Why economic models fail: Examples in asset management and in risk management

Freddy Van den Spiegel ()
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Freddy Van den Spiegel: Fortis, Montagne du Parc 3, 1MM2H

Journal of Asset Management, 2005, vol. 5, issue 6, No 3, 389-396

Abstract: Abstract Financial management practice relies heavily on financial models. At first sight, it seems puzzling that complicated models very often deliver disappointing and unstable results. This paper describes why this could well be a natural phenomenon, as successful models influence market behaviour. When market behaviour changes, the underlying assumptions of the model are no longer valid. Examples of this process can be identified in the asset management and risk management practices. The consequence of this observation is that models remain useful but that attention has to be paid to their life cycle.

Keywords: value at risk; asset management; financial models (search for similar items in EconPapers)
Date: 2005
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DOI: 10.1057/palgrave.jam.2240155

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