Jones (1998) argues that the capital market is not perfectively efficient, and it is not certain perfectly inefficient. It is therefore a question of the degree of efficiency of the market. Perfectly efficiently market will only exists under certain market conditions. To begin with, information relevant to the assessment of the firm’s future earnings,
Abstract While most traditional science deals with supposedly predictable phenomena like gravity, electricity, or chemical reactions, Chaos Theory deals with nonlinear things that are effectively impossible to predict or control, like turbulence, weather, the stock market, our brain states, and so on. It focuses on non-randomness, nonlinearity and chaotic characteristics. In recent times such nonlinear dynamics and chaotic dynamics have augmented in the field of financial analysis. This paper studies the extent to which the daily return data from the Indian Stock Exchange Indices (Nifty & Sensex) exhibit these non-linear, non-random characteristics. The Hurst exponent in Rescaled range analysis rejects the hypothesis that the index return series
The Single Index Model leads to a simplification of the portfolio choice model because of the additional assumption that the idiosyncratic components of return are independent across stocks. The market portfolio in the CAPM is not the same as a "market index." In fact, if you use a market index such as the S&P 500 in the single-index model, it is quite unlikely that it will coincide with the tangency portfolio identified by the CAPM. This will become readily apparent when you use the single-index model to analyze real-world data. The Single Index Model also greatly reduces the computations, since it eliminates the need to calculate the covariance of the securities within a portfolio using historical returns and the covariance of each possible pair of securities in the portfolio.
All that this condition amounts to, then, is that there must be some discernible regularity in the world, which makes it possible to predict events correctly.” Yellen is doing exactly what Hayek predicted would happen, trying to influence economic factors such as directing interest rates to control the proverbial bubble from popping. Yellen is the epitome of the Keynesian theory, which is to manipulate economic conditions and steer it into a particular direction (i.e. : lowering interest rates and stave-off unemployment). “The founding patriarch was John Maynard Keynes, Yellen’s hero. Keynes was a member of the Bloomsbury group.
Classical economics emphasises the fact free markets lead to an efficient outcome and are self-regulating. In macroeconomics, classical economics assumes the long run aggregate supply curve is inelastic; therefore any deviation from full employment will only be temporary. The Classical model stresses the importance of limiting government intervention and striving to keep markets free of potential barriers to their efficient operation. Keynesians argue that the economy can be below full capacity for a considerable time due to imperfect markets. Keynesians place a greater role for expansionary fiscal policy (government intervention) to overcome recession.
In a netting system, no shortage of money will take place which means that lenders could not take advantage of charging high interest rates to people that are in need of loans as is the case in the fiat money system. Hence, interest rates will be non-existent in the economy. As mentioned above, the netting system works through the offsetting of credits between
For all the above reasons pluralism as a theory isn’t useful, although stoker in his quote isn’t completely wrong. If pluralism was completely inexistent no groups would succeed, and government would be the only actor in policy making. As a result of there being insider groups who share the governments agenda or groups with experts who can help deliver the agenda;
According to Madura (2008) even though the fundamental forecasting accounts for predicting vital relation between factors and currency value, the following limitations exist: 1) Exact timings of impact of certain factors on the currency’s value is unknown. The full impact of these factors on the exchange rate will not be seen until the second, third or fourth quartile. 2) Certain factors have an immediate impact on exchange rates. Only those factors that can be forecasted, are used in this model as the accuracy of exchange rates depend on the accuracy levels of the factors. If a firm knows how the movements of these factors affect the exchange rate, but cannot predict the value of the factors associated, exchange rate forecasting may not be accurate.
The use of such Index models also eliminates illogical or rather absurd results. The Single Index model (SIM) and the Capital Asset Pricing Model (CAPM) are such models used to calculate the optimum portfolio. Sharpe (1963) defined SIM as an asset pricing model which is purely arithmetical. The returns on a security can be represented as a linear relationship with any economic variable relevant to the security, for example in stocks the single factor is the market return. According to Sharpe the Single index model for return on stocks is shown by the formulae shown below; Rs-Rf = α + β (Rm- Rf) +ε.
Besides the key assumption that investors seek to maximize returns while minimizing risk, Markowitz assumes that markets are efficient, that investors are expected utility maximizers according to Bernoulli and that they make their decisions based on an individual risk function, which leads to a maximization of the expected utility taking expectations about risk and return of a specific investment into consideration. Furthermore, the planning horizon in the modern portfolio theory covers only one period, at the end of each period the investor has to make a new decision about the reallocation of his capital. This makes the asset allocation a static decision with a short-term