This volume brings together leading scholars from political theory, law, and economics in order to discuss the relationship between financial markets and justice, and invites us to rethink the place and role of financial markets in our societies.

Large changes of financial market prices without exogenous causes deviate significantly from the Gaussian behavior of random variables. This indicates that financial markets should be treated as complex systems, for which nonlinear interactions of its subunits/agents are crucial. I focus on how the complex systems perspective impacts the notion of explanations in economics. The mechanistic model seems to fit the bill, but problems surface on closer scrutiny. One characteristic of complex systems is that their behavior is surprisingly (...) independent from microscopic details. Thus, mechanistic explanations in the microreductionist manner seem unavailable. Despite these conflicts, I defend a modified structural mechanistic approach. (shrink)

Throughout the history of capitalism, there have been tensions between financial institutions and the state, and between financial capital and the firms and households engaged in the production and consumption of physical goods and services. Periods of financial sector dominance have regularly ended in spectacular panics and crashes, often resulting in the liquidation of large numbers of financial institutions and the reimposition of regulatory controls previously dismissed as outmoded and unnecessary. The aim of this article is (...) to consider measures to restore financial markets to their proper role, as servants rather than masters of the market economy and the society within which it is embedded. (shrink)

Micro Credit programs lend money to poor borrowers using innovative mechanisms such as group lending under joint liability while successfully accounting forthe presence of asymmetric information in underdeveloped financial markets. MC Programs have achieved what the conventional financial institutions and the government have not been able to: lend to the poor, recuperate loans and have a positive impact in poverty reduction. While loan recuperation is high (95% for our focus group ALSOL Chiapas), administrative costs also remain high. Social (...) Responsible Savers and Donors play a key role in providing continuous funding to Micro Credit Programs. (shrink)

This article analyses the current state of empirical legal research in the law and the regulation of financial markets. It aims to provide a brief survey of the main work done either by lawyers or by others but which is pertinent to the operation of law and regulation. It focuses on six main areas of research and debates. These are the debates on the efficient markets hypothesis and mandatory disclosure rules in securities regulation; studies on behavioralism and their impact (...) on disclosure as a tool for protecting investors; studies on the impact of rules relating to market misconduct on market development; research into the relationship between legal rules and securities market development; evidence of the unintended impacts of regulation; and research into the dynamics of financial market regulatory regimes. Finally, this article mentions that understanding the general context in which law and regulation operates deepens our understanding of the nature, potential, and limits of law and regulation themselves. (shrink)

The recently rising field of Critical Data Studies is still facing fundamental questions. Among these is the enigma of digital subjectivation. Who are the subjects of Big Data? A field where this question is particularly pressing is finance. Since the 1990s traders have been steadily integrated into computerized data assemblages, which calls for an ontology that eliminates the distinction between human sovereign subjects and non-human instrumental objects. The latter subjectivize traders in pre-conscious ways, because human consciousness runs too slow to (...) follow the volatility of the market. In response to this conundrum Social Studies of Finance has drawn on Actor-Network Theory to interpret financial markets as technically constructed networks of human and non-human actors. I argue that in order to develop an explicitly critical data study it might be advantageous to refer to Maurizio Lazzarato’s theory of machinic subjugation instead. Although both accounts describe financial digital subjectivation similarly, Lazzarato has the advantage of coupling his description to a clear critique of and resistance to finance. (shrink)

We use game theory and Santa Fe Artificial Stock Market, an agent-based model of an evolving stock market, to study the optimal frequency for traders to revise their market forecasting rules. We discover two things: There is a unique strategic Nash equilibrium in the game of choosing forecast revision rates, and this equilibrium is sub-optimal in the sense that traders’ earnings are not maximized an the market is inefficient. This strategic equilibrium is due to an analogue (...) of the prisoner’s dilemma; the optimal global state is unstable because each trader has too much incentive to ‘defect’ and use forecasting rules that pull the market into thesub-optimal equilibrium. (shrink)

Objectives of socially responsible investment (SRI) are discussed with reference to the two main mechanisms of the SRI ‘movement’: shareholder advocacy and managed investments. We argue that in their current forms, both mechanisms lack the power to create significant corporate change. Shareholder advocacy has been largely unsuccessful to date. Even if resolutions were successful, shareholder advocacy may still be ineffective if underlying economic opportunities remain. Marketing material and investment prospectuses issued by socially responsible mutual funds (SRI funds) commonly contain the (...) claim that, by affecting corporations' access to capital funding, SRI funds can change corporate practices. This paper makes a contribution by presenting the market share of SRI funds in the regions where they are most developed, being Europe, the U.S. and Australia, to show that this claim is unlikely to eventuate. SRI funds also commonly claim that they will outperform conventional active mutual funds. That the economic performances of both are similar might be explained by their similar portfolio compositions. The paper makes an innovation in the SRI literature by adopting a legitimacy framework to explain the continued presence of SRI funds. To achieve desired social and environmental outcomes, SRI funds are urged to address issues at a more systemic level. A suggested mechanism is the collective lobbying of corporations and, especially, governments. (shrink)

This article explores the role of financial markets for sustainable development. More specifically, the authors ask to what extent financial markets foster and facilitate more sustainable business practices. The authors highlight that their current role is rather modest and conclude that, on the old paths, a paradoxical situation exists. On one hand, financial market participants increasingly integrate environmental, social, and governance criteria into their investment decisions, whereas on the other hand, in terms of organizational reality, there (...) seems to be no real shift toward more sustainable business practices. The authors identify two main challenges within the field of sustainable investments that are relevant for entering new avenues that may help overcome this situation. First, a reorientation toward a long-term paradigm for sustainable investments is important. Second, ESG data must become more trustworthy. From a theoretical point of view, the authors finally highlight the potential market consequences when ESG investment criteria are used. (shrink)

The novel coronavirus (COVID-19) has imperatively shaken the behavior of the global financial markets. This study estimated the impact of COVID-19 on the behavior of the financial markets of Europe and the US. The results revealed that the returns of the S&P 500 index have been greatly affected by a lockdown in the US owing to COVID-19. However, the health crisis generated due to the novel coronavirus significantly decreased the stock returns of the Nasdaq Composite index. The results (...) also showed that the economic crisis generated from the pandemic in Spain has had more impact on the IBEX 35 as compared to the health crisis itself. On the other hand, in the long-run, Italy’s stock markets are more affected by the health crisis as contrasted with the economic crisis, while, in the short-run, both lockdown conditions and economic instability lower the stock returns of FTSE MIB. The UK stock markets witnessed that in the short-run, deficiency of health management systems imperatively damaged the stock returns of the London Stock Exchange. The investigation revealed that deficiency of health systems and lockdown conditions have imperatively damaged the structure of financial markets, inferring that sustainable development of these nations is at risk due to COVID-19. The study suggested that governments should allocate more of their budget to the health sector to overcome a health crisis in the future. (shrink)

The concept of ‘information’ is central to our understanding of financial markets, both in theory and in practice. Analysing information is not only a critical part of the activities of many financial practitioners, but also plays a central role in the Efficient Market Hypothesis (EMH). The central claim of this paper is that different data can count as information in fi-nancial markets and that particular investors do not consider all of the available data. This suggests that firstly, (...) saying the price of a stock should be $X once a particular piece of information has been incorporated in the price is only justifiable if we know that this information really is relevant for other investors. Sec-ondly, the EMH is often tested by looking at market behaviour after the release of information; again, this is only justified if we know that other market participants share the view that this is information. The purpose of this chapter is to suggest that there are good reasons for thinking that we do not know this. Finally, this chapter also suggests that bubbles in financial markets are best understood in terms of salience of information, rather than irrationality. (shrink)

Recent concern over “high frequency trading” (HFT) has called into question the fairness of the practice. What does it mean for a financial market to be “fair”? We first examine how high frequency trading is actually used. High frequency traders often implement traditional beneficial strategies such as market making and arbitrage, although computers can also be used for manipulative strategies as well. We then examine different notions of fairness. Procedural fairness can be viewed from the perspective of (...) equal opportunity, in which all market participants are treated alike. The same rules apply to HFT as to other traders. Another approach to fairness is in the equality of outcomes. Many HFT strategies are beneficial to other market participants, so one cannot categorically denounce the practice as unfair. Other strategies, for both high and low frequency trading, are not. It is thus important to distinguish between the technology and the use of the technology to make judgments on fairness. (shrink)

The concept of non-arbitrage plays an essential role in finance theory. Under certain regularity conditions, the Fundamental Theorem of Asset Pricing states that, in non-arbitrage markets, prices of financial instruments are martingale processes. In this theoretical framework, the analysis of the statistical distributions of financial assets can assist in understanding how participants behave in the markets, and may or may not engender arbitrage conditions. Assuming an underlying Variance Gamma statistical model, this study aims to test, using the FBST (...) - Full Bayesian Significance Test, if there is a relevant price difference between essentially the same financial asset traded at two distinct locations. Specifically, we investigate and compare the behavior of call options on the BOVESPA Index traded at (a) the Equities Segment and (b) the Derivatives Segment of BM&FBovespa. Our results seem to point out significant statistical differences. To what extent this evidence is actually the expression of perennial arbitrage opportunities is still an open question. (shrink)

ABSTRACTAlthough a growing stream of research investigates the role of government in corporate social responsibility, little is known about how governmental CSR interventions interact in financial markets. This article addresses this gap through a longitudinal study of the socially responsible investment market in France. Building on the “CSR and government” and “regulative capitalism” literatures, we identify three modes of governmental CSR intervention—regulatory steering, delegated rowing, and microsteering—and show how they interact through the two mechanisms of layering and catalyzing. (...) Our findings: 1) challenge the notion that, in the neoliberal order, governments are confined to steering market actors—leading and guiding their behavior—while private actors are in charge of rowing—providing products and services; 2) show how governmental CSR interventions interact and are orchestrated; and 3) provide evidence that governments can mobilize financial markets to promote CSR. (shrink)

AbstractDuring the last 20 years, the financial sector has undergone an unprecedented transformation due to new regulations and the implementation of several technological advancements. The combination of regulation and technology has brought about new financial processes that have fundamentally changed how financial market making is done. This paper studies the ethics of financial market making and its implications for one of the most controversial financial innovations of modern times, namely high-frequency trading (HFT). We (...) claim that the Aristotelian distinction between natural chrematistics, which is aimed at serving the real economy, and unnatural chrematistics, whose ultimate purpose is wealth accumulation, can be a useful criterion to assess the ethics of financial market making and the goodness of an innovation as HFT, and how it can serve the common good of society. This approach can be defined as ‘purpose oriented’ or ‘purpose fulfillment’. (shrink)

This book offers a unified treatment of selected topics in the theory of financial markets. Starting with discrete time models, Dothan introduces discrete time stochastic calculus and discrete martingale methods of intuitive simplicity to characterize attainability, completeness, pricing, and the relationship between risk and return in financial markets. Subsequently, he uses the intuition developed in conjunction with the discrete time theory to introduce continuous time calculus for continuous, jump, and mixed continuous-jump processes, and to deal with attainability, completeness, (...) pricing, and the relationship between risk and return in general continuous time models. Throughout, the exposition of the continuous time theory emphasizes the analogies between discrete time and continuous time methods and results. The book includes many examples, applications to the pricing of options and other derivative securities, and an extensive discussion of the Black-Scholes model and its most general theoretical extension. (shrink)

This study examines the circumstances under which rural households can use outmigration to cope with negative shocks. In theory, when financial markets are imperfect and when migration involves a fixed cost, the impact of economic shocks on migration can depend on the extent to which shocks are common across households. When shocks are idiosyncratic, shocks are likely to raise migration. But aggregate shocks may make it more difficult to pay fixed migration costs, and so can actually lead to less (...) migration. In a rural household panel from El Salvador, idiosyncratic and aggregate shocks do have opposite effects on migration. Households become differentially more likely to have a migrant relative in the year following an idiosyncratic shock . By contrast, aggregate shocksCproximity to the massive 2001 earthquakesClead to large differential declines in migration. Increased difficulty in financing migration=s fixed cost is likely to help explain declines in migration in areas closest to the quakes: households in quake-affected areas also experience differential declines in granted credit. Empirical evidence does not support alternative explanations for the quake-induced migration decline, such as a desire for family unity, increases in outside aid, a need for family labor in reconstruction, or improved local income opportunities. (shrink)

This dissertation abstract and reflection commentary present the work of Dr. Andrea Liesen. The dissertation examines the informational efficiency of financial markets to price the systematic risk stemming from climate change for European companies. The abstract provides an overview of the underlying theory, introduces the development of hypotheses, the method applied, and data gathered, as well as selected implications of results. The reflection commentary discusses the author’s views of the research process as a junior scholar.

In this chapter we consider economic systems, and in particular financial systems, from the perspective of the physics of complex systems (i.e. statistical physics, the theory of critical phenomena, and their cognates). This field of research is known as econophysics—alternative names are ‘financial physics’ and ‘statistical phynance.’ This title was coined in 1995 by Eugene Stanley, and since then its researchers have attempted to forge it as an independent and important field, one that stands in opposition to standard (...) (‘Neo-Classical’) economic theory. Econophysicists argue that the empirical data is best explained in terms flowing out of statistical physics, according to which the (stylized) facts of economics are best understood as emergent properties of a complex system. However, some economists argue that the methods used by econophysics are not sufficient to prove the existence of underlying complexity in economic systems. The complexity claim can nonetheless be defended as a good example of an inference to the best explanation rather than a definitive deduction. (shrink)

Increasingly in economics what had been considered to be unusual and unacceptable has come to be considered usual and acceptable, if not necessarily desirable. Whereas it had been widely believed that economic reality could be reasonably described by sets of pairs of linear supply and demand curves intersecting in single equilibrium points to which markets easily and automatically moved, now it is understood that many markets and situations do not behave so well. Economic reality is rife with nonlinearity, discontinuity, and (...) a variety of phenomena that are not so easily predicted or understood. At the same time the broad coherence of economic systems is more impressive than ever in the face of such phenomena. The order of the economy appears to emerge from the complex interactions that constitute the evolutionary process of the economy. These phenomena have come to be labeled as complexity in economics. Even what seems simple in economics generally arises from behavior not reflecting rational expectations; we live in a world that reflects the enormous variety and diversity of humanity in their knowledge, attitudes, and behaviors, interacting with each other in an enormous range of institutional frameworks. What emerges in the aggregate may have little to do with what happens at the individual level. But this aggregate cannot be simply described by some set of aggregate equations. It emerges out of the soup of the individual and particular with all its multiform interactions and peculiarities. (shrink)

Ethical investors are widely thought of as having two main goals. The negative goal of avoiding their investments to be morally tainted. The positive goal to further a certain ethical value they embrace or some normatively laden idea they hold by investing their money in a certain company. In light of these goals, the purpose of this paper is to provide an account of how we can explicitly include investors’ intentions when conceiving of ethical investment. The central idea is that (...) an investor’s intentions may act as both a negative and a positive qualifier for making investing ethical. If we subscribe to this account, there are interesting upshots with respect to how ethical investing compares to ethical giving as effective altruists construe it. (shrink)

Regulation is often applied to business behavior to ensure that the social costs of doing business are included in the cost and pricing structures of the firm. Because the consumer benefits from the transaction that generated the social costs, asking the consumer to bear the burden imposed by the transaction is fair. However, there may be a lack of Justice m the internal and external distribution of the social costs of doing business if consumers are the only party bearing that (...) burden, or if the costs are being shifted to employees or taxpayers when a closer stakeholder is also benefiting from the transaction – the stockowner. A social justice perspective requires that those benefiting from a transaction share in the burdens of it. We propose that a Tobin-like tax on stock transactions might be a just means of achieving greater justice in the distribution of the social cost burden. (shrink)

The 2008 financial crisis exposed the dark side of the financial sector in the UK. It brought attention to the contaminated culture of the business, which accommodated the systemic malpractices that largely contributed to the financial turmoil of 2008. In the wake of the crisis there seems to be a wide consensus that this contaminated culture can no longer be accepted and needs to change. This article examines the ills of the UK financial market, more (...) specifically the cultural contamination problem, which was uncovered by the 2008 financial crisis, in order to explore its genesis and the suitable solutions for it. In this regard, the article analyses the ethical finance sector from theoretical and practical perspectives in order to assess its role in addressing the cultural contamination problem of the UK financial market. (shrink)

This paper reviews the development of socially responsible investment (SRI) in the Spanish financial market. The year, 1997 saw the appearance in Spain of the first SRI mutual fund, but it was not until late 1999, that major Spanish fund managers offered SRI mutual funds on the retail market. The development of SRI in the Spanish financial market has not experienced the high levels of development seen in other European countries, such as France or Italy, (...) where interest in SRI began during the same period. This paper presents an analysis of the impact of SRI mutual funds managed by Spanish fund managers comparing the evolution of managed assets and number of investors. We also analyse the investment strategies adopted by these funds, which mainly use negative screening criteria and the participation of non-governmental organisations as institutional investors. An analysis of the take up of socially responsible investment in the Spanish financial market shows majors deficits in this process. This is due to Spanish investors having limited sensitivity to social issues and knowledge of SRI, and a lack of development of SRI investment strategies, such as engagement or shareholder activism by fund managers. Furthermore, the take-up of SRI mutual funds in the Spanish financial market coincided with a fall in the stock market at the beginning of the 21st Century. We conclude with an analysis of the relationship between SRI and Corporate Social Responsibility (CSR). (shrink)

The paper deals with the topical issue of studying cyclic patterns in the economy and their practical application for the forecasts on the development of financial markets. The work aims to establish the features of the seasonal-cyclic patterns "The January barometer" and "The first five days of January" in the international financial markets in current conditions and to develop recommendations for the practical application of these patterns in the investment activities. The US stock market as an integral (...) part of the World financial market was chosen as a basis for research. The research was conducted by statistical processing of data on the values of the broad market index Standard & Poor's-500 for the period from 1950 to 2019. The study showed that the formation of forecasts about the annual growth or decline of the stock market index using the seasonal-cyclic patterns "The January barometer" and "The first five days of January" can show a high result in cases where the growth of the Standard & Poor's-500 index by the results of both the first five days of January and the results of the entire month of January of this year is a positive value. Otherwise, forecasting based on these instruments is not advisable. The best results (the forecast efficiency was 93.3%) were achieved with the joint application of both cyclic patterns. The practical application of the research results makes it possible to improve the efficiency of investment activities in international financial markets. (shrink)

Individuality and collectivity are central concepts in sociological inquiry. Incorporating cultural history, social theory, urban and economic sociology, Borch proposes an innovative rethinking of these key terms and their interconnections via the concept of the social avalanche. Drawing on classical sociology, he argues that while individuality embodies a tension between the collective and individual autonomy, certain situations, such as crowds and other moments of group behaviour, can subsume the individual entirely within the collective. These events, or social avalanches, produce an (...) experience of being swept away suddenly and losing one's sense of self. Cities are often on the verge of social avalanches, their urban inhabitants torn between de-individualising external pressure and autonomous self-presentation. Similarly, Borch argues that present-day financial markets, dominated by computerised trading, abound with social avalanches and the tensional interplay of mimesis and autonomous decision-making. Borch argues that it is no longer humans but fully automated algorithms that avalanche in these markets. (shrink)

This article examines the role of intermediaries in financial markets in fostering corporate sustainability. Responsible investment indices have been primarily identified as intermediaries that provide information regarding corporate social performance for investors and other stakeholders. The authors argue that the role of these intermediaries is not confined solely to information provision, but they may also incentivize high levels of CSP through mechanisms such as exclusion threats, signaling, and engagement. The authors rely on unique access to the archives of the (...) FTSE4Good Index to examine the effects of these mechanisms on CSP. The study shows that companies facing exclusion threats and signaling are more likely to comply with the intermediary’s criteria, and medium levels of engagement leads to higher levels of CSP. The authors contribute to the study of sustainability in financial markets by explicating the mechanisms that intermediaries and other financial actors could employ to foster greater corporate sustainability. (shrink)

This paper has been published in 2015 in Environment and Planning D, 33 : p. 1080–1097. It is freely available from Copenhagen Business School. We thank the authors for the permission to reproduce it here.: This paper explores the relationship between bodily rhythms and market rhythms in two distinctly different financial market configurations, namely the open-outcry pit and present-day high-frequency trading. Drawing on Henri - Management et Business – Nouvel article.

Gold has been used as money for many centuries in human history. In today's markets, it is observed that gold is subject to exchange transactions that are either similar to the ṣarf contract found in classical fiqh texts or much different and more complex than it. At this point, the question of how and in which category the current gold-related transactions will be evaluated in terms of Islamic law and the solution to this problem come to the fore. In this (...) article, Yusuf Erdem Gezgin's work titled " Gold Transactions in Financial Markets: A Review in Terms of Islamic Law", written on the subject, will be introduced. In this work, which he contributed to the literature, the author discussed gold transactions in financial markets. (shrink)

This chapter argues for deregulation of the credit-rating market. Credit-rating agencies are supposed to contribute to the informational needs of investors trading bonds. They provide ratings of debt issued by corporations and governments, as well as of structured debt instruments (e.g. mortgage-backed securities). As many academics, regulators, and commentators have pointed out, the ratings of structured instruments turned out to be highly inaccurate, and, as a result, they have argued for tighter regulation of the industry. This chapter shows, however, (...) that the role of credit-rating agencies in achieving justice in finance is not as great as these commentators believe. It therefore argues instead for deregulation. Since the 1930s, lawgivers have unjustifiably elevated the rating agencies into official, legally binding sources of information concerning credit risk, thereby unjustifiably causing many institutional investors to outsource their epistemic responsibilities, that is, their responsibility to investigate credit risk themselves. (shrink)