Generation of speculative bublles in the share market: an analysis from the Knowledge Economy
Name: HOMERO SANTOS NUNES
Publication date: 06/06/2018
Advisor:
Name |
Role |
|---|---|
| ALAIN PIERRE CLAUDE HENRI HERSCOVICI | Advisor * |
Examining board:
| Name |
Role |
|---|---|
| ALAIN PIERRE CLAUDE HENRI HERSCOVICI | Advisor * |
| ERALDO SERGIO BARBOSA DA SILVA | External Examiner * |
| RICARDO RAMALHETE MOREIRA | Internal Examiner * |
Summary: This work aims to investigate and discuss about the formation of speculative bubbles in the stock market based on works of the
Knowledge Economy, in counterpoint to the orthodox economy of rational expectations and efficient markets. It is believed that there are fundamental flaws in orthodox theory, such flaws will be presented and discussed. A secondary objective will be the development of its own financial cycle model. A model that allows exposing the causes and consequences of financial valuation movements. It is believed that changes in expectations and information asymmetry are the basis for understanding cyclical financial movements. The method used is the bibliographic review, this is a theoretical work. In chapter 02 the orthodox theory of speculative bubbles is presented, its main hypotheses are discussed as rational expectations; efficient
markets; perfect and complete information to all agents of the economy; ergodicity and the optimum Pareto equilibrium, are referenced Eugene Fama; Lucas and Sargente; Malkiel, among others. In Chapter 03 the theory of the Information Economy is presented regarding the speculative process in opposition to the orthodox theory. This work defends the propositions of the authors referenced in chapter 03 as Stiglitz; Orlean and Herscovici. Finally in chapter 04 it is shown that orthodox economics denies speculative finance, since such finance is incompatible with the results of orthodoxy. Therefore, the Information Economy is better suited to the study and analysis of speculative bubbles. Based on Minsky and Krugman it is explored further that
financial leverage and moral hazard are important aspects of the speculation debate. In this sense the shocks and the formation of the speculative bubbles are endogenous processes, an opposite approach to the exogenous shocks of the Mainstream. It is also evidenced that the Information Economy and the Behavioral Economy become distant to the Mainstream. It is expected that the primary objective is achieved by demonstrating that there is complete incompatibility between efficient markets; rational expectations; the efficient price system, and the Pareto Optimum equilibrium, such a demonstration forms the paradox of Stiglitz's efficient markets. It is also expected that the secondary objective is reached by proposing the junction of the Information Economy hypotheses with the CAPM model.
