06 November 2025
In an era of rapid change, interconnectedness and rising uncertainty, traditional financial‑models based on rational‑agents and normal‑distributions are increasingly showing their limits. The October 2025 report by Genevieve Hayman, PhD and Raymond Ka‑Kay Pang, PhD — Reframing Financial Markets as Complex Systems: Tools for Systemic Risk Analysis, Portfolio Management, and System‑Level Investing — calls for a paradigm shift. 
What the report covers
The authors argue that financial markets should be viewed as complex adaptive systems – dynamic networks of heterogeneous agents whose individual behaviours interact in non‑linear ways to create emergent patterns such as bubbles, crashes, regime shifts and persistent volatility. 
From that foundation, they introduce two leading tool‑sets:
- Agent‑based modelling (ABM): simulations of many interacting “agents” (investors, institutions, algorithms) whose collective behaviour can produce surprising system‑level outcomes. 
- Network theory & graph models: maps of interconnections (e.g., among banks, assets, markets) that help trace the propagation of shocks and contagion across the system. 
One illustrative case‑study explores network asset allocation across sovereign bond markets, showing how central nodes and hidden linkages may drive risk we would otherwise overlook. 
Why this matters for CFA Society Italy members
For Italian investment professionals – whether in portfolio management, risk control, advisory or asset allocation – the systems‑thinking approach is highly relevant:
- Capturing tail & interconnected risk: in markets where Italy and the Eurozone are deeply embedded in global chains, shocks elsewhere (e.g., banking stress, energy disruptions) can propagate quickly. A systems lens helps map those linkages and identify weak spots.
- Beyond single‑asset view: traditional models evaluate each asset in isolation; complexity models emphasise interconnectedness. For multi‑asset policymakers or allocators, adopting a network perspective may sharpen portfolio resilience.
- Scenario planning & adaptive strategy: agent‑based models enable “what‑if” experiments (e.g., how would a sovereign stress event ripple through Italian pension funds or asset managers?). That supports strategic responses rather than reactive moves.
- Governance and systemic oversight: for professionals advising institutional investors or pension funds in Italy, understanding system‑level risks supports stronger governance frameworks and better alignment with best practices.
- Skillset evolution: the report underscores that investment professionals may need to develop fluency not just in returns and risk, but in modelling frameworks, simulation techniques and structural thinking. This aligns well with the evolving skill‑sets emphasised in the CFA community.
Key insights to take away
Among the many insights, a few stand out:
- Markets are not static equilibria: they evolve, with feedback loops, regime changes and emergent properties – meaning strategies built on “normal times” may under‑prepare for structural shifts.
- Traditional risk models (e.g., mean‑variance, CAPM) capture only a subset of risk; complexity models attempt to account for interconnectedness, non‑linearity and agent adaptation.
- Portfolio construction should integrate system‑level thinking: for example, assets may appear uncorrelated in stable times but become highly connected in stressed states.
- Tools matter, but mindset matters more: the shift is as much about thinking in systems, interconnections and emergent behaviour as it is about deploying new algorithms.
Conclusion
For CFA Society Italy members, this report signals more than an academic exercise – it points to a strategic upgrade in how investment firms, advisors and risk professionals conceptualise markets. As Italy’s investment community navigates global uncertainty, a systems‑based approach offers a way to sharpen insight, enhance resilience and better serve clients in a world increasingly defined by complexity.
Embracing these ideas may require time and investment, but the payoff is clear: professionals who think not just in asset classes but in networks, not just risk in isolation but risk in the system – will be better equipped for the next cycle of market surprises.