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Article
Publication date: 4 October 2011

George Bragues

The aim of this paper is to explore the lessons offered by the financial crisis about the appropriate epistemological approaches to apply in the study of human affairs in…

1072

Abstract

Purpose

The aim of this paper is to explore the lessons offered by the financial crisis about the appropriate epistemological approaches to apply in the study of human affairs in general, and of the financial markets in particular.

Design/methodology/approach

The paper applies a qualitative and historical approach invoking debates in the philosophy of social science to dominant themes and concepts in modern quantitative finance. It is argued that underlying the theory and practice of modern quantitative finance is a commitment to an empiricist epistemology modeled on the natural sciences.

Findings

In the financial crisis, modern social science, with its positivist/quantitative orientation, was put to the test in a way that it had never been before. That it failed this test is one of the chief lessons of the financial crisis. Mathematical techniques are inherently incapable of accounting for human behaviour. The crisis serves to underline that a fundamental divide exists between the natural and human realms.

Practical implications

While the mathematical‐positivist techniques continue to hold some promise in the study of finance, it has become obvious that this dominant approach needs be enhanced by more qualitative techniques.

Originality/value

The paper shows that although in popular media outlets the mathematization of finance has been singled out as a cause of the crisis, the broader implications for the analysis of human activity have not yet been probed. Nor, in the wake of the crisis, has there been a systematic, philosophically informed, critique of the positivist‐quantitative orientation buttressing academic research into the financial markets.

Details

Qualitative Research in Financial Markets, vol. 3 no. 3
Type: Research Article
ISSN: 1755-4179

Keywords

Book part
Publication date: 28 April 2016

George Bragues

Austrian Business Cycle theory (ABCT) has lately drawn increased attention as a result of its ability to explain the US financial crisis of 2007–2009. However, its…

Abstract

Austrian Business Cycle theory (ABCT) has lately drawn increased attention as a result of its ability to explain the US financial crisis of 2007–2009. However, its explanatory power is questioned by the Canadian experience of the crisis, where a similarly loose monetary policy to the United States did not give rise to a similarly calamitous outcome. Accounting for this difference points to the necessity of elaborating the political element already contained in ABCT. This task of political science is most fruitfully done by focusing on the regime, that is, the distribution of the state’s offices and powers. These shape the incentives and ideals that move political action toward the financial sector. Though both Canada and the United States have democratic regimes, their origins and historical development have caused these to vary in significant ways. These variances largely clarify why the negative consequences of easy money predicted by ABCT were less pronounced in Canada than the United States.

Details

Studies in Austrian Macroeconomics
Type: Book
ISBN: 978-1-78635-274-3

Keywords

Book part
Publication date: 28 April 2016

Steven Horwitz

This introduction summarizes each of the papers in Studies in Austrian Macroeconomics. It begins with a brief overview of the core ideas and development of modern Austrian…

Abstract

This introduction summarizes each of the papers in Studies in Austrian Macroeconomics. It begins with a brief overview of the core ideas and development of modern Austrian macroeconomics, focusing on its theory of the business cycle. The papers are then discussed by parts, starting with the papers on Austrian monetary and business cycle theory, followed by those addressing the relationship between the US and Canadian economic performance, and concluding with the three papers on the political economy of regulation and crisis.

Details

Studies in Austrian Macroeconomics
Type: Book
ISBN: 978-1-78635-274-3

Keywords

Book part
Publication date: 17 October 2014

George Bragues

It has often been alleged that the financial markets, with all their speculative excesses, wastefully absorb resources that could be better employed in the real economy…

Abstract

It has often been alleged that the financial markets, with all their speculative excesses, wastefully absorb resources that could be better employed in the real economy. Fritz Machlup, originally a student of Ludwig von Mises, dealt with that charge in the aftermath of the 1929 crash. His defense of the stock market remains germane to our time. In it, he argues that the stock exchange offers an important alternative mechanism of allocating savings to investment, while generally being a way station through which money travels on its way to the real economy either to finance capital projects or to be spent on consumer goods. To the extent the stock market ever absorbs capital, it is only during stock market booms. Yet these are generated by the uncertain course of central bank monetary expansion. Bull and bear markets cycles are, at bottom, politically driven events.

Details

Entangled Political Economy
Type: Book
ISBN: 978-1-78441-102-2

Keywords

Content available
Book part
Publication date: 28 April 2016

Abstract

Details

Studies in Austrian Macroeconomics
Type: Book
ISBN: 978-1-78635-274-3

Content available
Book part
Publication date: 17 October 2014

Abstract

Details

Entangled Political Economy
Type: Book
ISBN: 978-1-78441-102-2

Book part
Publication date: 28 April 2016

Abstract

Details

Studies in Austrian Macroeconomics
Type: Book
ISBN: 978-1-78635-274-3

Content available
Article
Publication date: 4 October 2011

Bruce Burton

337

Abstract

Details

Qualitative Research in Financial Markets, vol. 3 no. 3
Type: Research Article
ISSN: 1755-4179

Abstract

Details

Entangled Political Economy
Type: Book
ISBN: 978-1-78441-102-2

Article
Publication date: 10 April 2009

David Weitzner and James Darroch

This paper aims to explore the linkages between greed and governance failures in both financial institutions and financial markets.

2508

Abstract

Purpose

This paper aims to explore the linkages between greed and governance failures in both financial institutions and financial markets.

Design/methodology/approach

The paper described how innovation changed the US financial system through an analysis of recent events, and employs the philosophic concepts of hubris and greed to explain certain developments.

Findings

The development of the shadow banking system and opaque products was motivated in part by greed. These developments made governance at both the institutional and market levels extremely difficult, if not impossible. In part the findings are limited by the current opacity of the markets and the dynamics of events.

Practical implications

The implication of the research is to reinforce the need for transparency if the risk of innovation in the financial system is to be both identified and managed. The creation of central clearing houses and/or exchanges for new products is clearly indicated.

Originality/value

Understanding the linkages between greed, hubris and governance in the development of opaque products provides insights of value to those trying to understand the current crisis – from academics to practitioners.

Details

Critical perspectives on international business, vol. 5 no. 1/2
Type: Research Article
ISSN: 1742-2043

Keywords

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