Modern Finance, Methodology and the Global Crisis
AbstractModern finance has a conceptually unified theoretical core that includes the efficient market hypothesis (EMH), the relationship between risk and return based on the Capital Asset Pricing Model (CAPM), the Modigliani-Miller theorems (M&M) and the Black-Scholes-Merton approach to option pricing. The core has been instrumental to the growth of the financial services industry, financial innovation, globalization, and deregulation. The significant impact of the core is explained by their success in elevating finance to the category of a science by extracting the acquisitiveness associated with economic freedom from the workings of a free market society. This success was somewhat of a paradox. The core theories/theorems were based on wildly unrealistic assumptions and did not stand out for their empirical strength. Overcoming this paradox required a methodological twist whereby theories were devised to create rather than to interpret or predict reality. This view led to a series of financial practices that increased the fragility and vulnerability of financial institutions setting the context for the occurrence of financial crises including the current one.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by University of Utah, Department of Economics in its series Working Paper Series, Department of Economics, University of Utah with number 2010_04.
Length: 16 pages
Date of creation: 2010
Date of revision:
Contact details of provider:
Postal: 1645 E. Central Campus Dr. Front, Salt Lake City, UT 84112-9300
Phone: (801) 581-7481
Fax: (801) 585-5649
Web page: http://economics.utah.edu
More information through EDIRC
History of Finance; Economic Methodology;
Find related papers by JEL classification:
- B23 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Econometrics; Quantitative and Mathematical Studies
- B41 - Schools of Economic Thought and Methodology - - Economic Methodology - - - Economic Methodology
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-04-11 (All new papers)
- NEP-CFN-2010-04-11 (Corporate Finance)
- NEP-HIS-2010-04-11 (Business, Economic & Financial History)
- NEP-RMG-2010-04-11 (Risk Management)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Stephen Brown & William Goetzmann & Alok Kumar, 1998.
"The Dow Theory: William Peter Hamilton's Track Record Re-Considered,"
Yale School of Management Working Papers
ysm85, Yale School of Management, revised 01 Apr 2008.
- Stephen J. Brown & William N. Goetzmann & Alok Kumar, 1998. "The Dow Theory: William Peter Hamilton's Track Record Reconsidered," Journal of Finance, American Finance Association, vol. 53(4), pages 1311-1333, 08.
- Stephen J. Brown & William N. Goetzmann & Alok Kumar, 2004. "The Dow Theory: William Peter Hamilton's Track Record Re-considered," Yale School of Management Working Papers ysm30, Yale School of Management.
- Stephen J. Brown & William N. Goetzmann & Alok Kumar, 1998. "The Dow Theory: William Peter Hamilton's Track Record Re-Considered," New York University, Leonard N. Stern School Finance Department Working Paper Seires 98-013, New York University, Leonard N. Stern School of Business-.
- Blanchard, Olivier Jean, 1979. "Speculative bubbles, crashes and rational expectations," Economics Letters, Elsevier, vol. 3(4), pages 387-389.
- Shiller, Robert J, 1981.
"Do Stock Prices Move Too Much to be Justified by Subsequent Changes in Dividends?,"
American Economic Review,
American Economic Association, vol. 71(3), pages 421-36, June.
- Robert J. Shiller, 1980. "Do Stock Prices Move Too Much to be Justified by Subsequent Changes in Dividends?," NBER Working Papers 0456, National Bureau of Economic Research, Inc.
- Lucas, Robert E, Jr, 1980. "Methods and Problems in Business Cycle Theory," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 12(4), pages 696-715, November.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If references are entirely missing, you can add them using this form.