09-09-2014 The Role of Behavioral Errors Leading Up To and Causing The 2007/08 Financial Crisis
Tuesday, September 9th, 2014
Speaker: Richard Rosen
Federal Reserve Bank of Chicago
Chair: T. Jon Williams, Ph.D., CFA
An Applied Behavioral Finance Group Sponsored Event
The severity of the 2007/08 financial crisis seemed to have surprised even sophisticated investment professionals. As stewards of client’s assets, one of our most important objectives is preservation of capital during times of crisis. Richard Rosen, an economist with the Federal Reserve Bank of Chicago, has written extensively about behavioral decision errors as possible causes of the crisis. Why is it that the US financial system nearly collapsed once housing prices started to fall? Also, the depth of the losses on securities tied to these price declines seemed to surprise many market participants.
Dr. Rosen’s research emphasizes important behavioral factors in explaining the severity of this crisis are (1) overconfidence in higher returns on mortgage-backed securities prior to the crisis may have led investors to believe the expected returns on these securities were better than they actually were, (2) confirmation bias as investors dismissed evidence contrary to personal beliefs, (3) rational inattention to the details of many complex security structures, (4) the dependence of investors on ratings by rating agencies, and (5) many investors act as agents for others and have an incentive to reach for yield and follow the herd. These factors affected the full range of investors including those we think of as sophisticated. After reviewing the financial crisis, Dr. Rosen will offer some comments on how these factors are – or are not – affecting markets today.
Richard J. Rosen is a vice president and research advisor in the economic research department at the Federal Reserve Bank of Chicago. In that position, Dr. Rosen conducts research on issues relating to financial intermediation, bank regulation, mergers and real estate and housing. In addition, he is part of the Chicago Fed’s insurance initiative. His research is published in numerous leading academic journals.
Prior to coming to the Chicago Fed, Dr. Rosen taught in the finance departments at the Kelley School of Business at Indiana University, the Wharton School at the University of Pennsylvania and the School of Business at Georgetown University. He has also worked at the Board of Governors of the Federal Reserve System.
Dr. Rosen received a B.A. in mathematics from Swarthmore College and a Ph.D. in economics from Princeton University.
As a participant in the CFA Institute Approved-Provider Program, the
CFA Society of Los Angeles has determined that this program qualifies
for 1 credit hours. If you are a CFA Institute member, CE credit for
your participation in this program will be automatically recorded in your CE Diary.
Date: Tuesday, September 9th, 2014
Time: 12:00pm – 1:30pm, Lunch
Location: Omni Los Angeles
251 South Olive Street
Los Angeles, CA 90071
For directions call hotel: (213) 617-3300
Event parking at the Omni $12.00
Dress Code: Business Casual
Methods of payment accepted: Visa/Mastercard, American Express and Discover. If you prefer to pay by check please register online and select "purchase order" as your payment option and enter your last name as the purchase order number. Mail check to: CFA Society of Los Angeles, 520 S. Grand Ave, Suite 370, Los Angeles CA 90071.
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