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Book part

Anna Rubtsova, Rich DeJordy, Mary Ann Glynn and Mayer Zald

In this article, we consider the evolution of the US stock market from the 1770s through the early 20th century. Adopting an institutional lens, we conceive of the stock

Abstract

In this article, we consider the evolution of the US stock market from the 1770s through the early 20th century. Adopting an institutional lens, we conceive of the stock market as an institutional field constituted by socially constructed cultural logics and myths. We focus on the role of the US government as an actor embedded in the stock market field and sharing in the prevailing field logics. Tracking the dominant logics of the stock market field at different historical periods, we examine how these logics impacted government regulatory action upon the stock market, and how those government regulations affected the subsequent logics of the stock market field. Our research included both quantitative content analysis of articles in historical newspapers and qualitative historical analysis of multiple primary and secondary accounts of stock market problems and solutions across more than 150 years. We document how government regulatory action both reflects and shapes the logics of the stock market field.

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Markets on Trial: The Economic Sociology of the U.S. Financial Crisis: Part B
Type: Book
ISBN: 978-0-85724-208-2

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Article

John H. Huston and Roger W. Spencer

The purpose of this paper is to develop a single variable indicative of the state of market speculation; to determine whether the Federal Reserve has attempted to quell…

Abstract

Purpose

The purpose of this paper is to develop a single variable indicative of the state of market speculation; to determine whether the Federal Reserve has attempted to quell speculation when it has been most rampant and whether such attempts were successful.

Design/methodology/approach

The paper examine the literature on market “bubbles” and the Federal Reserve's treatment of them; to determine a single variable reflective of market speculation via principle components integration; to examine the Federal Reserve's interaction with market speculation by estimating a vector autoregression version of the Taylor rule.

Findings

It is possible to construct a single variable representative of market speculation, termed the index of speculative excess that correlates well with standard views of market excess; the Federal Reserve did attempt to retard market speculation during the three major bull markets of the past century; monetary policy did little to inhibit market speculation.

Originality/value

Highly original in the construction of a single variable reflective of market speculation; joins the ongoing debate as to the extent of Federal Reserve concern with speculative activity and the Fed's poor record of accomplishment in this area.

Details

Studies in Economics and Finance, vol. 26 no. 1
Type: Research Article
ISSN: 1086-7376

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Article

Md. Mahmudul Alam, Chowdhury Shahed Akbar, Shawon Muhammad Shahriar and Mohammad Monzur Elahi

Because of chronic financial crises experienced during past several decades repeatedly and a failure to protect investors’ rights as a result, the world is looking for an…

Abstract

Purpose

Because of chronic financial crises experienced during past several decades repeatedly and a failure to protect investors’ rights as a result, the world is looking for an alternative form of stock market for quite some time so that interests of all relevant stakeholders can be safeguarded. At the same time, from the perspectives of devout Muslims, the current form of stock market restricts a Muslim to make investments in the market because of several unsatisfying provisions from the viewpoint of the Islamic law known as Shariah. This study aims to provide the criteria under which conditions of the Islamic Shariah permit making investments in the stock market. Hand in hand with that primary discussion, it has been eluded briefly why the Islamic Shariah principles offer a better alternative against conventional practices of the stock market.

Design/methodology/approach

This is a descriptive study based on the literature review.

Findings

This study explores the basic Islamic principles of investment in the stock market by revisiting the norms laid down by Shariah and current global practices of Islamic stock market and indexes.

Originality/value

This study will work as a guideline for investors and market authorities to understand the original Shariah rulings and the benchmark rulings for investment or establishing full-fledged Islamic stock markets, indexes and mutual funds.

Details

Qualitative Research in Financial Markets, vol. 9 no. 2
Type: Research Article
ISSN: 1755-4179

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Article

Pallab Kumar Biswas

Grounded in lemon market theory, this paper aims to examine the influence of corporate governance (CG) on stock market liquidity in Bangladesh, where stock market

Abstract

Purpose

Grounded in lemon market theory, this paper aims to examine the influence of corporate governance (CG) on stock market liquidity in Bangladesh, where stock market manipulation because of speculative trading is a common concern.

Design/methodology/approach

This study is based on a sample of 2,420 firm-year observations covering all non-financial firms in Bangladesh from 1996 to 2011.

Findings

This study’s results show a significant relationship between governance and liquidity within firms over time. In particular, within firms, when governance quality increases, liquidity significantly improves. For instance, a rise in the governance quality by one standard deviation decreases the illiquidity ratio by 55.97%. The results are unlikely to be confounded by endogeneity.

Practical implications

The results have important policy implications for security regulators, investors, traders and managers. The results support the current regulatory trend of strengthening CG practices in the listed firms in Bangladesh.

Originality/value

This study contributes to the understanding of the role of effective firm-level CG on stock liquidity in the context of an emerging country. Consistent with prior research mostly conducted in the advanced economies, it provides further empirical support that higher CG quality reduces the information asymmetry problem and enhances stock liquidity even in a speculative market.

Details

Accounting Research Journal, vol. 33 no. 2
Type: Research Article
ISSN: 1030-9616

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Book part

Daniele Besomi

Business cycle theory is normally described as having evolved out of a previous tradition of writers focusing exclusively on crises. In this account, the turning point is…

Abstract

Business cycle theory is normally described as having evolved out of a previous tradition of writers focusing exclusively on crises. In this account, the turning point is seen as residing in Clément Juglar's contribution on commercial crises and their periodicity. It is well known that the champion of this view is Schumpeter, who propagated it on several occasions. The same author, however, pointed to a number of other writers who, before and at the same time as Juglar, stressed one or another of the aspects for which Juglar is credited primacy, including the recognition of periodicity and the identification of endogenous elements enabling the recognition of crises as a self-generating phenomenon. There is indeed a vast literature, both primary and secondary, relating to the debates on crises and fluctuations around the middle of the nineteenth century, from which it is apparent that Juglar's book Des Crises Commerciales et de leur Retour Périodique en France, en Angleterre et aux États-Unis (originally published in 1862 and very much revised and enlarged in 1889) did not come out of the blue but was one of the products of an intellectual climate inducing the thinking of crises not as unrelated events but as part of a more complex phenomenon consisting of recurring crises related to the development of the commercial world – an interpretation corroborated by the almost regular occurrence of crises at about 10-year intervals.

Details

A Research Annual
Type: Book
ISBN: 978-0-85724-060-6

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Article

Nadeeka Premarathna, A. Jonathan R. Godfrey and K. Govindaraju

The purpose of this paper is to investigate the applicability of Shewhart methodology and other quality management principles to gain a deeper understanding of the…

Abstract

Purpose

The purpose of this paper is to investigate the applicability of Shewhart methodology and other quality management principles to gain a deeper understanding of the observed volatility in stock returns and its impact on market performance.

Design/methodology/approach

The validity of quality management philosophy in the context of financial market behaviour is discussed. The technique of rational subgrouping is used to identify the observable variations in stock returns as either common or special cause variation. The usefulness of the proposed methodology is investigated through empirical data. The risk/return and skewness/kurtosis trade-offs of S&P 500 stocks are examined. The consistency of this approach is reviewed by relating the separated variability to “efficient market” and “behavioural finance” theories.

Findings

Significant positive and negative risk/return trade-offs were found after partitioning the returns series into common and special cause periods, respectively, while total data did not exhibit a significant risk/return trade-off at all. A highly negative skewness/kurtosis trade-off was found in total and special cause periods as compared to the common cause periods. These results are broadly consistent with the theoretical concepts of finance and other empirical findings.

Practical implications

The quality management principles-based approach to analysing financial data avoids the complexities commonly found in stochastic-volatility forecasting models.

Social implications

The results provide new insights into the impact of volatility in stock returns. They should have direct implications for financial market participants.

Originality/value

The authors explore the relevance of Shewhart methodology in analysing variability in stock returns through reviewing financial market behaviour.

Details

International Journal of Quality & Reliability Management, vol. 33 no. 9
Type: Research Article
ISSN: 0265-671X

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Article

Charles G. Leathers and J. Patrick Raines

In speeches and testimonies, Alan Greenspan claimed intellectual links between his financial policies and the ideas of Milton Friedman and Joseph A. Schumpeter on banks…

Abstract

Purpose

In speeches and testimonies, Alan Greenspan claimed intellectual links between his financial policies and the ideas of Milton Friedman and Joseph A. Schumpeter on banks, central banks, and financial crises. As the financial crisis deepened in 2008, Greenspan admitted that his policies had been shockingly wrong. The purpose of this paper is to explain why his claims of intellectual links between those policies and the ideas of Friedman and Schumpeter were also wrong.

Design/methodology/approach

Beginning with representative examples of Greenspan's citations of Friedman and of Schumpeter as supporting his financial policies, the authors review the economic ideas of Friedman and Schumpeter on banks, central banks, and financial crises. In each case, we contrast Greenspan's financial policies with those ideas, demonstrating the spurious nature of his claims of intellectual links.

Findings

While expanding the role of the Federal Reserve in the financial markets, Greenspan's financial policies were based on the declaration that deregulation and financial innovations were providing flexibility and stability for the entire financial system. In his financial policies, Greenspan rejected Friedman's recommendations for changes in the powers and functioning of the Federal Reserve that featured a monetary policy rule and the 100 percent reserve requirement for deposits that would involve the separation of depository banking from loans and investments. From a Schumpeterian perspective, Greenspan's policies encouraged and facilitated the massive “reckless” finance that was responsible for the financial crisis of 2007‐2009.

Originality/value

Greenspan's legacy as Chairman of the Federal Reserve Board is one of policies that first contributed to recurring financial crises of increasing severity and were then followed by an extraordinary policy expansion of the Federal Reserve in attempts to cope with the crises. On that basis, it is important to have a clear understanding of the lack of intellectual support for those policies from the influential economists with whom he claimed intellectual links.

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Book part

Gary J. Rangel and Subramaniam S. Pillay

We tested for evidence of stock price bubbles in the Malaysian stock market from 1978 to 2004. Four different tests were used namely excess volatility tests, unit…

Abstract

We tested for evidence of stock price bubbles in the Malaysian stock market from 1978 to 2004. Four different tests were used namely excess volatility tests, unit root/co-integration tests, duration dependence tests, and the intrinsic bubbles model. All four tests indicate that during the sample period, there was evidence of stock price bubbles. All tests results conform to the theoretical literature on asset price bubbles except for the results on the intrinsic bubbles model, which concludes that Malaysian investors under react to information on dividends. We find this result hardly surprising as anecdotal evidence does indicate that Malaysian investors place more importance on capital gains as compared to dividends. Although we do not go into a debate on whether authorities should be prick the bubble to stem its negative effects, we argue that transparent information dissemination will ensure that the stock market becomes more efficient in pricing stocks.

Details

Asia-Pacific Financial Markets: Integration, Innovation and Challenges
Type: Book
ISBN: 978-0-7623-1471-3

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Book part

Barry Eichengreen and Kris J. Mitchener

The experience of the 1990s renewed economists’ interest in the role of credit in macroeconomic fluctuations. The locus classicus of the credit-boom view of economic…

Abstract

The experience of the 1990s renewed economists’ interest in the role of credit in macroeconomic fluctuations. The locus classicus of the credit-boom view of economic cycles is the expansion of the 1920s and the Great Depression. In this paper we ask how well quantitative measures of the credit boom phenomenon can explain the uneven expansion of the 1920s and the slump of the 1930s. We complement this macroeconomic analysis with three sectoral studies that shed further light on the explanatory power of the credit boom interpretation: the property market, consumer durables industries, and high-tech sectors. We conclude that the credit boom view provides a useful perspective on both the boom of the 1920s and the subsequent slump. In particular, it directs attention to the role played by the structure of the financial sector and the interaction of finance and innovation. The credit boom and its ultimate impact were especially pronounced where the organization and history of the financial sector led intermediaries to compete aggressively in providing credit. And the impact on financial markets and the economy was particularly evident in countries that saw the development of new network technologies with commercial potential that in practice took considerable time to be realized. In addition, the structure and management of the monetary regime mattered importantly. The procyclical character of the foreign exchange component of global international reserves and the failure of domestic monetary authorities to use stable policy rules to guide the more discretionary approach to monetary management that replaced the more rigid rules-based gold standard of the earlier era are key for explaining the developments in credit markets that helped to set the stage for the Great Depression.

Details

Research in Economic History
Type: Book
ISBN: 978-1-84950-282-5

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Book part

Stefán Ólafsson

This chapter maps the political economy characteristics of Icelandic society in the post-war period. It shows how the period of statism from the early part of the 20th…

Abstract

This chapter maps the political economy characteristics of Icelandic society in the post-war period. It shows how the period of statism from the early part of the 20th century, with a strong legacy of protectionism and clientelism, changed up to the present. A major turning point came with a shift towards more liberal mixed economy in 1960, which progressed through the 1980s. That was a period of very high growth rates in an egalitarian society. During the 1990s the political economy became significantly more influenced by neoliberal policies, which can be associated with the buildup of an excessive bubble economy in the 2000s. A new policy emphasis in a new environment of globalized finance, of which Iceland became an active part from 1995, in conjunction with a generally lax attitude of laissez faire in public administration, seems to have made possible rather unusual excesses in speculation and debt accumulation. That eventually led to the dramatic collapse of Iceland's financial system in October 2008. In the wake followed a deep recession. The chapter sets this long-term development into a broad societal context, taking account of political power constellations and changes in politics, the labour market and living conditions.

Details

The Nordic Varieties of Capitalism
Type: Book
ISBN: 978-0-85724-778-0

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