Social Capital in Financial Markets: Trust, but Verify

Abstract

The global crisis that unfolded in 2008, and is still front and center today, reminds us that the hidden hand of self interest does not assure economic welfare. Social capital in the form of fairness, trust, and cooperation must supplement self interest, and the government must supplement both self interest and social capital with laws and regulations. Some counties are richer in social capital than others and some governments are more vigorous in the enforcement of laws and regulations than others. The author assesses the social capital of eight countries by perceptions of the fairness of insider trading and discusses the implications within the context of the current crisis.

TOPICS: In markets, financial crises and financial market history, VAR and use of alternative risk measures of trading risk