A pragmatic view on the financial theories

Mihai Chișu

doi:10.2478/picbe-2018-0019

Abstract

Abstract This presentation reviews some real examples from a trading daily basis behavior proving the sentiment is one of the most important drivers when it comes to investment decision. During decades of studying and observing the financial markets we have seen different approaches in the light of many prestigious writers. Are we rational enough to be good candidates for Fama’s theory of Efficient Market Hypothesis? Is it true what John Maynard Keynes stated 90 years ago when he said „the market is subject to waves of optimistic and pessimistic sentiment”? Is the financial behavior the new trend in the financial markets? Are Daniel Kahneman (Nobel Prize winner 2002) and Amos Tversky the new challengers in the market theories league? Future research should concentrate on various symptoms of sentiment and what makes investors become prone to sentiment. This is an important issue to be debated since investors constantly have to analyze, process and interpret huge data of information which provides the basis for their actions.

Highlights

When it comes to the capital markets, the experience has all the time a leading role
The purpose of the majority of the investors is to understand the market by developing a sixth sense which can guide them throughout the vicious world of capital markets (Baker, Nofsinger, 2010)
In the last category we find speculators, that type of investors less concerned with the fundamental value of a share or asset, but more focus on price movements and news capable to affect prices (Zaloom, 2007)

Summary

Introduction

When it comes to the capital markets, the experience has all the time a leading role. Theory creates the proper environment to securely explore ideas, but positive results are obtained by hard work into the pragmatic area. The purpose of the majority of the investors is to understand the market by developing a sixth sense which can guide them throughout the vicious world of capital markets (Baker, Nofsinger, 2010). Starting from this idea we may categorize the investors considering the knowledge, investment duration and risk as mainly criteria of different typologies as it follows: Knowledge

Risk and profit expectancies

The company has an intrinsic value

Findings

Conclusions