The joke going around Vancouver is that this CFA conference in Vancouver should have been held in Perth - a beautiful city set on the estuary of the River Swan. The swans in questions are, of course, black.
Quite apart from Nassim Nicholas Taleb’s combative presentation on his concept of black swans - unpredictable events that throw the markets for a loop - his concept has dominated almost all discussions.
Aside from presentations on “hunting black swans,” or a mock presentation of “black swan awards” to a list of the Wall Street CEOs who have lost their jobs in recent months, the analogy is spawning a reaction.
There are different kinds of black swan events, as it is now recognised. Some (like a meteor hitting the earth and extinguishing all human life) need not worry risk managers unduly, as there is nothing they can do about them. Others, like the subprime crisis, only qualify as black swans at all - an increasing number of cynics now appear to believe - because the people who were caught out want to give the impression they were unpredictable.
And there is also a more positive reaction. A new paper being prepared by the CFA Institute looks into “white eagles” - chosen because it is a symbol of wisdom for native Americans. This is about measures that could make markets safer.
Sergio Bocardi, one of the authors, says: “We can make financial markets safer if we want - financial markets are artefacts. It depends on how much data we want to disseminate, how much we want people to know and how much risk we want people to take. In a sense, we can decide the level of black swans we want.”
Saying that mathematics has more to contribute to understanding markets, he added: “Will models make markets more efficient and allow more efficient allocation of capital? Are markets efficient and transparent allocators of capital or are they a vehicle for making money? This will be a fundamental question for the future.”
If we do want markets to be efficient, white eagles will triumph over black swans - and at least there are a lot of eagles in western Canada.
Short View columnist John Authers is blogging for FT Alphaville from Vancouver at the annual gathering of the CFA Institute
