--Financial Tools ---Futures Market---ADD HERE LINK-- OPTION ALERTS --BENZINGA--

« Home | Historic fall may signal a rally in the stock mark... » | Trades Ideas for the week ahead - LMNX, RIMM, TRN » | AC Investor Blog - This week's visits and Page Vie... » | Mercedes-Benz SLR Stirling Moss » | Funny Picture - Copy & Paste » | Trade Ideas for Friday - LM, CEO, CME » | Trade Ideas for Thursday - Amazon and Intel » | Triple your money with Trinity Industries » | Top picks for Tuesday - Monsanto and Trinity Indus... » | AC Investor Blog has set a new high : 2028 unique ... » 

Tuesday, January 20, 2009 

Financial markets are not casinos, but sometimes appear to be

The financial credit crisis and the resulting economic contraction seriously undermined the credibility of financial markets, institutions and operators over the past months. More and more people from different part of the globe are saying that the markets are characterized by irrationality, bubbles, fashion and frenzy and that the actors in the economy are being driven by assumptions. In fact, the controversy of how the markets react to news has encouraged George Soros to write a book following this line of thought. He is even said that the established financial theory is obsolete. In essence, he believes that the current financial crisis is the final proof that markets do not process the information efficiently. If so, we are closer to the design of John Maynard Keynes, who said the market is a casino, than the design of Friedrich von Hayek, who sees him as a wonderful mechanism for processing scattered information. My opinion can be found in the middle of both; I don’t agree simultaneously with both because the markets act according the psychology of the current environment and the numbers of participants in that specific time. This is not a casino, we are buying or selling securities based on earnings and in the future prospect. The problems that we’re observing right now in the financial markets have much to do with the lack of information on quality, with incentives and wrong, in fact, with rational reactions to the surrounding environment. When information is scarce and is distributed unequally, prices may fall away from the fundamental reality of the economy. The controversy over the irrationality of financial markets is not a mere academic debate. If we are convinced that economic agents are irrational, then apply paternalistic policies aimed at controlling the behaviour or to rescue the officials and institutions that fail, which can be counterproductive and even dangerous, because it can be accompanied by restrictions on investment by institutions and individuals, as well as intrusive regulation that limits, or dictate, their conduct in the market. Financial markets are not casinos, but sometimes seems to be. The correct regulation is fundamental to regain the investor confidence that has lost it over 2008, bringing to the markets the right functionality that everybody likes to have when the time to invest comes.

AC

Bookmark and Share

Contact

About Me

    Photobucket
  • I'm a 43 year old Independent Trader using proprietary technical analysis with more than 18 years experience of investing in the US stock markets. I started this blog in 2006 simply as a way to share my thoughts about capital, risk management, and trading. My blog contains only my personal opinion and is provided for informational purposes only.

  • Benzinga.com supporter

    Iceman Trading Academy Moderator

    Benzinga.com supporter



    FREE NEWSLETTER

      Enter your email address:

      Delivered by FeedBurner

      Subscribe my feed :

    Support AC

    • Support AC Investor Blog, Donate with PayPal

    Advertising

      Interested in advertising on AC Investor Blog ? Click Here

    RECOMMENDED



    TRANSLATOR

    Site Information

    Stock Market Blogroll

    Friends BLOGROLL

    ARCHIVES

Powered by Blogger
and Blogger Templates


Add to Google