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The risk of regulating risk, they write calculatingly….

Finance puzzles many people. This new study may make finance less puzzling, or more puzzling, or both:

Any Regulation of Risk Increases Risk,” Philip Z. Maymin [pictured here] and Zakhar G. Maymin, arXiv:1004.1670v4, April 20, 2012. The first author identifies himself as Assistant Professor of Finance and Risk Engineering at NYU-Polytechnic Institute in Brooklyn, New York. The second author identifies himself as a former portfolio manager at “his own hedge fund” and as “the New York State chess co-champion and the Fairfield County (CT) open class chess champion”. The pair write:

“We show that any objective risk measurement algorithm mandated by central banks for regulated financial entities will result in more risk being taken on by those financial entities than would otherwise be the case”

(Thanks to investigator Elizabeth Chau for bringing it to our attention.)

BONUS: “Schizophrenic Representative Investors,” Philip Z. Maymin, http://arxiv.org/abs/1004.4592, April 26, 2010.

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