This means that without monitoring and controlling by institutional investors, there is an agency problem which can lead to maximizing personal wealth of managers instead of maximizing value of the firm. All together, I have to answer the question “Do institutional investors hinder economic growth” with a no. I have only found that institutional investors and mutual funds can affect investments of firms by their hunger for cash returns, but it has not been proven that investors hinder economic growth. Besides that, I think that institutional investors play a huge role in maximizing firm values, which is good for the economy, by monitoring and controlling managers and managers not letting maximize their personal
This theory was unpopular with most Keynesian because of their belief that velocity was unstable and the economy would not return to potential output without help. However, the Monetarism theory relies on the ability to predict the velocity rather than stabilize it. Because Monetarists believed the economy was stable, they viewed the Aggregate supply curve as a steep slope. Another idea Monetarists believed was that the Fed should have a strict set of rules, which they should tie in monetary policies, including one of the most popular: the Money Growth Rule. The Money Growth Rule stated “The Feds should be required to target the growth rate of money so it equals the growth rate of real GDP.” However, Monetarists saw fiscal policy as useless, and believed government should not intervene, because the only thing that comes out of government intervention is interference with the free market.
The mechanism of finance in this market has large maturity periods. The insecurity and inaccurate prediction on the expected rate of returns or even possibility of losses in an investment is defined as “risk” in financial terms. . The Capital Market Theory was created upon the Markowitz Portfolio Model. Their crucial and important assumptions of the above mentioned theory are as follows; • All investors are resourceful investors- Investors follow Markowitz idea of the efficient frontier and thus prefer to invest in ranges of and along the boundary.
Portfolio management use this theory widely in creating an investment diversification strategies. The possibility of failure will be minimise if one or two investment not doing well through diversification among various assets classes such as options, bonds and stocks (IFCM Capital, n.d.). Despite the benefit of diversification, there are limitations and downsides for this theory. MPT promote that performance of individual stocks is independent of other investment in a portfolio. However, this is not true because during the market stress independent investment will act in a related way which is discussed above (Ben, 2017).
People choose their governments and they should operate the economy and practice its power to maintain a stable growth of business and balance the income between poor and rich. In conclusion, Friedman fights for the concepts of the soulless capitalism and shows that the benefit of the people is increasing the profits. In contrast, Colin disagrees with Friedman and argues that the arguments of Friedman do not reflect the reality how corporations act and their independence of the society is a huge logical mistake Friedman presents. Business ethics is a window dressing by corporations to advertise their brands and attract people to buy their products; a corporation can act ethically just to hide its real intentions of maximizing
Price and Output Determination Under Oligopoly The interdependence of the demand curves of firms in oligopoly makes it difficult to establish a theory of determination of prices and outputs. According to American economist William J. Baumol, the firm may adopt any of the following approaches: a. Ignoring interdependence The firm may just disregard interdependence and make its own decisions as to pricing and quantity, but it must also be expected that other oligopolists will protect their own interest. Profit maximization is the common objective of the firms. b. Estimating the competitor’s countermoves Based on past experiences, the firm may try to estimate the anticipated actions and reactions of their
The existence of asymmetric information also suggest that consumers may not have enough information to protect themselves fully. Moreover, in an unregulated market, investors will not have enough information to guide their investments, which should not be based on rumor and hearsay. Companies have incentives not to share information, such as bad news about themselves or information about others that is not already known in the marketplace. Therefore, financial market need to be regulated to control and avoid problems. For example in UK, consumer protection regulation has taken several forms.
Some interesting facts about investment banking are: " Investment banks do not accept deposits or provide loans to investment bankers " They help companies or governments raise money by issuing security " They offer other strategic advisory services like foreign exchange, derivatives, commodity trading and equity security " Trading for hard-cash or endorsement of securities is called "sell-side" " "buy-side" comprises of pension fund, hedge funds, mutual funds etc. " Usually, firms have both buy and sell side mechanism Functions of Investment
This study attempts to link psychological research, empirical evidence, and asset-pricing theory to examine how investor sentiment affects financial market volatility. We provide insight into that question by exploring different parameter configurations using the general equilibrium model of Lucas . The Lucas model is the most influential asset-pricing model and has been of central importance to modern macroeconomics. Traditional economic analyses are based on the efficient markets hypothesis (EMH), which assumes that people price assets by measuring probability and using all available information, and hence leave little room for investor sentiment. As behavior is motivated by both thoughts and feelings, considering investor sentiment
Moreover, two methods that you can use to perform an investment analysis include: Top-down approach You can start by analyzing the broad perspective and end with the analysis of the specific stock or bond you want to invest in. With this method, you can determine the profitability of investments, direction, and significance of any interest made. You can also use this method to determine the conditions affecting a market and how they impact the market. However, a major disadvantage of using this method is that it causes investors to overlook some stocks that have the potential of offering large returns. To avoid this, you can use the bottom-up method.