear, persistent and long-term trajectories which dominate and influence many other financial outcomes; a historical example is the sharp rise in petrol prices in the 1970s that led to the recycling of petro-dollars, followed by the debt crisis in the 1980s. In our scientific program, identified mega trends will provide an input into the process of building theory and specification of econometric models. Hence, the step change in our scientific work involves: the construction of large flow of funds datasets; identification and analysis of mega trends; internalising the permeating power of uncertainty as well as the mega trends in dynamic models; the explicit incorporation of non-price factors especially the endogenous role of government in models of regulation; and non-linearity and configuration of thresholds in modelling key finance metrics.

The use of large datasets to measure, monitor, and disseminate the mega global and regional trends that are fundamentally shaping the rules and practice of global finance and risk management, generates new information to influence theory building to capture endogenous government role and to internalize uncertainty at the household level, company level, government level and foreign sector. Examples of fundamental origins of mega trends, which pose global risks, include:

China’s impact as a global investor

The new context of China (and India), setting “new norms” in transforming the behaviour of financial markets, financial institutions, financial instruments, manufacturing and commerce. How is Chinese outbound investment influencing industries abroad or shaping trade in Africa? The big world picture is shifting, including the setting of new rules for global finance. What does this mean for the UK, EU and the USA? How can corporate leaders ensure their companies will thrive in a new global context? What are the effects of financial disintermediation in China and other emerging economies?

Financial technology (fintech)

Electronic money (such as Bitcoin and its potential successors) and currency wars. Also, how will the growth of non-traditional financial vehicles, including peer-to-peer lending, mobile payments systems and mobile financial services (such as those developing from the MPESA model) affect the theory and practice of finance and financial system stability? In this digital age, with such FinTech innovations, how can populations confront income and wealth inequality, investing in education and work-based training, and addressing vulnerable employment? These recently developed technologies and financial services may herald a shift towards disintermediation that leads to the decline of traditional banks and financial institutions, but may lead to new forms of intermediation through organically growing new financial institutions or through emulation and incorporation by established financial firms. And, as with any innovation, they generate new risks including systemic risks. Our research programme analyses those possible changes and their effects.

New wave of political risk

These risks are unconventional and mutative, posing threats to global business and finance. The global security context has serious implications for global investment; the question is whether financial markets are mispricing geopolitical risks.

Investment uncertainty and new rules for the regulation of global finance

These arise from opaque rules for governing global finance, as in Basel III. For example, how are regulatory changes, technological and business model innovation reshaping the global banking landscape? How can long-term investments be prioritized in the face of high volatility, uncertainty and complexity?

Islamic finance: Different rules of the game?

The growth of alternative forms of banking and finance, such as Islamic Banking and Finance. To what extent is the recent expansion of "Islamic" finance sustainable (particularly in the context of financial developments in Africa and the Middle East)? And, while currently insignificant on a global scale, what are its potential effects on global finance? Will it be forever a niche market because of its inability to develop financial derivatives and other efficient risk and liquidity management tools? Or will there be increased convergence with "conventional" banking and finance as regulators and markets promote lower leverage ratios in the latter and create a conventional system which has features closer to equity based Islamic finance. Other ‘alternative’ forms of finance such as crowd funding, and peer-to-peer lending, and their effects on global finance and risk, are examined under mega trend above.

A cross-cutting element in all of the above is the fundamental assumption, in existing theoretical and empirical research that the financial system acts as the “brain” of an economy. It is assumed that the financial system promotes the dissemination and co-ordination of information about resource availability at every level throughout the economy, evaluates and prices inherent risk, and so enables the efficient allocation of these resources for supporting economic growth at national and global levels.

In terms of scientific methodology, the research program of the AXA Professor of Global Finance and the research at the Centre for Global Finance involves building new theories, testing them using econometric techniques, and using simulation experiments to generate policy options or management scenarios. For example, the research in the above work-streams uses a wide range of data sources including: meta-analysis of existing research; compilation of new datasets based on existing primary sources; case-study; collection of new data using survey methods; randomised control trials; and existing secondary sources supplemented, as needed, by primary data collection. Likewise a range of methods are used to analyse the data; selected to be appropriate to the problem in hand. Some studies call for econometric methods for analysing time series, cross-section or panel data. Others involve survey research methods, or more qualitative approaches including interviews and focus groups. We will also undertake some field experiments and develop new financial products for inclusive growth.

The research programme has a global perspective, but there is some considerable focus on LICs in Africa, China, UK, Europe and the USA. The target audience for the findings includes: financial institutions and companies involved in monitoring trends in global finance and risk; policy makers in LICs, NGOs and the donor agencies; practitioners in finance ministries, central banks and other regulatory agencies; and researchers and academics.

Professor Victor Murinde

Email: v.murinde@soas.ac.uk
Telephone: +44 (0)20 7898 4057

Dr Meng Xie

Email: xm1@soas.ac.uk
Telephone: +44 (0)20 7898 4572

Dr Athina Petropoulou

Email: ap1022soas.ac.uk
Tel: +44(0)20 7898 4536