Financial economics at 50: an oxymoronic tautology

M. C. Findlay and E. E. Williams

Journal of Post Keynesian Economics, 2008, vol. 31, issue 2, 213-226

Abstract: The discipline of financial economics is now 50 years old. This paper discusses the evolution of the discipline and describes its present state as being an equilibrium pricing model cojoined with a notion about the efficiency of financial markets. It provides a critique of this "joint hypothesis" and demonstrates that the two parts really do not fit together very well except by making extreme and unrealistic assumptions. The paper concludes with a discussion of how uncertainty has been redefined as risk, which has further been redefined as virtual certainty. Hence, by adding assumptions and redefinitions, the core theory of financial economics as it presently stands is the mere observation that markets clear at a point in time.

Keywords: efficient market hypothesis; equilibrium pricing; financial economics; risk; uncertainty (search for similar items in EconPapers)
Date: 2008
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