FINANCE
Mila Getmansky Sherman JUDITH WILKINSON O’CONNELL FACULTY FELLOW AND PROFESSOR
The Changing Hierarchies of Influence in Global Finance
W
here does the United States sit in the global financial system today? Toss out any old assumptions you hold.
pandemic as two factors that have decreased the relative power of the United States and “increased the centrality of China.”
“The system is changing right in front of us,” says Mila Getmansky Sherman, Isenberg’s Judith Wilkinson O’Connell Faculty Fellow and a professor of finance. “In the past, the U.S. was the undisputed center, the driver of financial returns and news, but now that’s not true.”
“The centrality of the United States in the global financial system is taken for granted, but its response to recent political and epidemiological events has suggested that other industrialized countries now hold a comparable position,” Sherman writes with colleagues Monica Billio (Ca’ Foscari University of Venice), Andrew W. Lo (MIT), Loriana Pelizzon (Ca’ Foscari University of Venice), and Abalfazl Zareei (Stockholm University).
In “Global Realignment in Financial Markets,” a working paper that made a splash at the American Finance Association annual meeting, Sherman and colleagues documented the waning of United States dominance and China’s increasing influence and centrality by tracking daily global market returns across 11 industrialized countries. In the study, she sees the “first signals that the global financial system is moving from a unipolar to a bipolar (or multipolar) world.” Sherman and colleagues cite the U.S.China trade war and the Covid-19 6
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The dynamic goes beyond just ChinaU.S., they argue. By mapping the data, “we can see countries coming together in a tighter web of influence,” Sherman says. In the past, when the U.S. experienced a boom or a crisis, the rest of the world was directly affected, either prospering or slumping in turn. Now, the work of Sherman and her colleagues shows that other countries are much more
relevant to the global financial network. A crisis in one country can propagate to other countries, and the effects often get magnified. For instance, the data show a substantial amount of “negative contagion” when Covid-19 variant waves swept the globe, and countries “caught” market slumps from each other. Sherman sees global finance research itself changing too, broadening to weigh up the impact of political turmoil, climate change, and other factors that affect markets. “In the past, if you uttered the words epidemiology and finance in the same sentence, people would say, ‘what are you talking about?’ Now we are really looking at interconnectedness and realizing we are less buffered,” she says. Pursuing Interdisciplinary Expertise and Varied Interests Sherman is one who can think global and act local. She earned her undergraduate degree at MIT in chemical engineering with an economics minor, and studied system dynamics and
