Last Updated Apr 2, 2009 12:33 PM EDT
Stijn Van Nieuwerburgh teaches 'Fundamentals of Finance' at New York University's Stern School of Business, and he tells BI-ME he spent the first few weeks of class assuring students that even in times of crisis, the fundamentals stay the same.
"Concepts like the time value of money and how to discount future cash flows are elemental concepts that will never go away."Although the current crisis hasn't made Van Nieuwerburgh rethink the basic tenets of economics, it has exposed a need for more academic research on the financial sector, which has grown exponentially in recent years.
Fellow Stern professor Viral Acharya agrees, telling BI-ME that basic knowledge of how markets function is still necessary for business students.
"Teaching about capital markets is first about showing the models," says Acharya, "But the beauty of understanding the model is showing when it doesn't work." The current crisis shows us why and how models fail.Human emotion is an intangible but nonetheless hugely impacting element on markets and institutions. As K Ozgur Demirtas, assistant professor of economics and finance at Baruch College's Zicklin School of Business, puts it: bad financial news creates a self-fulfilling prophecy.
"There are two things at work in the economy: people's expectations and the fundamentals of the economy," says Demirtas. "If everyone thinks banks will go bankrupt," he adds, "banks will go bankrupt."Economists, academics and the government are now faced with the obvious question of: how do we prevent something like this from happening? That's sure to be a headlining topic on the agenda at today's G-20 summit.