A Look Back and a Way Forward

Abstract

It has been an eventful 12 years since first beginning the privilege of serving as founding editors of the Annual Review of Financial Economics for its inaugural volume in 2009. In the wake of the worst global financial crisis any of us had experienced in our lifetimes, financial economics moved from a mathematically arcane subject known to a relative handful of academics and practitioners into the mainstream of policy debates and political discussion, even to the point of populist fervor. This striking sea change is a result not only of the 2008 Financial Crisis but also of the extraordinary flow of financial innovation that has continued unabated to this day, despite the cautionary soul-searching that followed those fateful events. The unique interplay between the theory and practice of financial economics, combined with technological advances permitting greater democratization of the markets, has led to an unusual state in which passive investing is more popular than ever before—but so are highly volatile assets such as cryptocurrencies, digitally signed works of art, and “meme stocks.” As the financial environment has changed, so has the content of the Annual Review of Financial Economics, although with some lag. The form of the Annual Reviews series is intentionally reflective—“reviews with attitude,” according to Susan T. Fiske, a Co-Editor of the Annual Review of Psychology, and to develop “attitude” toward a given body of literature is necessarily backward-looking. Nevertheless, the Annual Review of Financial Economics, like the Annual Reviews in other fields, has endeavored to inform readers of potential future directions of research through our selection of topics, providing a map of interesting territories for future pathfinders to follow. We have thus been honored to publish retrospectives by such giants of financial economics as Paul Samuelson, Harry Markowitz, and Eugene Fama and articles about the careers of Fischer Black, Stephen Ross, and Robert C. Merton. These articles have the overt mission to reaffirm the study of financial economics as a scientific endeavor with a distinct historical lineage of its own, whose insights are specific to this unique field. In addition, this journal has explored in depth the causes of the 2008 Financial Crisis, as befits its significance, including a special issue on the occasion of its tenth anniversary. The content of these reviews have ranged from the theoretical and geopolitical ramifications of the crisis to discussions of its practical and pragmatic response.One particular goal of this journal has been to provide its readership with information on the less familiar parts of the “infernal machine” that led to the crisis, including credit default swaps, the collateralized debt obligation, the mortgage-backed securities market, the real estate market, and government policies that facilitated and fueled these innovations.