The philosophical paradigm of financial market contagion research

Abstract

Philosophical underpinning is important in research as this leads to investigation as per a specific paradigm. Every subject domain has a dominant paradigm in which the research is carried out. This paper surveys various journal articles in finance, specifically in financial markets contagion and spillover effects, to find the research paradigms and finds that the dominant paradigm in finance and market contagion research is functionalism-positivist. This provides opportunities to conduct research in other paradigmatic approaches. This paper explores the possibility of using an interpretivist paradigm to the financial market contagion research.

In Search of Paradigmatic Diversification in Academic Finance

“…Until the late 1980s, the keystones of major theories of finance (such as asset pricing, efficient market hypothesis, among others) were rational behaviour, perfect market and free information availability. These keystones or ideal assumptions are likely to be complied with Plato's theory of forms/ideals (Rao, 2019). Meanwhile, new age finance theories follow the positivism paradigm and use scientific methodology, hence complying with realism (Findlay and Williams, 1980).…”

“…Meanwhile, new age finance theories follow the positivism paradigm and use scientific methodology, hence complying with realism (Findlay and Williams, 1980). Due to the perception of the real world in formulating finance theories, empirical evidence cannot be explained with their ideal assumptions (Rao, 2019). From 1980s, irrational behaviour and imperfect markets are also considered in finance research, while functionalist paradigm remains dominant in academic finance.…”