Critical Conceptual Analysis on Modern Finance Theories

Cristi Spulbar () and Elena Loredana Minea ()
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Elena Loredana Minea: University of Craiova

Ovidius University Annals, Economic Sciences Series, 2020, vol. XX, issue 2, 1081-1086

Abstract: The main aim of this research paper is to investigate fundamental paradigms in modern financial theory. Stock markets are characterized by a complex nonlinear dynamics that does not converge towards a known finality, respectively a result that can be anticipated or influenced, or at least reduced at the level of a limit cycle. In this context, the very concept of investment rationality reaches a completely different meaning. Thus, limited rationality replaces rational expectations. Financial investors are characterized by certain features. However, inherent deviations from rational investment behavior provide an indisputable empirical evidence regarding the existence of anomalies on the capital market. The classical finance paradigm incorporates the idea that rational investors select an efficient portfolio in order to obtain the highest long-term stock returns but the risk must not exceed the tolerable limit. On the other hand, behavioral finance theory argues that the decision-making process is definitely affected by psychological, affective and emotional factors.

Keywords: capital market; arbitration; investor rationality; chaos; fractal; information efficiency (search for similar items in EconPapers)
JEL-codes: G10 G11 G15 (search for similar items in EconPapers)
Date: 2020
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