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Economists’ hubris – the case of asset pricing




This is the second in a series of articles that examines the practical applications of economic thought. Its focus is on the most fundamental aspects of finance theory, namely asset pricing. We discuss the major pricing models developed during the past five decades and critically examine their practical applications. Sadly, the results are not very encouraging. As with other academic economic disciplines, the gap between what is taught about the markets and what actually takes place is quite large, a gap in no way mitigated by the behavioralist arm of the subject. The seminal works of Sharpe and Lintner have provided us with a sound foundation upon which to build realistic pricing models, but unfortunately the unwavering acceptance of these models has resulted in research that merely cements their acceptance, discouraging an examination of how those pricing models could be adapted to suit the practical world.

Suggested Citation

  • Shojai, Shahin & Feiger, George, 2009. "Economists’ hubris – the case of asset pricing," Journal of Financial Transformation, Capco Institute, vol. 27, pages 9-13.
  • Handle: RePEc:ris:jofitr:1379

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    References listed on IDEAS

    1. John Williamson, 2000. "The Role of the IMF: A Guide to the Reports," Policy Briefs PB00-5, Peterson Institute for International Economics.
    2. Raffer, Kunibert, 1998. "The tobin tax: Reviving a discussion," World Development, Elsevier, vol. 26(3), pages 529-538, March.
    3. Stanley Fischer, 2001. "Exchange Rate Regimes: Is the Bipolar View Correct?," Journal of Economic Perspectives, American Economic Association, vol. 15(2), pages 3-24, Spring.
    4. Nunnenkamp, Peter, 2002. "IWF und Weltbank: trotz aller Mängel weiterhin gebraucht?," Kiel Discussion Papers 388, Kiel Institute for the World Economy (IfW).
    5. Stephany Griffith-Jones & Stephen Spratt, 2003. "Basel II and Developing Countries: Diversification and Portfolio Effects," FMG Discussion Papers dp437, Financial Markets Group.
    6. Griffith-Jones, Stephany & Segoviano, Miguel Angel & Spratt, Stephen, 2003. "Basel II and developing countries: diversification and portfolio effects," LSE Research Online Documents on Economics 24824, London School of Economics and Political Science, LSE Library.
    7. Nunnenkamp, Peter, 2001. "Umbaupläne und Reparaturarbeiten an der internationalen Finanzarchitektur: eine Zwischenbilanz aus deutscher Perspektive," Kiel Working Papers 1078, Kiel Institute for the World Economy (IfW).
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    Cited by:

    1. Bayou, Mohamed E. & Reinstein, Alan & Williams, Paul F., 2011. "To tell the truth: A discussion of issues concerning truth and ethics in accounting," Accounting, Organizations and Society, Elsevier, vol. 36(2), pages 109-124, February.
    2. Shojai, Shahin & Feiger, George, 2010. "Economists’ hubris – the case of risk management," Journal of Financial Transformation, Capco Institute, vol. 28, pages 27-35.
    3. Shojai, Shahin & Feiger, George & Kumar, Rajesh, 2010. "Economists’ hubris — the case of equity asset management," Journal of Financial Transformation, Capco Institute, vol. 29, pages 9-16.
    4. Shojai, Shahin & Feiger, George, 2011. "Economists’ Hubris – The Case of Award Winning Finance Literature," Journal of Financial Transformation, Capco Institute, vol. 31, pages 9-17.

    More about this item


    Asset pricing; behavioral finance; market efficiency;

    JEL classification:

    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading


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