Constructing the Market Frame: Distributed Cognition and Distributed Framing in
Iain Hardie and Donald MacKenzie
School of Social and Political Studies
University of Edinburgh
Adam Ferguson Building
40 George Square
Edinburgh EH8 9LL
* Corresponding author
Corresponding author telephone number 01890-840-440
Notes on Contributors:
Iain Hardie spent eighteen years in the investment banking industry in London and
Hong Kong, specializing in bond issuance for emerging market governments. In 2003 he
completed an MSc in International and European Politics at the University of Edinburgh,
where he is a Research Fellow. His work has appeared in Economy and Society and
Review of International Political Economy.
Donald MacKenzie works in science and technology studies and in the social studies of
finance. He holds a personal chair in sociology at the University of Edinburgh, where he
has taught since 1975. His first book was Statistics in Britain, 1865-1930: The Social
Construction of Scientific Knowledge (Edinburgh: Edinburgh University Press, 1981); his
most recent is An Engine, not a Camera: How Financial Models shape Markets
(Cambridge, MA: MIT Press, 2006). With Fabian Muniesa and Lucia Siu he is editing
Do Economists Make Markets: On the Performativity of Economics (Princeton, NJ:
Princeton University Press, 2007).
A category of actor in financial markets that is of rapidly growing importance is hedge
funds. Such funds are investment companies initially structured to avoid regulatory
limitations on short selling (selling securities they do not yet own) or the use of leverage
(buying securities using borrowed funds). Hedge funds are generally regarded as dating
from 1949, but as late as 1990 there were fewer than 1,000 funds, managing $25bn in
assets. By March 2006, however, assets under management had risen to over $1,500bn1.
At times, hedge funds can become important owners of particular securities: in early
September 2005, for example, hedge funds were reckoned to hold, in aggregate, between
a seventh and a quarter of the stock of Germany’s leading corporations2. Because nearly
all hedge funds are active traders rather than passive ‘buy-and-hold’ investors, and
because the use of leverage is common, their contribution to overall trading volumes is
much higher than the proportions of investors’ capital they manage. Hedge funds are now
responsible for between a quarter and a third of trading on the New York and London
Stock Exchanges3 and around half of total trading in emerging-market government
bonds4. More mainstream investors, such as pension funds, are increasingly looking at
investments in hedge funds, and traditional fund managers and investment banks are
setting up ‘in-house’ hedge funds.
The authors have been conducting interviews with a snowball sample (numbering 41 so
far) of traders in hedge funds and in investment banks – and of those who play important
ancillary roles – about their trading strategies, the information they make use of in those
strategies, the constraints upon them, and so on. Wherever possible, we conduct these
interviews in situ, so being able also to observe traders, brokers etc. doing their jobs, and
we have supplemented these data with ethnographic observation covering four days at a
hedge fund specialising in emerging market government bonds5.
Our interview data (and also our observations) make clear that a hedge fund is seldom an
entity that confronts a market ‘on its own’. More typically, it is part of a rich network of
interpersonal and interorganisational connections, though which flow research reports,
news, prices, information about what major categories of market actors are doing (and
sometimes why they are doing it), and so on. Some of this flow is direct from fund to
fund, but much of it originates from or passes through a more traditional category of
actor: investment banks. Some of the content is ‘data’ (tables of prices, for example), but
crucial elements of it go beyond data to suggest ways in which the data can be, indeed
should be, interpreted. The data available to professional actors in financial markets is
overwhelming in quantity, and no individual or organisation can comprehend its totality.
Selectivity in cognition is thus unavoidable. What is selected, and who or what
influences that selection are thus potentially matters of considerable importance – for
example to political economy.
To offer at least a preliminary theorisation we draw on the ‘distributed cognition’
perspective of Hutchins6, an approach that has been influential in, for example, workplace
ethnographies, but which has yet to be used at all widely in political economy. Hutchins
emphasizes that cognition takes place not simply ‘inside the skin’ of individual human
beings, but is distributed across multiple human beings and technical devices. He
demonstrates this convincingly in the case of aircraft cockpits and ship’s navigation.
Our data contain ample evidence that cognition is indeed distributed in this sense: in our
observations, for example, the hedge fund’s main trader relied both on technical devices
and on his colleagues and contacts at investment banks to assist his decision making.
However, there is a crucial difference between financial markets and the paradigm cases
of distributed cognition. The ‘framing’7 of information in markets – the construction of
ways to be selective and to make sense of data – is distributed in a more profound sense
than in those settings.
Distributed cognition in financial markets involves what we call ‘distributed framing’. By
this we mean the involvement of multiple market actors in the process of sifting data and
constructing ways of interpreting it. Some of those actors specialise in framing: as
Beunza and Garud8 show, framing is arguably the key aspect of the job of the securities
analyst. A one-line email from another trader or a brief comment by a broker via a voice
box9 can, however, be as important a framing as a several-page analyst’s report. This
multiplicity of frame-makers, we suggest, shows how ideas of distributed cognition,
when complimented by the distribution of framing, can be seen as contributing usefully
to issues in political economy: our example of such an issue is the cost of government
borrowing and the factors that influence that cost10.
Distributed cognition and distributed framing in financial markets
Traders face what is effectively unlimited information that could influence their decision
making, and a crucial element of their decision making is what information to focus on11.
For an investment decision to be taken, the decision must be framed. The selection of
information thus has an influence on the trading decisions, and as a result on the prices of
the assets, and selection is heavily influenced by the interaction between traders and other
market actors. These market actors are both within hedge funds12 and in other
organisations (primarily investment banks) with which hedge funds transact. Traders
often receive a continuous stream of email traffic, complemented by less frequent
telephone calls or voice-box remarks, from investment bank traders, salespeople and
brokers, which serve to highlight particular news or market activity. These messages
often contain recommendations, implicit or explicit, as to what traders’ responses should
be, in terms of buying or selling13.
In the study by Hutchins14, the individual responsible for the ship’s navigation has
(almost) total control of the flow of information he receives. He asks for particular
bearings to be taken, for example, and, absent an error, receives the information he has
requested. Traders do not have the same degree of control. They can influence the
information they receive by a variety of devices: for example, by explicit software-
implemented filtering of email or other electronic information15; by making known what
interests them; by rewarding or penalising, perhaps with increased or decreased business
flows, those who provide more or less useful information. (One trader we observed, in
the credit derivatives market, filtered the huge number of emails he typically received -
often several within each minute - according to the presence of a word that is key in the
products he trades such as ‘tranche’.) Traders can also, when they know they require a
specific piece of information (for example, the price of an individual bond), ask for that
information, in the same way as the chief of a ship’s navigation team asks for a particular
bearing. Our observations suggest, however, that for the most part, the flow of
information we observed was not individually requested by traders. Indeed, this would
have been impractical: the e mails received by the one hedge fund trader in four days of
our observations filled eight lever arch files when we printed them out. Furthermore,
many of the emails – the majority in the one corpus we have examined message by
message – appeared to be sent to multiple recipients, rather than being specifically
directed at, and tailored for, individual traders.
The decision on what market information to share rests, obviously, with the sender of the
information. Within investment banks, which our data suggest are the primary
communicants of the vast majority of the market information for hedge funds, there are a
number of different original information sources, with the most common, in the main
market we examined, emerging-market bonds, either the investment bank’s traders,
specialists in trading small groups of similar securities (all US dollar bonds issued by
Latin American countries, for example, or US government bonds which mature in
between five and ten years time), or research analysts, also specialists in similar countries
or companies. The communication of information is most commonly intermediated,
however, by a salesperson within the investment bank.16
The salesperson is the individual responsible for an investment bank’s business with a
particular investor in a particular business area; in this case, the bank’s relationship with
this hedge fund in bonds and derivatives. The role of salesperson is vital, but almost no
academic literature on it exists, so it is worth particular attention. The salesperson is the
typical conduit for the communication of market information from investment banks to
hedge funds, as well as passing on the prices of individual securities, which the
salesperson will request from the traders within his/her bank. Although these securities
can be ‘new issues’ (e.g. new borrowings by an emerging market government), the vast
majority of activity is related to the ‘secondary market’, where existing issues are bought
The salesperson’s intermediation works in two main ways. For more standard
communication, such as research reports or regular market updates, the salesperson
compiles electronic lists of recipients, and the information is sent automatically. Indeed,
regulations require all potential recipients receive much of the information
simultaneously. Furthermore, ‘you’d tend to blast that out to everybody and half the
people probably aren’t interested’17. In the case of this type of electronic communication,
then, the salesperson’s intermediation of the information, although still framing, is
unlikely to be independently active in terms of its impact on a trader’s decision making;
if a trader asks to be on an e mail list for a particular type of information, there seems
little reason to suppose he/she would not be added. The trader in this instance, then,
might be seen as similar to the ship’s navigator in asking for, and receiving, particular
information. In the case of navigation, framing takes place through both the individual
taking the bearing, and the equipment used; the same occurs in the financial markets. In
both cases, however, both human and equipment have a function, the specifics of which
are known to the person requesting the information. The framing is not, therefore, active,
in that it has not influenced the information the decision maker receives.
However, material framing has still taken place, and it is different from that involved in
the ship’s navigation. The navigator asks for a particular bearing to be taken; the
navigator therefore frames the information received from the view seen by the person
taking the bearing.18 The hedge fund trader may ask to be sent all research reports on
Turkey, which is the equivalent of asking the person taking the bearing to report back all
aspects of the view from that side of the ship which the person taking the bearing deems
salient. The decision on what is important about Turkey, which information should be
passed on, lies in this instance not with the hedge fund trader or the salesman, but with
the research analyst. The frame chosen may not be in the interests of either the hedge
fund trader or the research analyst’s colleagues within the investment bank19. The hedge
fund trader contributes to the framing initially (‘send me research reports on Turkey’), the
research analyst then tightens the frame by including in the research report information
he/she believes relevant to an investment decision on Turkey. On receipt, the hedge fund
trader tightens the frame further by deciding what information firstly to read, and then to
include in the final decision. In the case of verbal communication, the process is more
directly interactive and dynamic; the research analyst may be required to justify the
choice of relevant information, as the framing is challenged. Importantly, however, and in
contrast to the navigator, the hedge fund trader cannot know whether important
information is outside the frame; under normal circumstances, the navigator can safely
assume all important information is within the frame.
The salesperson’s intermediation becomes more immediately consequential in the case of
more timely and specific information. In simple terms, the salesperson considers two
questions: what is important timely information and whom do I tell first? The judgement
as to what information is important is relatively simple: ‘the best sort of information
probably for them is either something that’s going to directly make them money or
directly help them avoid losing money’20. The implications of this decision making are
nevertheless significant, because the decision is being taken not by the hedge fund trader,
asking, as the ship’s navigator would, for a specific piece of information, but by the
salesperson. The salesperson is framing in a way that involves more complex agency than
those of Hutchins’ subjects.
Who to tell first is a harder decision than what information is urgent and important:
It’s really about who is going to react on it, who is your best client. It’s an
iterative process, that your best clients get better and better information, as they
go up the curve … and as they get worse, they get worse and worse information,
because there is a constant escalator and your top clients are always going to be
your top clients, but throughout your client portfolio there are going to be people
who are moving up it and moving down it depending on how quickly they react…
Sometimes you’ll make judgment, … I need to go here with this one because I
haven’t done anything, I'm getting pressure from my boss because you’re not
doing anything with these guys, … or it might be, this guy is the most likely
person to do this, we’re going to do it with him, or, and I can do it quickly and
move on to the next thing, or it might be, this guy is going to do it more profitably
[for the bank]21.
The salesperson is here deciding which client is to be the first recipient of the frame, as
well as what is within the frame. It is worth noting a difference between the two
decisions. Hedge fund trader and salesperson share an interest in the latter correctly
assessing what constitutes important information for the former. Only the client who gets
the first call has an interest in the salesperson ‘correctly’ assessing which is his or her
best client. What makes a client a salesperson’s ‘best’ will be largely determined by
which trader or investor will do the greatest volume of the most profitable business. This
is a combination of being a large fund manager or trader, but also being an active trader.
The more a trader turns over his investments, the more trades he/she completes, and so,
for the salesperson, the ‘better’ the client. The implication is that if a hedge fund and a
pension fund make investments of a similar size, the hedge fund, with the shorter time
horizon on its investments, is likely to receive the better information: ‘the size of the fund
is not so important, it’s more about your potential to do business … There are a lot of big
funds who don’t turn over very often, and so although they’ve got a lot of passive money,
you’re not going to spend as much time with them’22.
To suggest that salespeople have carte blanche in choosing which accounts to cover and
what trades to market to them would be misleading. Salespeople, like traders, are also
managed. However, this management serves only to support the prioritizing of the
accounts which generate the greatest turnover, and therefore both the highest profit and
the highest level of market information. In many markets, this favours hedge funds. One
manager of an emerging market trading business within an investment bank23 outlined the
strategy for determining which accounts to cover. A small group, ‘maybe three or four’,
has to be treated well because they are important for business elsewhere in the firm.
Apart from these, the first criteria is ‘[i]s it a big enough client that can move market
prices in this asset class? And then we need to speak to them.’ This is hardly surprising,
but it is important to note a near universal characteristic of hedge funds: leverage. Hedge
funds borrow money to increase the volume of their investments, in order to maximize
returns. Among the implications of this borrowing is that if a hedge fund and an
investment fund that doesn’t borrow (usually termed a ‘real money’ account in financial
markets) have the same amount of funds under management, the hedge fund, thanks to its
leverage, will invest more; it is more likely to be ‘big enough’ to warrant priority
coverage from investment banks. Investors which transact the highest volume of business
are likely to receive greater amounts of timely information, and those investors are more
likely to be hedge funds.
The degree to which a salesperson can materially influence the market frame depends, in
part, on his/her ability to decide what information to pass on to clients. Traders
interviewed within investment banks recognised that the salesperson has a choice as to
whether or not to cooperate with an individual trader, or propose a particular trade idea to
The salespeople … have optionality within … which products to trade. And if the
Turkey external debt24 guy is a pain in the ass and doesn’t pay them … sales
credits25 or [is] consistently screwing accounts or whatever, they’ll just try to
migrate to the local market26 guy or try to migrate to the [foreign exchange] guy
or try [to] avoid Turkey altogether. So definitely … they gravitate towards the
relationship which gives the most satisfaction27 28.
A key element in distributed cognition in financial markets is thus distributed framing. A
market actor such as a hedge fund is only one of multiple such actors. Furthermore, those
actors are not necessarily unitary. The small (five individuals) hedge fund we observed in
the greatest detail has a single goal, maximising the performance of the fund they
manage, and therefore the fees the fund earned. The individuals involved demonstrate
distributed cognition, contributing to the framing of information, and the hedge fund
trader’s control over their actions is far less than Hutchins’s navigator’s control over the
actions of the members of his team. Nevertheless, the distributed cognition within the
hedge fund can be seen as more closely paralleling that on the warship.
The same cannot be said of an investment bank. Not only are investment banks made up
of many different businesses across markets and geographies but even within the same
business area and location (for example, the trading of emerging market bonds in
London), individual traders and salespeople cannot be assumed to share the same
interests. Although part of the good management of traders and salesforce is to align
those interests as far as possible (for example, by ‘paying’ higher sales credits on more
profitable trades, not just on the volume of the transaction), interests can never be wholly
You're torn as a salesperson because your trader is where the money is generated.
You have to make money, if you don’t make money, in theory no one is going to
get paid, but against that you’ve got sales credit as opposed to real money so sales
credit is not really money but sales credit is how you’re measured. So if you do a
trade you can get a great sales credit but there is no money made out of the trade.
As a salesperson you pay lip service to caring but you don’t care that much
because in the fullness of time it’s forgotten and it’s just part of your sales credit
and on you go29.
At some level, framing is of course always potentially distributed in consequential ways
when multiple actors are involved. Any member of the group responsible for the
navigation of Hutchins’s warship can choose not to obey orders. However, we believe a
necessary distinction is between situations such as a warship’s navigation, where the final
decision maker, the navigator, asks for highly specific information and would ordinarily
receive it (i.e., where the navigator constructs the frame), and the distributed framing of
the financial markets, where the hedge fund trader’s decision making is materially
influenced by the decisions of others (i.e., where the market frame is influenced by
others). This influence can cover both what is the information that the hedge fund trader
should receive, and the timeliness with which he should receive it. Both aspects are
consequential: both have influence on the decision made.
Selectivity in cognition: the framing of decision making
We have argued above that framing is distributed in financial markets, and that
distribution can be seen as consequential when the market actor has an influence on the
market frame within which an investment decision is taken. We now consider how, in the
market considered here, that framing can be seen as significant in political economy
terms. Viewed from the periphery of a market, what can be seen as important is not the
actions of individuals, firms, or networks of conversing participants, but of ‘the market’
as a whole. Consider a government raising money by issuing bonds, as the governments
of all but the world’s poorest countries do. The prices currently commanded by the bonds
that a government has issued in the past influence the terms on which it can sell new
bonds, and thus how much of its budget it is required to devote to the costs of servicing
its debt, a matter that can be a strong constraint on its freedom of action, and a subject of
considerable interest for political economy30. From the government’s viewpoint, ‘the
bond market’ is, at least to a certain extent, an independent actor, at least in part outwith
its control, with ‘views’ that matter. It is thus of some importance to understand the
factors to which participants in the bond market pay attention (and also those they do not
consider salient). In highlighting the role of investment bank traders and salespeople in
influencing hedge fund traders’ decisions as to what information is important (and
therefore what is not), we may also therefore be observing a process that contributes both
to the selection of what information ‘the market’ focuses on in the case of a particular
country, or set of countries31, and also to some part of how contagion is spread32.
Our observation of the hedge fund we studied in most detail provides two examples of
information that is deemed salient. The first is the surprisingly large extent to which the
attention of the hedge fund – which trades emerging-market bonds, and eliminates all
outright US Treasury (and euro) interest rate risk by hedging it (that is, by entering into
offsetting trades) – was actually directed to the US. This was apparent both in our
observations and in interviews. For example, the hedge fund’s ‘strategist’ reckons that
the weight given to international factors – ‘usually the US, really’ – in the fund’s
decisions is around 30-40 percent, with considerations specific to the emerging-market
country in question accounting for around 60-70 percent.
The exact extent and precise mechanisms of the influence of developed-world interest
rates on emerging-market credit spreads remain matters of debate33. It is clear that the
level of interest rates and bond yields in the US influences the overall attractiveness of
emerging market bonds. If domestic investments in the US earn only low yields,
emerging-market bonds (with the additional ‘spreads’ they offer) become more attractive,
and this has indirect as well as direct consequences. Amongst the former can be an
improvement in the perceived credit-worthiness of emerging-market governments. More
attractive bonds mean lowered interest costs and thus improved budget figures for those
governments, and also an increased possibility of their selling bonds with longer
maturities, which has the effect of reducing the risks intrinsic to frequent refinancing. In
contrast, if US yields rise, emerging-market bonds lose some of their attractiveness, and
the above effects can reverse, with perceived government creditworthiness declining and
credit spreads widening. This explains in part why this hedge fund, which hedges US
dollar and euro interest rate movements, leaving the fund’s performance dictated by
movements in credit spreads, focuses so closely on the US market.
It is also, however, worth noting that the reasons why those who trade emerging-market
bonds devote attention to the US arise in part from the way in which the metric of ‘yield’
allows the vast range of bonds issued worldwide quickly and easily to be compared. For
example, the yield of the dollar-denominated bonds issued by the Republic of the
Philippines can be compared with the yield of similar bonds issued by the US Treasury,
and the greater probability of a default by the Philippines is condensed into a ‘credit
spread’ of the yield of its bonds over those of the US. Philippine bonds can then be
compared easily with bonds of different maturities issued by other emerging market
governments such as Brazil or Mexico. The habits of using yields to compare bonds, and
of taking US Treasuries as the benchmark, have become so ‘natural’ to those involved
that a price quotation for an emerging-market bond will often take the form of a spread of
its yield over comparable Treasuries. The valuation of emerging-market bonds as spreads
over US or euro government bonds means that, ceteris paribus, the price of the former
will move in line with movements in the latter.
Such phenomena are, of course, part of the meaning of that most familiar of notions:
‘globalisation’. It is worth noting, however, that in this case globalisation acts in part
through an algorithm. Without the convenient metric of ‘yield’, comparing the bonds
issued by different governments, with all their particularities, would be much harder. The
metric of ‘yield’ helps to construct a global bond market. This is part (if only a small
part) of the process of ‘singularization’34, by which ‘a thing [in this case, a government’s
indebtedness] is transformed into a good to which an economic agent assigns value’35 36.
To reach a decision to complete a trade, the hedge fund trader must be able to compare
between securities. This has important political economy implications. Part of the
connection between emerging market bond yields and US interest rates, particularly in
the short term that is the investment perspective of a hedge fund such as the one we
observed, is the result of the use of US government bonds as the benchmark. The process
of singularisation through which the global market is constructed is partially responsible
for the close attention being paid to the yields of US Treasury bonds. It is therefore the
choices made as a market is constituted that influence the directness of the impact that
US interest rates have on emerging market borrowing costs. Nor should we see as
inevitable the choice made in this case. There are numerous reasons to expect US
government bonds to be the market’s benchmark, but many US dollar bond markets,
especially for corporate bonds, now choose to use inter-bank swap rates as benchmarks.
Although there would be problems with hedging, it might well be argued that a more
appropriate benchmark for an emerging market government bond would be an index of
similar countries, such as one of the JP Morgan emerging market bond indices. Such a
benchmark might limit the short-term impact of movements in US Treasury yields.
We can perhaps best illustrate the importance in political economy terms of this by
considering it within the more general question of the importance of how comparisons
between investments are made in financial markets. A part of the process of framing is
clearly the decision as to with which securities to compare. For Beunza and Stark37, it is
arbitrage that involves ‘[t]he construction of equivalence (comparability) of properties
across different assets’, in contrast to value investing. Hardie38 argues that all financial
investment involves the comparison of alternatives, even if one alternative is ‘keeping the
money in the bank’. This is closer to Callon and Muniesa’s view of any market
transaction: ‘The process of singularization consists of a series of operations resulting in
the calculability of the good. Profiling a product consists in establishing a calculative
space in which it can be connected and compared to a finite list of other products’39.
Nevertheless, what appears clear (though perhaps less so in the hedge fund we studied) is
that hedge funds, thanks to their broader investment mandates and more sophisticated
trading strategies, have increased the potential for equivalence, deliberately constructed
or the result of unexpected market processes, across financial assets. MacKenzie40 shows
one negative consequence of this; the increased connectivity between markets, and
resultant rise in correlation at times of market stress, was behind the collapse of the hedge
fund Long-Term Capital Management. A less malign example of a change in comparison
is demonstrated by Hardie and Mosley41 in the case of investor reaction to Turkey’s
potential accession to the EU. Traditional international investors in Turkey, who compare
Turkish bond yields with other (relatively high-yielding) emerging market government
bonds, were joined by new investors whose alternative investments are much lower-
yielding bonds issued by EU governments or those close to accession. The result is
reduced borrowing costs for the Turkish government. Similarly, Beunza and Garud42
show the importance in terms of market price of frames which compare Amazon.com
either to an internet company such as Dell or a ‘bricks and mortar’ book retailer such as
Barnes & Noble.
Even in a global market, those trading the government bonds of emerging-market
countries of course still monitor developments in those countries. A second issue of
relevance to political economy concerning selectivity in cognition is therefore: of the
vast, indigestible quantity of information available, to what do they pay attention? What
is the appropriate market frame? Space constraints prohibit a full account, but one issue is
of particular interest in regard to the articulation between ‘markets’ and ‘politics’. At one
point in our main hedge fund observations, we noticed its trader carefully reading a news
story about Abdalá Bucaram, the maverick, populist former President of Ecuador, styled
(by himself, as well as by his enemies) el loco, the madman. This story was not one that
arrived via an electronic mail message – the trader selected it himself for attention – and
the second author took the opportunity to ask the hedge fund trader how important a
consideration was the politics of the countries whose bonds he traded. His answer was
succinct and general: ‘The weaker the credit, the more important the politics’. The higher
the probability of a government defaulting on its bonds, the more salient to the trader is
information on that country’s politics. That el loco might return to Ecuador from his
exile in Panama was news that from the professional viewpoint of a hedge fund trader
was salient. The credit of Ecuador, said the trader, ‘is one of the weakest there is’. In
such a case, ‘[o]ne or two guys can change the way things are’.
A single trader spending a few minutes reading a news story is of course a weak datum
on which to build an analysis, but in this respect our observations are consistent with the
extensive interview and questionnaire-based study of the bond market by Mosley43. A
key divide in that market is between governments that are reckoned reasonably likely to
default on their bonds, and those whose bond default is regarded as effectively
inconceivable. Ecuador is in the former camp. The UK and US are in the latter camp.
Mosley’s data suggest that information about ‘politics’ is monitored by the bond market
in ways that differ according to the perceived probability of default. If a country’s
default is regarded as extremely unlikely, a change of its government is in itself generally
viewed with equanimity44. In contrast, as one interviewee told her, in words similar to
those of the trader quoted above: ‘Politics is huge for emerging markets’45. Active,
sophisticated investors in US government bonds scrutinise government deficits and
inflation, and often devote considerable effort to predicting the Federal Reserve’s
interest-rate decisions. Sophisticated investors in Ecuadorean bonds similarly scrutinise
deficits, inflation, and the actions of the Banco Central del Ecuador, but they also monitor
reports of the movements of el loco. Mosley would see this as an example of the wider
breadth of investor interest, and therefore influence, in emerging markets. It could also be
usefully seen as an example of the wider market frame employed with these weaker
Framing is not only a necessary precondition of any market transaction. It is also a
significant output of the market. We would suggest, therefore, that when we consider
financial markets as ‘calculative collective devices’46, equal focus should be given to the
frame that the market constructs, not only the price that results from the market
transactions made possible by that framing. For an emerging market government, the
bond market’s politically significant outputs are the price at which that government might
borrow, but also the reasons that have an influence on that price. Is the level of the
government’s budget deficit within or outwith the particular frame? Is the inflation rate in
the United States? The concluding question then, and a subject for further research, is
how consensus is reached as to the applicable frame in each situation (or, in the market
discussed here, each country). The question is also addressed by Beunza and Garud47 as
the ‘framing controversies’ among analysts over the valuation of Amazon.com. The
behavioural finance and neo-institutional sociology literatures, by suggesting a tendency
to imitation and herding48, support the notion of a consensual frame as a result of either
behavioural tendencies to imitate or institutional pressures to conform. Beunza and
Garud, however, demonstrate that such controversies, at least amongst securities analysts,
are both likely and consequential. They see the explanation for the resolution of framing
controversies as lying in ‘asynchronous confrontation’49, built on the notion of ‘trials of
strength’50. In other words, as actor-network theory suggests ‘[c]ontestation and fallibility
We agree, but wish to look more closely at the audience which decides the result of these
trials of strength, the investors who bought and sold Amazon.com stock and voted for
their favourite analyst in Institutional Investor polls. In the financial markets, a frame is
validated by the appropriate performance of the security it refers to52. Just as
professionals involved in supermarket sales are always trying to take account of ‘the
reactions of the consumer’53, so financial market investors and traders seek to invest in
anticipation of other investors doing the same. Part of this process involves understanding
the information to which other market actors pay attention. They seek to forecast the
future market frame, and in doing so they validate one of the competing frames (which
could, of course, be their own). Furthermore, although ‘fallibility’ clearly does matter,
there is often no certainty as to fallibility54. Because the movement in market prices is the
primary concern, it is to those investors with ‘market power’55, and therefore their
framing, that market actors pay most attention. The manager quoted above wants to
prioritise dealing with those investors whose actions can ‘move market prices’. The
salesman prioritises those clients who will trade the most. Increasingly, therefore, in the
iterative process that will ultimately set the (temporarily prevailing) market frame, the
framing that will dominate will be that of hedge funds, whose borrowing makes them
larger investors, and whose shorter-term trading strategy makes them create more
business for the investment banks.
If this conjecture is correct, it suggests an agenda for research. We need to understand far
more than we do about hedge funds, a category of actor in financial markets that has to
far been little studied within international political economy or, for example, economic
sociology. How do hedge funds differ from more traditional actors in terms of strategies,
performance benchmarks, relations to their investors and the like? Is the stereotype of
them as being ‘hot money’, ready to flee a market at the first sign of things going wrong,
correct? If so, what are the likely effects? What are the characteristics of the networks of
information flows in which hedge funds are embedded? What framings circulate in those
networks? Which are accepted and which rejected, and why? And, above all, what are the
consequences for the world in which we all live?
Stephen Schurr, ‘2006 Global Hedge Fund Top $1,500 bn’, Financial Times, 27 March 2006, p.23.
Patrick Jenkins& Richard Milne, ‘Hedge Funds hold a quarter of Germany’s Blue-Chips’, Financial
Times, 2 September 2005, p.17.
Anonymous, ‘Case for a Closer Look at Hedge Funds’, Financial Times, 12 May 2005, p.18.
Anonymous, ‘The Vision Thing [Lex Column]’, Financial Times, 20 April 2005, p.18.
See Iain Hardie & Donald MacKenzie. ‘Making Up an Economic Actor: A Hedge Fund and its
Agencement’ Sociological Review (2007), forthcoming, for further details of what we found.
Edwin Hutchins, Cognition in the Wild (MIT Press, 1995); Edwin Hutchins, ‘How a Cockpit
Remembers Its Speeds’. Cognitive Science Vol.19 (1995), pp.265-88.
Erving Goffman, Frame Analysis: An Essay on the Organisation of Experience (Harper & Row,
1974); Daniel Beunza& Raghu Garud, Securities Analysts as Frame-Makers (2005),
http://www.econ.upf.es/docs/papers/downloads/733.pdf, (accessed 30 October 2006).
Beunza & Garud, ‘Frame Analysis: An Essay on the Organisation of Experience’.
In many markets, the key intermediaries are inter-dealer brokers who typically keep a dedicated
telephone line open permanently to each of the dealers with whom they do business, so that
communication is not slowed by the delays of ordinary telephony. A ‘voice box’ is the microphone and
loudspeaker equipment at each end of this dedicated line.
Sylvia Maxfield, Gatekeepers of Growth (Princeton University Press, 1997); Benjamin Cohen, The
Geography of Money (Cornell University Press, 1998); Layna Mosley, Global Capital and National
Governments (Cambridge University Press, 2003).
Herbert Simon ‘A Behavioral Model of Rational Choice’, Quarterly Journal of Economics Vol. 69
(1955), pp. 99-118; Mitchel Y. Abolafia, Making Markets: Opportunism and Restraint on Wall Street
(Harvard University Press, 1996); Daniel Beunza & David Stark, ‘Tools of the trade: The socio-
technology of arbitrage in a Wall Street trading room’, Industrial and Corporate Change,Vol.13, No.2
Hardie & MacKenzie, ‘Making Up an Economic Actor’.
Ibid. for examples.
Hutchins, Cognition in the Wild.
See, for example, Saskia Scholtes, ‘Hedge funds to use high-tech filter to harvest market gossip’,
Financial Times, 21 September 2006, p.1.
We set out here a somewhat idealised example of market structure we observed and as described by
interviewees. In the hedge fund observation, the trader was himself a former investment banker trader
and he communicated directly with former colleagues who were themselves still investment bank
Salesperson interview 12 May 2006.
We do not focus here on, but nevertheless recognise, the role of the equipment involved in framing
Indeed the actions of the US authorities against a number of analysts and investment banks in the
aftermath of the dotcom bubble are intended to remove any influence on research analysts by their
Salesperson interview 12 May 2006.
Interviewed 17 October 2005.
Foreign currency debt issued by the Turkish government.
Sales credits are notional amounts of money credited to a salesperson for a trade. The more profitable
a trade is for the investment bank, the higher the sales credit should be. They, or something very
similar, are usually part of the way to measure the value of a salesperson’s turnover.
Turkish lira denominated debt issued by the Turkish government.
Investment bank trader interviewed 22 June 2005.
Note also the implied competition between, and therefore differing interests of, the various traders
here, as they compete for a salesperson’s attention.
Salesperson interview 12 May 2006.
See, for example, Maxfield, Gatekeepers of Growth; Cohen, The Geography of Money; Mosley,
Global Capital and National Governments.
Mosley, Global Capital and National Governments.
For a very different approach that sees investment banks as possible ‘carriers’ of contagion, see
Guillermo A. Calvo, Contagion in Emerging Markets: when Wall Street is a carrier (2 May1999),
http://www.bsos.umd.edu/econ/ciecrp8.pdf (accessed 20 November 2006).
For discussions on the relative influence of endogenous and exogenous factors on emerging market
bond spreads, see for example Stefano Manzocchi, ‘Capital Flows to Developing Economies
throughout the Twentieth Century’, in Leslie Elliott Armijo (ed.), Financial Globalization and
Democracy in Emerging Markets, (Palgrave, 2001), pp.51-73; Sylia Maxfield, ‘Understanding the
Political Implications of Financial Internationalization in Emerging Market Countries’, World
Development Vol.26 No.7 (1998), pp.1201-1219; G.A.Calvo, L. Liederman & C.M. Reinhart ‘Inflows
of capital to developing countries in the 1990s’, Journal of Economic Perspectives Vol.10 (1996)
pp.123-39; Barry Eichengreen & Ashoka Mody, ‘What Explains Changing Spreads on Emerging
Market Debt?’, S. Edwards (ed.) , Capital Flows and the Emerging Economies, (Chicago University
Press, 2000), pp.107-134; Eduardo Fernández-Arias & Roberto Rigobobón, ‘Financial Contagion in
Emerging Markets’, in Eduardo Fernández-Arias and Ricardo Hausmann (eds.), Wanted. World
Financial Stability, (Inter-American Development Bank, 2000), pp.33-47.
Michel Callon, ‘Why Virtualism paves the way to Political Impotence: A Reply to Daniel Miller's
Critique of The Laws of the Markets’, Economic Sociology: European Electronic Newsletter Vol.6
No.2 (February 2005), pp.3-20, p.7; Michel Callon & Fabian Muniesa, ‘Economic Markets as
Calculative Collective Devices’, Organization Studies Vol.26 No.8 (2005), pp.1229-1250, pp.1233-4.
Callon & Muniesa, ‘Economic Markets as Calculative Devices’, p.1233.
Another example of a politically salient aspect of the process of singularisation is the decision as to
the legal jurisdiction under which a bond would be documented. The choice of a jurisdiction other than
that of the borrowing country is the most obviously important, but the choice, for example, between
New York and English law also has implications for the ease with which an issuer can change bond
documentation (International Monetary Fund, Collective Action Clauses in Sovereign Bond Contracts
– Encouraging Greater Use, [6 June 2002], p.2. www.imf.org/external/np/psi/2002/eng/060602a.pdf,
Beunza & Stark, ‘’Tools of the Trade’, p.2
Iain Hardie, ‘The sociology of arbitrage’: a comment on Mackenzie’, Economy and Society, Vol. 33
No.2 (2004), pp.239-54.
Callon & Muniesa, ‘Economic Markets as Calculative Devices’, p.1235.
Donald MacKenzie, ‘Long-Term Capital Management and the sociology of arbitrage’, Economy and
Society, Vol.32 No.2 (2003), pp.349-80, p.364.
Iain Hardie & Layna Mosley, Turkey’s Convergence Tale: Market Pressures, Membership
Conditionality, and EU Accession (Unpublished, 2006).
Beunza & Garud, ‘Frame Analysis: An Essay on the Organisation of Experience’.
Mosley, Global Capital and National Governments.
Only 58% of Mosley’s interviewees mentioned elections in such countries as a factor they took into
account, and of those who mentioned them almost nine-tenths said they were not an important factor:
Mosley, Global Capital and National Governments, table 3.1, p. 56.
Mosley, Global Capital and National Governments, p.129
Callon & Muniesa, ‘Economic Markets as Calculative Devices’.
Beunza & Garud, ‘Frame Analysis: An Essay on the Organisation of Experience’.
See Ibid., pp.8-10 for both summary and critique.
Bruno Latour, Science in Action: How to follow scientists and engineers through society, (Harvard
University Press, 1987).
Beunza & Garud, ‘Frame Analysis: An Essay on the Organisation of Experience’, p.33.
This is not to disagree with Beunza and Garud’s (Ibid., p.9) assertion that ‘[a]nalysis is more than
forecasting’. They demonstrate this, but it is certainly true that the performance of the Amazon share
price signalled which analyst’s frame prevailed.
Callon & Muniesa, ‘Economic Markets as Calculative Devices’, p.1233.
In Beunza and Garud’s example, the framing controversy between Blodget’s view of Amazon as an
internet company and Cohen’s of Amazon as a book retailer was resolved (with Blodget getting
Cohen’s job) not because one view was proved by events to be more credible, but because the stock
price performance appeared to validate Blodget’s frame.
By market power, we mean not simply ‘calculative power’ (Callon & Muniesa, ‘Economic Markets
as Calculative Devices’) in a narrow sense, as many market actors can be seen as having similar
calculative power under a narrow definition, but more the ability, which would be suggested by a broad
definition of calculative power, to move market prices as a result of their investment decisions.