Profile: NYU’s Robert Engle on volatility, liquidity and systemic risk

The financial crisis has thrown up numerous opportunities to study the relationship between volatility and liquidity – from the freezing of structured credit markets to the 2010 flash crash – but Nobel laureate economist Robert Engle says this behaviour could be transformed by creating greater incentives for market-makers. By Laurie Carver

Robert Engle

Outsiders might not believe it, but within the quantitative finance world there are styles as distinctive as that of any artist, musician or actor. Researchers with a more mathematical bent may favour very axiomatic approaches with high levels of abstraction; former physicists tend to invoke the methods of thermodynamics or quantum mechanics (see pages 59 and 60–66); computer scientists are concerned mainly with the construction of efficient algorithms.

But unlike many in the quantitative

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