Understanding Financialization: Standing on the Shoulders of Minsky

Whalen, Charles J.

doi:10.2139/ssrn.2991096

Cited by 1 publication

(1 citation statement)

References 34 publications

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“…The separation implies that the capital markets have a key influence on investment and hence on business cycles that originate from investment waves. Capital markets allow for greater funding of firms, thus facilitating investment, but they also increase instability by inducing a continuous reassessment of asset value based on herd behavior, thus also inducing "short-termism," 2 which is a major component of financialization (Whalen 2017). This entails, for instance, the collapse of the average holding period for stocks (Lukasz and Smith 2015).…”

Section: The Bc's Dynamic Naturementioning

confidence: 99%

In the Long Run We Are All Herd: On the Nature and Outcomes of the Beauty Contest

Esposito

Mastromatteo

2020

SSRN Journal

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Since the 2008 crisis, the economics literature has shown a renewed interest in Keynes's "beauty contest" (BC) as a fundamental aspect of the functioning of financial markets. We argue that to understand the importance of the BC, psychological and informational factors are of small importance, and a dynamic-structural approach should be followed instead: the BC framework is paramount because it is rooted in the historical trajectory of capitalism and it is not simply a consequence of "irrational" (i.e., biased) agents. In this genuine form, the BC mechanism allows one to understand the main trends of a financialized world. Moreover, the conventional nature of financial markets provides a sound method for assessing different economic policies whose effectiveness depends on how much they can influence the convention itself. This alternative understanding of the BC can be used to start the needed rethinking of economics, urged by the crisis, that is for now reduced to studying the financial and psychological "imperfections" of the market.

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Section: The Bc's Dynamic Naturementioning

confidence: 99%