scholarly journals The Trouble with Minding Markets: Emotional Finance in Context

2021 ◽  
Author(s):  
D’Maris Coffman
Keyword(s):  
Financial Crisis ◽  
Financial Markets ◽  
Behavioral Finance ◽  
Methodological Approach ◽  
Emotional Responses ◽  
Psychoanalytic Theory ◽  
Empirical Validation ◽  
Financial Bubbles ◽  
Academic Literature

The term ‘Emotional Finance’ normally denotes a methodological approach advocated by Richard Taffler and David Tuckett, which they intended as a challenge both to Behavioral Finance and to mainstream finance and economics. In the wake of the Great Financial Crisis, Emotional Finance received a warm reception from regulators, the financial press, and the CFA Institute. Nearly a decade on, their ideas have largely failed to achieve traction in the academic literature, and continue to struggle to find empirical validation. Their approach is essentially an application of Kleinian psychoanalysis to financial markets, albeit without the terminological rigor that psychoanalytic practitioners might expect. Because their approach is inherently interdisciplinary, it has rarely been subject to scrutiny, as few psychoanalytic commentators feel qualified to comment on financial markets, and fewer finance academics feel comfortable commenting on the psychoanalytic theory. This chapter characterizes the main theoretical claims of Emotional Finance, and subjects each of them to scrutiny, finding them largely untenable. Although financial bubbles are commonplace and emotional responses to markets unremarkable, the subsidiary arguments advanced by advocates of Emotional Finance to support their primary claims are found wanting. The interpretative strategy of Emotional Finance is fundamentally flawed. Although it is fruitful to analyze the role of emotions in financial markets, more precise, rigorous and realistic approaches to these problems are needed.

The Psychology of Speculation in the Financial Markets

2017 ◽  
Author(s):  
Victor Ricciardi
Keyword(s):  
Financial Crisis ◽  
Financial Markets ◽  
Behavioral Finance ◽  
Group Behavior ◽  
Status Quo ◽  
Status Quo Bias ◽  
Long Term Effects ◽  
The Impact

This chapter discusses the role of speculation in the financial markets that influences individual and group behavior in the form of bubbles and crashes. The chapter highlights behavioral finance issues associated with bubbles, such as overconfidence, herding, group polarization, groupthink effect, representativeness bias, familiarity issues, grandiosity, excitement, and the overreaction and underreaction to prices. These issues are important for understanding past financial mistakes because history often repeat itself. The chapter also examines the aftermath of the financial crisis of 2007–2008 on investor psychology, including the impact of a severe financial downturn, anchoring effect, recency bias, worry, loss averse behavior, status quo bias, and trust. The aftermath of the financial crisis might have negative long-term effects on investor psychology in which some investors remain overly risk averse, resulting in under-investment in stocks and over-investment in cash and bonds.

Transparency Regulation in Financial Markets – Moving into the Surveillance Age?

2011 ◽  
Vol 2 (3) ◽  
pp. 305-321
Author(s):  
Iris H-Y Chiu
Keyword(s):  
Financial Crisis ◽  
Financial Markets ◽  
Financial Regulation ◽  
Global Financial Crisis ◽  
Financial Sector ◽  
Regulatory Control ◽  
Legal Reforms ◽  
The Global Financial Crisis ◽  
Risk Oversight

In the wake of the global financial crisis, the trajectory of legal reforms is likely to turn towards more transparency regulation. This article argues that transparency regulation will take on a new role of surveillance as intelligence and data mining expand in the wholesale financial sector, supporting the creation of designated systemic risk oversight regulators.The role of market discipline, which has been acknowledged to be weak leading up to the financial crisis, is likely to be eclipsed by a more technocratic governance in the financial sector. In this article, however, concerns are raised about the expansion of technocratic surveillance and whether financial sector participants would internalise the discipline of regulatory control. Certain endemic features of the financial sector will pose challenges for financial regulation even in the surveillance age.

AN INTERVIEW WITH ROBERT J. SHILLER

2004 ◽  
Vol 8 (5) ◽  
pp. 649-683 ◽  
Author(s):  
John Y. Campbell
Keyword(s):  
Financial Markets ◽  
Behavioral Finance ◽  
Risk Sharing ◽  
Asset Price ◽  
Human Condition ◽  
Journal Articles ◽  
Popular Book ◽  
Full Page ◽  
Thesis Adviser

A recent article in The Economist magazine divided economists into “poets” and “plumbers,” the former articulating radical new visions of the field and the latter patiently installing the infrastructure needed to implement those visions. Bob Shiller is the rare economist who is both poet and plumber. Not only that, he is also entrepreneur and pundit. His work has fundamentally changed the theory, econometrics, practice, and popular understanding of finance.Starting in the late 1970's, Bob boldly challenged the prevailing orthodoxy of financial economics. He showed that financial asset prices often deviate substantially from the levels predicted by simple efficient-markets models, and he developed new empirical methods to measure these price deviations. In the early 1980's, Bob went on to argue that economists need a much more detailed understanding of investor psychology if they are to understand asset price movements. He pioneered the emerging field of behavioral economics and its most successful branch, behavioral finance. At the end of the century, Bob articulated his vision of finance in a wildly successful popular book,Irrational Exuberance. He became so well known that TIAA-CREF asked him to appear in a series of full-page advertisements in the popular press.Although Bob does not believe that investors use financial markets in a perfectly rational manner, he does believe that these markets offer great possibilities to improve the human condition. His recent work asks how existing financial markets can be used, and new financial markets can be designed, to improve the sharing of risks across groups of people in different regions, countries, and occupations. He has explored risk-sharing possibilities not only in journal articles, but also in business ventures and a 2003 book,The New Financial Order: Risk in the 21st Century.It was a great privilege for me to interview Bob Shiller. Bob's arrival at Yale when I was a Ph.D. student there set the course of my career as an economist. Bob reinvigorated the Yale tradition of macroeconomics, with its emphasis on the central role of financial markets in the macroeconomy and its idealism about the possibility of improving macroeconomic outcomes. First as a thesis adviser, then as a coauthor, mentor, and friend, Bob showed me how to contribute to this tradition.The interview took place at the 2003 annual meetings of the Allied Social Science Associations in Washington, D.C. We met in a hotel suite, ate a room service meal, and had the enjoyable conversation that is reproduced below.

scholarly journals Bank power and public policy since the financial crisis

2020 ◽  
Vol 22 (1) ◽  
pp. 1-24 ◽  
Author(s):  
Huw Macartney ◽  
David Howarth ◽  
Scott James
Keyword(s):  
Financial Crisis ◽  
Policy Outcomes ◽  
Regulatory Capture ◽  
Undue Influence ◽  
Academic Literature ◽  
International Financial Crisis ◽  
The Media ◽  
The 2008 Financial Crisis ◽  
Financial Power

AbstractDespite much commentary in the media and the popular assumption that the banking industry exerts undue influence on government policy-making, the academic literature on the role of the banks since the 2008 financial crisis remains theoretically and empirically under-specified. In particular, we argue that different forms of financial power are often conflated, while favorable policy outcomes are too-readily assumed to be evidence of regulatory capture. In short, we still know relatively little about how bank influence varies over time and in different national contexts, the extent to which banking interests are unified or divided, and the conditions under which banks are capable of producing meaningful variation in policy outcomes. This article has three objectives: 1) to explain why the debate on bank influence matters; 2) to examine the evidence of bank influence since the international financial crisis; and 3) to set out a range of conceptual tools for thinking about bank power.

scholarly journals Main lessons for finance of the 2007-2009 crisis

2010 ◽  
Vol 7 (4) ◽  
pp. 62-65
Author(s):  
Tom Berglund
Keyword(s):  
Financial Crisis ◽  
Economic Analysis ◽  
Financial Markets ◽  
Information Asymmetry ◽  
Asset Values ◽  
The Future ◽  
Role Of Information

This paper discusses issues that should receive an increased weight in how finance is being taught in the future, based on the experiences of the financial crisis of 2007-2009. The three specific lessons are: the role of basic economic analysis in understanding the foundations of asset values, the shortcomings of diversification as a method to reduce risks, and the increased role of information asymmetry in crisis stricken financial markets.

Global Financial Crisis: Exploring the Special Role of U.S. Banks and Regulations

2016 ◽  
Vol 4 (1) ◽  
Author(s):  
Nabila Nisha
Keyword(s):  
Financial Crisis ◽  
Financial Markets ◽  
Banking Sector ◽  
Global Financial Crisis ◽  
Special Role ◽  
Subprime Lending ◽  
International Banking ◽  
The Government ◽  
The Global Financial Crisis

Financial markets have suffered the greatest dislocation following the truly seismic significance of the global financial crisis. Regulators argue that the banking sector played a particularly special role in triggering the causes of the subprime debacle, thereby leading to the occurrence of the global financial crisis. Banks previously functioned as only a financial intermediary, but certain developments in the international banking sector like deregulation, technological progress, consolidation and competition, securitisation and financial innovation, resulted in banks being involved in subprime lending activities and hence, a reason behind the financial turmoil. The aim of this paper is to scrutinise the special role of banks in the global financial crisis and to stress on the need for increased regulation and their implications on the banking sector. The current study will thus contribute to the examination of the salient features of the global financial crisis and provide regulatory suggestions for the banking sector and the government as a whole.

Theory of Behavioral Finance

2015 ◽  
pp. 1-24 ◽  
Author(s):  
Jaya M. Prosad ◽  
Sujata Kapoor ◽  
Jhumur Sengupta
Keyword(s):  
Financial Markets ◽  
Prospect Theory ◽  
Behavioral Finance ◽  
Individual Investors ◽  
Market Conditions ◽  
Market Anomalies ◽  
Behavioral Theories ◽  
Portfolio Managers ◽  
Academic Events

This chapter explores the evolution of modern behavioral finance theories from the traditional framework. It focuses on three main issues. First, it analyzes the importance of standard finance theories and the situations where they become insufficient i.e. market anomalies. Second, it signifies the role of behavioral finance in narrowing down the gaps between traditional finance theories and actual market conditions. This involves the substitution of standard finance theories with more realistic behavioral theories like the prospect theory (Kahneman & Tversky, 1979). In the end, it provides a synthesis of academic events that substantiate the presence of behavioral biases, their underlying psychology and their impact on financial markets. This chapter also highlights the implications of behavior biases on financial practitioners like market experts, portfolio managers and individual investors. The chapter concludes with providing the limitations and future scope of research in behavioral finance.

Great Northern Iron Ore Properties

2015 ◽  
pp. 1-9
Author(s):  
Jacob Joshy ◽  
Jayanth R. Varma
Keyword(s):  
Financial Markets ◽  
Behavioral Finance ◽  
Iron Ore ◽  
Limits To Arbitrage

The case presents a context of irrational pricing in a stock and demonstrates the possible role of investor heuristics operating in the financial markets. The case is ideal in a course on behavioral finance to teach topics like the limits to arbitrage or the influence of various heuristics in financial markets.

Part IX Legal and Conduct Risk Management, 30 Lawyers’ Responsibility for the Management of Legal and Conduct Risk

2018 ◽  
Author(s):  
Mccormick Roger ◽  
Stears Chris
Keyword(s):  
Risk Management ◽  
Financial Crisis ◽  
Financial Markets ◽  
Financial Institutions ◽  
Regulatory Regime ◽  
Legal Risk ◽  
Management Techniques ◽  
Recent Financial Crisis

The importance of managing legal risk effectively has increased following the recent financial crisis. As the modern regulatory regime for financial markets (global and domestic) continues to evolve, legal risk management techniques must evolve with it. The pressure to attach more importance to ethics and culture within financial institutions will also have an effect on how lawyers do their job. Rightly or wrongly, the responsibility for checking that proper governance principles are observed is bound to fall on their shoulders to some extent. This chapter discusses the role of lawyers and the legal department in legal risk management, opinions and similar documents, document retention, and clarity of lawyer roles.

scholarly journals The Role of Corporate Culture in Maintaining Organizational Operations during the Global Financial Crisis

2013 ◽  
Vol 4 (3) ◽  
pp. 141-146 ◽  
Author(s):  
Hala Abdulqader Sabri
Keyword(s):  
Financial Crisis ◽  
Financial Markets ◽  
Corporate Culture ◽  
Global Financial Crisis ◽  
Leadership And Management ◽  
Flexible Organizations ◽  
Quality Of Products ◽  
The Global Financial Crisis

The global financial crisis that unfolded in 2008 presents leaders and managers with many challenges. Yet, the lessons of this crisis also present opportunities to create more responsive and flexible organizations capable of overcoming the risks and troubles more effectively. However, in the midst of this crisis it is apparent that most of the attention seems to be devoted to changing regulatory structures and rules that affect corporate governance and the financial markets. This paper argues that the root causes of such crisis are deep and unlikely to be addressed through public policy or external means alone. Most of the problems during this financial crisis can be traced to that most CEOs and executives did not actually pay attention to their company's culture as they did with regard to their profits, assets, brands, and quality of products and services. The paper then explores the vulnerability of firms whose executives fail to manage their company's culture at the time of crisis with as much thoroughness as they apply to managing their financial, operational or technology risks. Finally, the paper lays out a leadership and management strategy based on the strengths of maintaining a strong corporate culture guided by adherence to the core values of the organization.

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