This article puts into perspective the practice of financial regulation in contemporary financial markets, while a new normative order has emerged. This order, heralded by algorithmic technologies, changes the conditions for the exercise of regulation: to date, it has not yet been fully acknowledged nor understood by regulatory bodies. Computer code, replacing speech and writing, induces a changeover from one normative order to another in contemporary markets: the norm, previously explicated with recourse to interpretation, is now replaced by an order (...) characterized by calculation. Such paradigm change is identified based on a discussion of works by Gilles Deleuze. In so doing, it contributes to the developing research programme in the cultures of high-frequency trading (Lange et al. 2016) and also points at broader issues for conceptualising financial regulation. (shrink)

The paper examines connections between ontology and finance. The ontological debates concerning the role of finance are examined between two opposing schools of thought that can be labelled, very broadly, ‘instrumentalist’ and ‘realist’. These two schools of thought have had momentous repercussions in understanding what is a good society. Each school defines Nature in particular ways which can be explored using ontology and philosophical insight. Our theoretical investigation aims to accommodate Nature in community financial deliberations. A positive role for government (...) is advocated to finance environmental infrastructure initiatives. For example, precautionary strategies to address climate change must be funded. New roles for finance and government are proposed to align human relationships with Nature. Environmental precautionary principles must be developed in conjunction with finance theory to maintain decent standards of living for all. Reliance on impersonal market forces will not be enough to save the planet given the power of some over the many in the neoliberal arena. (shrink)

I examine the role that mathematics plays in understanding and modelling finance, especially stock markets, and how philosophy affects it. To this end, I explore how mathematics penetrates finance via physics, constructing a ‘financial physics’, and I outline the philosophical backgrounds of this process, in particular the ‘philosophy of equilibrium’ and that of critical points or ‘out-of-equilibrium’. I discuss the main characteristics and a few weaknesses of these mathematizations of financial systems, notably econometrics and econophysics, and I compare the two (...) ways, top-down and bottom-up, of building mathematical approaches to finance. The top-down approach is the most used and the most conservative. I argue that it guarantees a mathematical account, but it is less effective than the more difficult bottom-up approach, which is more appropriate and which may end up without a mathematical account of financial phenomena. I then consider two important issues raised by a mathematical approach to finance, that is, the performative and the reversing side of mathematics, and an ethics of mathematics. In the first case I argue that mathematics not only can be a performative device, but it also enables ‘reversing’ dynamics, that is, a mathematical model may become not a representational tool, but a device of social engineering—a mathematical way of investigating what are the initial conditions and processes needed to obtain an intended result. In the second case I argue that this specific relation between mathematical modelling and prediction raises an ethical question in finance, namely, a responsible construction and use of the mathematical models provided by a financial physics. (shrink)

de Bruin et al. (The Stanford Encyclopedia of Philosophy, Stanford University, Stanford, 2018) write that it is a philosophically interesting question “whether there is such a thing as an 'intrinsic' value of financial assets” noting that the calculation of any intrinsic price will depend, in part, on subjective elements. McCauley suggest that there are at least five different notions of the ‘true value’ of an asset in finance theory, and argues, consistent with de Bruin et al. that in many cases (...) the calculation of such values “makes impossible information demands on our knowledge of future dividends and returns”. This paper explores some of the subjective elements involved in calculating the intrinsic value of an asset, and their implications for the Law of One Price. The Law of One Price states that investors should not pay different prices for the same investment. Consequently, the existence, and persistence, of arbitrage opportunities is often attributed to investor irrationality. However, if subjectivity is involved in the calculation of intrinsic value then two investors can, rationally, disagree about the value of a security. This implies that arbitrage opportunities may not always be instances of irrationality, or genuine mispricing, but reflect different investors perceptions of the security. In economics, value is taken to be subjective, and Postigo describes how goods have value because of the role they play in the satisfaction of our needs. By applying this to finance, this paper will argue that a security can play a number of roles in a portfolio, depending on an investor's strategy. Given these different roles, different investors will be working with different data in their assessment of intrinsic value. In order to establish that an arbitrage opportunity exists it is therefore necessary to understand what information is relevant to pricing the investment in different locations, or markets. It may, in fact, be the case that the same security can trade at different prices because different investors do not see it as the ‘same thing’ at all. This analysis can also be used to throw doubt on the emphasis that fundamental analysis receives in discussions of rationality. (shrink)

de Bruin et al. The Stanford encyclopedia of philosophy, Stanford University, Stanford, 2018) write that it is a philosophically interesting question “whether there is such a thing as an “intrinsic” value of financial assets” noting that the calculation of any intrinsic price will depend, in part, on subjective elements. McCauley suggest that there are at least five different notions of the ‘true value’ of an asset in finance theory, and argues, consistent with de Bruin et al. that in many cases (...) the calculation of such values “makes impossible information demands on our knowledge of future dividends and returns”. This paper explores some of the subjective elements involved in calculating the intrinsic value of an asset, and their implications for the Law of One Price. The Law of One Price states that investors should not pay different prices for the same investment. Consequently, the existence, and persistence, of arbitrage opportunities is often attributed to investor irrationality. However, if subjectivity is involved in the calculation of intrinsic value then two investors can, rationally, disagree about the value of a security. This implies that arbitrage opportunities may not always be instances of irrationality, or genuine mispricing, but reflect different investor’s perceptions of the security. In economics, value is taken to be subjective, and Postigo describes how goods have value because of the role they play in the satisfaction of our needs. By applying this to finance, this paper will argue that a security can play a number of roles in a portfolio, depending on an investors’ strategy. Given these different roles, different investors will be working with different data in their assessment of intrinsic value. In order to establish that an arbitrage opportunity exists it is therefore necessary to understand what information is relevant to pricing the investment in different locations, or markets. It may, in fact, be the case that the same security can trade at different prices because different investors do not see it as the ‘same thing’ at all. This analysis can also be used to throw doubt on the emphasis that fundamental analysis receives in discussions of rationality. (shrink)

The view from inside improves our understanding on market failure and regulation failure in financial market. The EMH fails to understand the causes of financial bubbles and crashes. Behavioral finance introduces insight from psychology. The heuristic and biases approach studied behavioral asymmetry in static environment that leads to market irrationality and information distortion. The fast and frugal thinking in decision-making further explore more complex situation under changing environment. They argue that soft-paternalistic regulation is needed under information overload. The most critical (...) issue is information uncertainty and complexity. Lacking information in frequency domain is the main barrier in managing business cycles. Data form inside reveals current limitations of financial data mainly in the short-term price changes. Microstructure studies show that pricing process is shaped by trading rules. Quantitative analysis reveals severe instability in high frequency trading and derivative market. Feasible regulation should aim to encourage new technology and sustainable growth, rather than protect obsolete technology and short-term speculation. The most fundamental challenge to sustainable economic order is the excessive size of the derivative markets that crowding out investment in real economy. This is a more severe issue than the climate change. (shrink)

Can governments keep the pace of global markets? It is a defining characteristic of the present times, tested and measured within multiple studies, that we are living in an increasingly interconnected economy in which giant companies emerge and compete presenting new goods and products at a global scale. The competing environment of international markets produces quickly growing creatures that old nation-states struggle to understand, monitor and, consequently, regulate. In this regard, the selection process taking place in the market seems to (...) be far more effective and greedy than the selection process we apply to our governments. In this paper I discuss the basic theoretical mechanisms for the persistence of wealth concentration, introducing a general game-theoretical framework to connect governance, market economy, and wealth distribution, and to rethink democracy and fairness in policy-making, especially with the aim of global sustainability governance. (shrink)