Financial Economics — an Investment Actuary's Viewpoint

R.S. Clarkson

British Actuarial Journal, 1996, vol. 2, issue 4, 809-972

Abstract: The paper compares and contrasts the theories and methodologies of financial economics with generalisations drawn from practical experience of institutional investment management. A Dynamic Equilibrium Model is put forward as a much more realistic theoretical framework than the Sharpe Diagonal Model, a downside theory of risk is developed from sports analogies, and a detailed model of human behaviour, incorporating benchmark levels of ‘unintelligent’, ‘intelligent’, ‘optimal’ and ‘rational’ behaviour, is suggested as a replacement for the very restrictive simplifying assumptions of existing theories. On the basis of a classification system derived from parallels with the history of astronomy, it is concluded that, as a scientific framework, the current theories of financial economics are seriously incomplete, the two crucial areas of incompleteness being the absence of a downside theory of risk and the absence of a realistic model of human behaviour under conditions of risk and uncertainty.

Date: 1996
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.cambridge.org/core/product/identifier/ ... type/journal_article link to article abstract page (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cup:bracjl:v:2:y:1996:i:04:p:809-972_00

Access Statistics for this article

More articles in British Actuarial Journal from Cambridge University Press Cambridge University Press, UPH, Shaftesbury Road, Cambridge CB2 8BS UK.
Bibliographic data for series maintained by Kirk Stebbing ().