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How do Conflicting Theories about Financial Markets Coexist?

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  • Wesley Phoa
  • Sergio Focardi
  • Frank Fabozzi

Abstract

There are many conflicting interpretations of security prices and price determination in financial markets. They range from academic theories based on efficient markets and rational expectations hypotheses, to more traditional methods of fundamental analysis, to theories of "value" and "growth" investing, to chart-reading and technical analysis, to notions such as "reflexivity." These interpretations are logically inconsistent with each other, but they seem to co-exist, sometimes even on the same trading desk. In this paper, we seek to formulate an explanation for this strange coexistence, using some tools from critical theory to understand how financial markets operate. Structuralism is used to analyze various kinds of narratives appearing in the financial literatu

Suggested Citation

  • Wesley Phoa & Sergio Focardi & Frank Fabozzi, 2006. "How do Conflicting Theories about Financial Markets Coexist?," Yale School of Management Working Papers amz2445, Yale School of Management.
  • Handle: RePEc:ysm:somwrk:amz2445
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    File URL: http://icfpub.som.yale.edu/publications/2445
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    1. Piotrowski, Edward W. & Sładkowski, Jan & Syska, Jacek, 2003. "Interference of quantum market strategies," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 318(3), pages 516-528.
    2. Solow,Robert M., 1998. "Monopolistic Competition and Macroeconomic Theory," Cambridge Books, Cambridge University Press, number 9780521623384, March.
    3. Sheffrin,Steven M., 1996. "Rational Expectations," Cambridge Books, Cambridge University Press, number 9780521479394, December.
    4. William A. Brock & Steven N. Durlauf, 1999. "A formal model of theory choice in science," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 14(1), pages 113-130.
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    1. repec:spr:compst:v:69:y:2009:i:3:p:379-394 is not listed on IDEAS
    2. Sergio Focardi & Frank Fabozzi, 2009. "Black swans and white eagles: on mathematics and finance," Mathematical Methods of Operations Research, Springer;Gesellschaft für Operations Research (GOR);Nederlands Genootschap voor Besliskunde (NGB), vol. 69(3), pages 379-394, July.

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