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Books > Business & Economics > Finance & accounting > Finance
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Price and Financial Stability - Rethinking Financial Markets (Paperback)
Loot Price: R1,464
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Price and Financial Stability - Rethinking Financial Markets (Paperback)
Series: Banking, Money and International Finance
Expected to ship within 12 - 19 working days
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Why are financial prices so much more crisis-prone and unstable
than real economy prices? Because they are doing different things.
Unlike real economy prices, rooted in the real goods and services
produced and exchanged, financial prices attempt to value future
income flows from financial and capital assets. These valuations
fluctuate erratically because expectations of the future fluctuate
- and large liquid financial markets can amplify, rather than
correct, these effects. The book builds on the insights of
economists Frank Knight and John Maynard Keynes, that uncertainty
of the future is essential to understand the processes of economic
production and capital investment, and adds to this Karl Popper's
general explanation of how expectations of an uncertain future are
formed and tested through a trial and error process. Rather than
relying on fluctuating financial prices to provide a guide to an
uncertain future, it suggests a better approach would be to adopt
the methods common to other branches of science, and create
testable (falsifiable) theories allowing reasonable predictions to
be made. In finance, the elements of one such theory could be based
on the concept of forecasting yield from capital assets, which is a
measurable phenomenon tending towards aggregate and long-term
stability, and where there is a plentiful supply of historic data.
By methods like this, financial economics could become a branch of
science like any other. To buttress this approach, the widely
accepted public policy objective of promoting real economy price
stability could be widened to include financial price stability.
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