Pistorius Heterodox Investment Theory

Stochastic Predictability and Uncertainty
1. Auflage 2017
ISBN: 978-3-319-55005-3
Verlag: Springer Nature Switzerland
Format: PDF
Kopierschutz: 1 - PDF Watermark

E-Book, Englisch, 265 Seiten

Reihe: Progress in Mathematics

This book combines the study of rhetoric, history, philosophy, philosophy of statistics and the culture of investing to discuss the foundations of stochastical predictability in investment theory. Besides discussing the problem of stochastical prediction, the book also covers alternative investment theories. Ideas from uncertainty economics, expressed by the likes of Keynes, Knight, von Mises, Taleb and McCloskey are also discussed. This book will be of interest to researchers and academics in the field of investment theory, as well as investment practitioners.



Thomas Pistorius, PhD, holds a Masters degree in finance from Tilburg University and a Bachelor in philosophy from Utrecht University, Netherlands. He has spent his professional life working in investment management as an investment advisor, analyst, risk manager, and researcher. His research is driven by an interest in finance and the arts, encompassing the rhetoric, history, philosophy, and culture of investment theory to discuss stochastic predictability.

Autoren/Hrsg.

Pistorius, Thomas

Inhaltsverzeichnis

1;Heterodox Investment Theory;3
1.1;Acknowledgements;6
1.2;Contents;8
1.3;List of Figures;11
2;1 Introduction;12
2.1;1.1 The Critical Thinking of the Humanities;12
2.2;1.2 The Assumption of Predictability;13
2.2.1;The Assumption of Predictability;13
2.2.2;The Problem with Prediction in Investment Theory;15
2.3;1.3 The Relevance of the Assumption of Predictability;16
2.3.1;The Relevance for Academia;16
2.3.2;The Relevance for Society;17
2.3.3;The Relevance for the Financial Services Industry, Regulators, and Policymakers;19
2.4;1.4 The Purpose of the Investigation;20
2.5;1.5 The Forms of Predictability and Their Denial;22
2.5.1;The Forms of Predictability;22
2.5.2;Profitable versus Unprofitable Predictability;24
2.5.3;The Case for Deterministic Unpredictability in Economics;25
2.6;1.6 The History of Investment Theory and Its Alternatives;28
2.7;1.7 The Theories of Probability and Uncertainty;29
2.8;1.8 The Rhetoric of Economics;30
2.9;1.9 The Culture of Investing;33
2.10;Works Cited;34
3;2 The History of Investment Theory;38
3.1;2.1 An Introduction to the History of Investment Theory;38
3.1.1;History Enriches;38
3.1.2;The Pitfalls of History;41
3.1.3;The Assumption of (Un-)Predictability;44
3.2;2.2 Finance in Europe in the Thirteenth to Eighteenth Century;45
3.3;2.3 Efficient Market Theorists in the Nineteenth and Early Twentieth Centuries;49
3.3.1;Jules Regnault and Henri Lefèvre;49
3.3.2;Louis Bachelier;51
3.4;2.4 Finance in the First Half of the Twentieth Century;54
3.4.1;Irving Fisher;54
3.4.2;John Maynard Keynes;55
3.4.3;Benjamin Graham and John Burr Williams;57
3.4.4;Empirical Work on Predictability and the Random Walk;59
3.4.5;Chartist Theory;61
3.5;2.5 Markowitz’s Investment Theory;62
3.5.1;Portfolio Theory;62
3.5.2;Evaluation of Markowitz’s Contribution;65
3.6;2.6 Efficient Market Theory;69
3.6.1;Paul Samuelson;69
3.6.2;Eugene Fama;71
3.6.3;Evaluation of the Efficient Market Theory;75
3.7;2.7 CAPM;77
3.7.1;Capital Asset Pricing Model;77
3.7.2;After the CAPM: APT and the Anomalies;80
3.8;2.8 Option Theory;81
3.9;Appendix 2A The Mathematical Statistics of Diversification;83
3.10;Appendix 2B The Black and Scholes Option Formula;87
3.11;Works Cited;88
4;3 Heterodox Investment Theory;96
4.1;3.1 The Criticisms of Modern Investment Theory;96
4.2;3.2 Political Finance;97
4.3;3.3 Fractal Finance;100
4.4;3.4 Bubble Finance;104
4.5;3.5 Behavioural Finance;106
4.6;3.6 Evolutionary Finance;108
4.6.1;Dynamic systems;109
4.6.2;Complexity;110
4.6.3;Emergence;111
4.6.4;Formal and Experimental Evolutionary Finance;111
4.7;3.7 Evaluation of the Criticisms;112
4.8;Work Cited;113
5;4 Investment Theory, Probability Theory, and Uncertainty;116
5.1;4.1 The Logos of Probability;116
5.2;4.2 Probability Beliefs in the Portfolio Theory;117
5.3;4.3 Markowitz’s Defence of Personal Probabilities;122
5.4;4.4 Investment Theory after Markowitz’s Portfolio Theory;125
5.5;4.5 Evaluation of the Probability Theory within Investment Theory;126
5.6;4.6 Risk against Uncertainty;129
5.6.1;Knight;130
5.6.2;Keynes;132
5.6.3;Von Mises;133
5.7;4.7 Arguments for Uncertainty in Economics;134
5.7.1;Knight;134
5.7.2;Keynes;136
5.7.3;Von Mises;137
5.7.4;McCloskey;138
5.7.5;Taleb;139
5.8;4.8 Coping with Uncertainty;139
5.8.1;Knight;140
5.8.2;Keynes;143
5.8.3;Von Mises;144
5.8.4;McCloskey;146
5.8.5;Taleb;147
5.9;4.9 Implications of Uncertainty for Investment Theory;147
5.10;4.10 A Thought Experiment with Predictability in Investment Theory;151
5.10.1;An Example of Arbitrage;154
5.10.2;The Thought Experiment;155
5.10.3;Option Theory;159
5.11;4.11 Closing Remarks about the Thought Experiment;161
5.12;Appendix 4A A Formal Proof of the Thought Experiment;162
5.13;Works Cited;165
6;5 The Rhetoric of Investment Theory;169
6.1;5.1 Rhetoric;169
6.1.1;The Current Rhetoric;169
6.1.2;Plato on Rhetoric;171
6.1.3;Aristotle’s Art of Rhetoric;172
6.1.4;Rhetoric in the Twentieth Century;174
6.2;5.2 The Rhetoric of Economics;175
6.2.1;Rhetoric and Philosophy of Economics;178
6.2.2;Anti-philosophy and the Moral of Rhetoric;180
6.3;5.3 Metaphors and Stories;182
6.3.1;The Rhetorical Tetrad;182
6.3.2;Metaphors and Stories in Investment Theory;184
6.4;5.4 Virtues;188
6.5;Works Cited;189
7;6 The Culture of Investing;192
7.1;6.1 Culture, Economics, and Finance;192
7.1.1;The Relevance of Culture;192
7.1.2;Klamer’s View of the Culture of Economics;194
7.1.3;Notions of Culture: Klamer and Hofstede Compared;196
7.1.4;Culture and Uncertainty: Hofstede’s View;197
7.1.5;Culture and Uncertainty: Schön’s View;198
7.2;6.2 Values, Decision Making, and Phronesis;199
7.3;6.3 Methodology of the Investigation of the Culture of Investing;202
7.3.1;Culture of Dutch Professional Investors;202
7.3.2;Ethnography Includes Personal Observations;203
7.3.3;Interviews;204
7.3.4;Literature on the Culture of Investing;206
7.3.5;Pitfalls of an Investigation into Culture;207
7.4;6.4 Personal Observations;208
7.5;6.5 Literature on the Culture of Investing;214
7.6;6.6 Innovative Case 1 The Management of Investment Risk;218
7.6.1;Introduction Theo Kocken;218
7.6.2;Risk Management;219
7.6.3;An Economic Explanation of the Failing of Portfolio Theory;221
7.6.4;A Behavioural Explanation of the Failing of Portfolio Theory;222
7.6.5;How to Invest;224
7.6.6;The Use of Options;224
7.6.7;What Should Be Done About the Current State of Finance?;226
7.7;6.7 Innovative Case 2 Shell’s Scenarios-approach;227
7.7.1;Introduction Peter Heijmans;227
7.7.2;Scenarios Instead of Statistics;228
7.7.3;Investing in General;229
7.7.4;Scenario Thinking Applied to Investing;230
7.7.5;How to Make Scenarios;231
7.8;6.8 Innovative Case 3 Investment Beliefs;232
7.8.1;Introduction Alfred Slager;232
7.8.2;What Are Investment Beliefs?;233
7.8.3;Beliefs About Capital Markets;234
7.8.4;Beliefs About the Organization of Investments;235
7.8.5;What Should Be Done About the Current State of Finance?;236
7.9;6.9 Values, Conversations, Their Justification, and Innovation;237
7.9.1;The Values of Investors;237
7.9.1.1;Wealth;237
7.9.1.2;Optimism;238
7.9.1.3;Rationalism;239
7.9.2;The Conversations of Investors;239
7.9.2.1;The Market and the Economy;240
7.9.2.2;Talk by the Model;240
7.9.2.3;Money Must Be Put to Work;240
7.9.2.4;Doubt and Reassurance;241
7.9.3;The Justification of the Culture of Investing;241
7.9.4;Evaluation of Innovative Practices;242
7.10;Works Cited;244
8;7 Conclusions;249
9;Index;259