Commensuration processes in financial markets

It is now widely recognized that the global financial system is not without risk. But what actually makes the financial system a system—that is, a densely interconnected, self-perpetuating, expansion-prone, self-referential entity? This question is rarely asked because the concept of a system is largely considered "burnt out" in sociology. But if we disregard theoretical preferences and aversions, the question is important. If we ask it, we can arrive at the following answer: the systemic nature of the financial system depends on its ability to commensurate, i.e., to make different financial values and financial instruments comparable. Many basic financial instruments (loans, government bonds, stocks) have existed for a long time, but they did not exist in a financial system, but rather as scattered social practices in their respective social milieus—without any strong connection between them. There were no means of systematically comparing and relatively evaluating them. However, in a long historical process, these means were developed, for example in the form of return and risk indicators, diversification and arbitrage techniques, etc. Scattered financial practices became elements of a highly interdependent, highly globally interconnected, and highly dynamic system, each of which reacts very sensitively to changes in others.

The DFG research project investigates commensuration processes in two dimensions:

• Commensuration of derivatives and "simple" financial assets (such as stocks and bonds)
• Commensuration of the banking sector and the shadow banking sector, and thus also the commensuration of money and money-equivalent instruments such as repos, money market funds, and ABCP.