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Articles 1 - 8 of 8
Full-Text Articles in Social and Behavioral Sciences
Beyond Mechanical Markets: Asset Price Swings, Risk, And The Role Of The State (Book Review), Adrian Ravier
Beyond Mechanical Markets: Asset Price Swings, Risk, And The Role Of The State (Book Review), Adrian Ravier
Journal of New Finance
In its opening section, Frydman and Goldberg’s book lays out important methodological contributions questioning the hypothesis of rational expectations, constructed on the basis of the writings of Knight, Keynes and Hayek. But in the second part, it does not propose a convincing model that would help avoid the formation of new financial bubbles. While accepting to some extent that the government entity has no greater knowledge than economic agents, it ignores the perverse public-sector incentives that James M. Buchanan and the School of Public Choice have explored in recent decades. Furthermore, although the repeated reference to Hayek is encouraging, the …
The Structure Of Production And Endogenous And Exogenous Liquidity Of Financial Intermediaries, Daniel Fernández
The Structure Of Production And Endogenous And Exogenous Liquidity Of Financial Intermediaries, Daniel Fernández
Journal of New Finance
Banks directly manage their own liquidity. Banks also indirectly manage the liquidity of the entire economic system. In this article we discuss the relationship between endogenous and exogenous bank liquidity, and their corresponding relationship to the structure of production. We explore these liquidity relationships in the context of both a decentralized and centralized system of free banking, comparing both with the monopoly regime of central banks, “convertible and inconvertible liabilities. We analyze the incentives that engender a liquid “system in the context of free banking as well as the perversion of those same incentives in the context of central banking, …
Socially Useless? The Crucial Contribution Of Finance To Economic Life, Philip Booth, Diego Zuluaga
Socially Useless? The Crucial Contribution Of Finance To Economic Life, Philip Booth, Diego Zuluaga
Journal of New Finance
The value of financial markets is under-appreciated. Financial markets perform fundamental functions which are vital in reducing transactions costs in the economy for businesses and households. Without well-functioning financial markets, business would find if much more costly to raise capital and ordinary households would find retirement, protection against everyday risks and day-to-day transactions impossible. Those who criticise financial markets ignore the breadth of their functions and focus on a narrow range of activities. However, even activities such as trading, speculation and so on have social value. The evidence that they cause social problems appears more circumstantial when put under closer …
Friedrich Hayek On Monetary And Banking Systems Reforms, Adrian Ravier
Friedrich Hayek On Monetary And Banking Systems Reforms, Adrian Ravier
Journal of New Finance
Throughout his life, Friedrich Hayek worked towards prescribing a monetary policy under which the world economy would again enjoy the stability it had known under the classical international gold standard system. This paper presents three banking and monetary systems that were pivotal in the history of banking and closely scrutinized by Hayek. The paper outlines those systems, summarizes Hayek’s comments on each and then discusses the recent literature on the subject in the light of Hayek’s influence.
Hyman Minsky: An Advocate Of Big Government, Juan Ramon Rallo
Hyman Minsky: An Advocate Of Big Government, Juan Ramon Rallo
Journal of New Finance
In The End of Laissez Faire (1926) and in The General Theory of Employment, Interest and Money (1936), Keynes advocated a new model of the State which put an end to the laissez faire and leave to the Government the task of reaching macroeconomic stability through monetary, fiscal and even demographic control of investment. One of the most original and modern thinkers within this Keynesian tradition in defense of “Big Government” was the post-keynesian economist Hyman Minsky. The Great Recession has revived and reinvigorated the minskyian positions up to the point of becoming a “required reading” especially for central bankers …
Buffett’S Derivatives: Disruptive Financing At Low Cost, Florencia Roca, Juan Carlos Sanchez Meyer
Buffett’S Derivatives: Disruptive Financing At Low Cost, Florencia Roca, Juan Carlos Sanchez Meyer
Journal of New Finance
The well-established methodology for valuing options, the Black & Scholes formula, has been successfully challenged by Warren Buffet; who not only has been critical of the formula for the case of long-dated options, but has also applied a different approach in multi-billion derivative contracts. We study Berkshire Hathaway’s Equity Put transactions from a value-investing point of view. We show that Buffett is not using them as speculative investments, but as a disruptive -and cheap- financing source. We uncover Buffett’s methodology for valuing long-dated Equity Puts as long-term loans.
Is Modern Finance Geared Up To Support Financial Regulation?, Massimiliano Neri
Is Modern Finance Geared Up To Support Financial Regulation?, Massimiliano Neri
Journal of New Finance
The chief intellectual assumptions behind financial regulation are that capital markets are efficient and market participants act rationally. These assumptions have always been subject to some challenges and their empirical verification occupies a large portion of modern finance literature. Nevertheless, they represented the leading financial market theory during the decades preceding the 2007-8 crisis. The crisis demonstrated that modern theory does not allow for solid risk assessment and reliable macroeconomic forecasting. Such challenges suggest that modern finance may be facing a paradigm crisis. While a debate must be opened to assess how to move forward from the current mainstream paradigm, …
Are Coco Bonds Suitable As Core Capital Instruments?, Kevin Dowd
Are Coco Bonds Suitable As Core Capital Instruments?, Kevin Dowd
Journal of New Finance
Basel III introduced significant innovations in bank regulation. One of them is the minimum required leverage ratio. To help banks implementing the new measure , Basel III created two different core capital measures: Common Equity Tier 1 (CET1) and Additional Tier 1 (AT1). Since raising capital for CET1 is expensive, other instruments are used to build up AT1 in case of need, like for example Contingent Convertible (CoCo), which can convert to equity or written-down when a bank is under stress. In this paper we show that CoCos are not suitable as regulatory core capital instruments. Problems of timing, incentives, …