About

The Center for Advanced Research in Finance (CARF) was established at the University of Tokyo in April 2005 with the aim of building an international hub for financial research and education in Asia.

CARF pursues the following missions:

Pursue cutting-edge research in financial theory by inviting leading researchers from around the world.

Build a financial data center offering rich data both in terms of quantity and quality and pursue empirical research on financial and capital markets in Asia.

Analyze the successful and unsuccessful elements of Japan’s financial system from both a theoretical and empirical perspective to provide support for a balanced development of Asian economies. Make proposals for the design of financial systems and policies to promote sound economic development.

Develop financial researchers and leaders for the 21st century by conducting research utilizing industrial and financial partnerships, as well as develop innovative techniques for fund management, financing, and risk management.

CARF has received approval from the Ministry of Education, Culture, Sports, Science and Technology (MEXT) as an institution for collaboration between industry and academia. The Center is funded by the Japanese government and also receives financial support from a wide range of business and financial partners.

Research at CARF can be divided into the following four major areas.
Until fiscal 2020, “The Financial System” and “Macroeconomic and Financial Issues” were grouped as one research area.

The Financial System

One central research question in this area is why financial crises occur and what kind of financial regulations and supervisory policies should be adopted to enhance the robustness of the financial system without compromising its efficiency. While research on this topic has made considerable progress since the Japanese banking crisis and the global financial crisis, providing, for example, the impetus for international financial regulations, there is still much that needs to be resolved from both a theoretical and an empirical perspective.

Moreover, new issues have emerged, such as how the recent rise of fintech firms, crypto-assets, and digital currencies affects financial intermediation, and whether there is room for improvement in existing financial regulation. Awareness of new risks, such as risks associated with climate change, is also rising. Especially for the insurance industry it is necessary to estimate the potential losses, which may reach a different order of magnitude from those assumed so far. Further, climate change will also pose new risks in bank lending since it will have a wide-ranging impact on firms more generally.

The underlying policies and institutions that shape corporate finance are also important. For instance, Japan’s long-term economic stagnation from the 1990s onward saw the rise of so-called zombie firms – an issue that has been studied extensively – and there are concerns that recently many firms have similarly been artificially kept alive by government subsidies for firms and lending by government-sponsored financial institutions in the wake of the global financial crisis, the Tohoku earthquake, and the COVID-19 pandemic.” On the other hand, corporate financing through private-sector funds relies on many laws and codes, including corporate governance practices and insolvency resolution processes. The shape that corporate finance should take has become an issue of great social interest.

The issues related to financial crises, the response to new developments in finance, and the structural issues surrounding corporate finance all pose an urgent agenda for the institutional design of the financial system. Researchers at CARF will examine these issues through academic research and find a better design of the financial system in collaboration with practitioners and policy makers.　

Macroeconomic and Financial Issues

Research in this area focuses mainly on prices and monetary policy; issues related to bubbles; the linkages among social security, fiscal policy, and the macroeconomy; and the implications of these issues for international finance. In addition to academic research, activities in this area will consist of working with practitioners and policy makers to elucidate these issues.
　
With regard to prices, the aim is to explore how “micro-level prices,” i.e., the prices of individual goods and services, are determined and how they are linked to “macro-level price index.” Moreover, work in this area will focus on exploring the reasons for price fluctuations in different countries, including Japan’s prolonged deflation, and develop a price index that conforms with consumers’ perceptions of price developments.

The problem of bubbles is exemplified by Japan’s land price bubble of the 1980s and the subprime housing bubble of the 2000s in the United States. Work will examine the mechanisms of such sharp rises and falls in asset prices, how they are linked to macroeconomic fluctuations, and how institutions and policies affect them.

In the medium to long term, the macroeconomy and financial activities are influenced by structural factors linked to the balance of savings and consumption, such as the aging of the population. One strand of work is to examine these mechanisms both theoretically and empirically. A question of particular interest from a macroeconomic perspective is the efficiency and robustness of the financial system in channeling savings to investment.

Furthermore, in internationally open countries such as Japan, macroeconomic conditions have substantial impacts on developments in exchange rates and the current account. Research in this area will therefore also pay attention to aspects of international finance. In particular, investment in developing countries requires taking sustainable development goals (SDGs) into account, such as goals regarding the environment and labor standards. Against this background, developments in socially responsible investment, or so-called ESG investment, are another issue that will be examined.

Quantitative Finance

Research under this topic focuses on proposing various new asset management methods using state space models, fuzzy systems, and machine learning. In addition, the aim is to propose new methods of assessing and calculating the value of financial assets taking a variety of factors that have received considerable attention in recent years – such as credit risk, collateral contracts, and changes in volatility – into account and to provide a mathematical basis for these methods. Furthermore, research under this topic seeks to examine the pricing of derivatives based on low-liquidity underlying assets, analyze high-frequency trading markets using big data, and examine revenue management by hotels.

Accounting

Research under this topic seeks to examine the role accounting information plays in securities markets and in the settlement of interests between parties. In addition, research focuses on what kind of theories support the system of accounting standards on which the generation of accounting information is based and examines the rationality of these theories. Specifically, work has been going on for many years on how the International Financial Reporting Standards (IFRS) can be incorporated into the Japanese securities market. More recently, work has also focused on ex-post evaluations comparing the expected effects of introducing new accounting standards with existing standards and examining the reasons for any differences.

Other research consists of comprehensively exploring the characteristics of firms that commit accounting fraud and trying to build a model that predicts accounting fraud based on these characteristics, as well as attempting to clarify the role of accounting information in executive compensation contracts.

Researchers