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Standard financial theory

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发表于 2018-10-22 13:37:55 | 显示全部楼层 |阅读模式
Asset pricing is a core issue in financial research. Standard financial theory's research on asset pricing can be traced back to Bachelier's "speculation theory." Bachelier believes that for each transaction, there are both buyers and sellers. The former believes that prices will rise. The price is expected to fall, and on average, the probability of price increases and falls is the same. This statement has created a random walk hypothesis that has made the latecomers a standard: the return on assets is unpredictable. In such a market, investors face the dilemma of minimizing risk and maximizing returns: investors either maximize their earnings at a specific risk level or minimize their risk under specific benefits. In his classic paper "Portfolio Selection", Markowitz proved that there is a set that satisfies the above conditions - the Markowitz effective set, which is determined entirely by the benefits, risks and interrelationships of the securities themselves, but the choice of investors depends on their Preference.

The separation theorem proposed by Tobin (1958) greatly simplifies the choice of investors. He believes that if there is a risk-free return asset in the market, then there is a super effective risk portfolio corresponding to this in the Markowitz effective set. (ie, a fully decentralized market portfolio that encompasses all risky securities in the market, the weight of each security equals the ratio of their market capitalization to the degree of capitalization of the entire market), which is for all investors Similarly, investor preferences determine their position allocation between risk-free assets and market mix. The straight line formed by all possible scenarios is the straight line tantasizing the Markowitz effective set through the risk-free rate point, the Capital Market Line (CML) (Sharpe, 1964), which measures the relationship between the risk and return of an effective portfolio. In addition, the MM theory (1958, Modigliani & Miller) proposed a new method of no-arbitrage analysis; this method was promoted by Ross (1976) to Arbitrage Pricing Theory (APT), which provided a powerful complement to CAPM in empirical analysis. The period also includes the introduction of the efficient market hypothesis EMH (Fama, 1970) and the option pricing theory (1972, Black & Scholes). Together, the above research forms a complete equilibrium pricing system for standard financial theory.
The development of finance is rooted in the soil of economically rich ideas. From the above development of the standard financial theory pricing system, the shadow of neoclassical economics can be clearly seen: investor rationality and complete information hypothesis are actually the expectations of neoclassical rationality. Replica; fully borrowed from the neoclassical macro equilibrium analysis paradigm; all analyses are carried out in the perfect market advocated by neoclassical economics.
Since the formation of the standard financial theory system in the mid-1970s, it has been highly praised by the theoretical and practical circles, thus occupying the mainstream position of the theory of finance. However, there is growing evidence that standard financial theory does not correctly reflect investors' actual decision-making behavior and market performance.

1 Defects in standard financial theory

First, the difference in market characteristics makes the macro and balanced analytical paradigm not applicable to the capital market.
In the analysis of the market mechanism, Smith pointed out that reciprocity is a necessary prerequisite for people to trade. In the commodity market, producers and consumers are fixed and interdependent: consumers must buy consumer goods to survive, and producers must buy the consumer's labor to maintain production; in addition, goods are withdrawn from producers to consumers. In the market, producers continue to supply goods so that transactions continue to occur. The capital market is obviously different: first, the securities are far from the basic physiological needs of people. Investors buy securities not to consume it but to sell at a higher price. Second, the conversion of the trading role in the capital market is very convenient and does not exist. Fixed “producers” and “consumers”; finally, once the securities enter the market, they will remain in the market forever and be traded repeatedly by investors. Therefore, the capital market is essentially a closed-line pure exchange speculative market in which:
(1) There is a conflict that is difficult to eliminate in individual rationality and overall rationality. Welfare economics believes that the result of personal rational choice will lead to the optimality of the society as a whole; even if there is externality, the individual goals and the overall goals of society can be converge as much as possible through appropriate mechanisms (equity exchanges, administrative interventions). In the capital market, because of the difference between the individual target of the investor (through the mutual reversal of the secondary transaction) and the overall goal of the market (the optimal allocation of resources), the investor is in pursuit of his own goal relative to the overall market goal. Inevitably, “externality” will arise, such as the phenomenon of “chasing up and down” that occurs frequently in the market. This behavior is reasonable for investors, but it is irrational to the market as a whole (because it makes assets Prices are further deviated from the basic value, which reduces the efficiency of resource allocation); more importantly, this “externality” cannot be intervened by some mechanism (for example, prohibiting investors from doing so). Therefore, individual rationality does not necessarily lead to overall rationality.
(2) Reciprocity is characterized by the fact that both parties are subjectively profitable. Therefore, the necessary condition for the transaction to occur is that they have different subjective expectations for the equilibrium price of the assets being traded.
It can be seen from (1) that analyzing the behavior of capital market from the perspective of macroscopic whole cannot correctly reflect the actual decision-making behavior of individual investors. (2) shows that if investors have the same expectation for the equilibrium price of assets as stated in the standard financial theory, then there will be no transactions in the market. Obviously, this is not an appropriate description of the real market. .
Second, as the basis of the standard financial theory market equilibrium model and risk processing framework, there is a considerable distance between rational expectations and reality.
In the analysis of uncertain economic phenomena, expectation is a crucial concept, and its formation is related to economic people and information. The rational expectation in standard financial theory stems from neoclassical economics, including the following: investors are rational, with subjective rational consciousness and objective rational ability; their response to the arrival of information is infinitely fast, a linear response paradigm Investors are symmetrical and complete in information. Being able to anticipate uncertainty in the future is the most basic assumption in standard financial theory. The main manifestations are:
(1) Rational expectations are an important prerequisite for market equilibrium. Many important models of standard financial theory, such as CAPM, APT, and option pricing models, are market equilibrium models that require investors to know all relevant information and have sufficient ability to understand the information and take appropriate action, and they are linear. The way to respond to information is to ensure that the market can reach (or restore) equilibrium at the moment the information arrives.
(2) Rational expectations determine the standard financial theory's framework for dealing with risks. Risk metrics in standard financial theory such as Markowitz's variance and semivariance indicators, Sharpe's B-value indicators, and J. P. Morgan's VaR and so on have the following two distinctive features:
1 treat risk as an objective event or object that is independent of the agent;
2 The statistical basis is that price changes satisfy the random walk process.
The economic backgrounds shown by these two characteristics are all rational expectations: because rational expectations assume that investors have both subjective rational consciousness and objective rational ability, they can use all known information to make an unbiased estimate of the future. Risk is a purely objective measure of the uncertain future environment, independent of the investor's subject (or investor's view); second, rational expectations that investors respond to information in a linear manner, This means that the market price reflects all the historical information, and the price change depends entirely on the random arrival of the new information. Therefore, the price change (yield rate) is also independent, and its probability distribution satisfies the normal distribution.
However, unfortunately, rational expectations are far from reality:
(1) Simon believes that although economic people have a rational subjective consciousness, due to their limitations in experience, experience, knowledge level, skills, etc., they often fall into a situation that is not completely rational when making decisions (options). Expected.
(2) Capital market information is extremely fragmented, and the information on which investors make decisions is neither complete nor asymmetrical. It is impossible to make an unbiased and consistent estimate of future uncertainty, but rather has considerable subjective differences. This means that risk metrics cannot be objectively indistinguishable.
(3) Investors do not respond to information in a linear but cumulative way: human nature is more likely to respond to trends than to predict trends, so people are not very concerned about the initial information ( Insufficient response), only when this information crosses the critical level, people react to ignore all the information in the past (and often overreact at this time). This way investors respond to information suggests that it is now influenced by the past, has a memory effect, and shows a “fat tail” feature in statistical distribution (Osborne, 1964), which means that it is not enough to measure risk using volatility alone. of.
3. The no-cost hypothesis is an important source of the capital asset pricing model that concludes that “asset pricing has nothing to do with investor preferences”, but it also faces conflicts that are inconsistent with the real market.
Research on investor trading motives has been the focus of economists. A more comprehensive view is that investors' expectations of asset prices are different and the trading behavior is the result of a combination of preferences, beliefs and information (Zhang Shengping, 2002), but why does CAPM conclude that asset prices are not related to investor preferences? The conclusion? This involves another important hypothesis of standard financial theory: the no-cost hypothesis.
CAPM was developed on the basis of Markowitz's combination theory. Although Markowitz proves that there is a Markowitz effective set on the income-risk plane that is independent of investor preferences and has a hyperbolic shape, it is the most profitable at a particular risk level (or the least risk at a particular benefit), but The choice of individual investors is related to their own preferences. Tobin's segmentation theorem believes that if there is a risk-free interest rate R in the market, then there is a corresponding super effective risk asset portfolio (also called a fully decentralized market portfolio M, which has nothing to do with investor preferences); Allocate appropriate funds between risk-free assets and M to maximize their utility according to their own preferences; all possible scenarios cover the entire RfM line, which is the capital market line (CML) that CAPM says, which indicates: assets The equilibrium price is determined by the market combination M and the risk-free rate R, regardless of investor preferences. It can be seen that the existence of a market portfolio unrelated to investor preferences is the direct reason why CAPM concludes that asset equilibrium prices are not related to investor preferences. The Tobin partitioning theorem implies that all investors will choose the same proportion of risk portfolios with market portfolio M. This conclusion is taken for granted on the premise of no-cost hypothesis: since non-market risks can be eliminated without cost, then Rational investors (regardless of their risk aversion) will not bear any non-market risk.
The no-cost hypothesis stems from the perfect market zero transaction cost assumption of neoclassical economics, which ignores all costs in the market such as taxes, transaction costs, information costs, and management costs. However, in the real market, cost is by no means a negligible and irrelevant factor. Its existence directly affects the actual income of investors and is therefore an extremely important factor in determining investor behavior.
The most thorough analysis of cost is Coase, the founder of the new institutional economics. In his classic paper, The Nature of Business (1937), he regards transaction costs as a key explanatory variable and reasonably explains the emergence of enterprises. And the choice of the best company size; in another paper, Social Costs (1960), Coase further expanded the transaction costs into social cost categories, examining externalities from a new perspective, advocating a net output value A comparative institutional analysis approach that aims to be targeted, and believes that the operating costs of any mechanism (whether market or administrative) must be taken into account.
In fact, many scholars have noticed the deviation between the no-cost hypothesis and reality. Goldsmith (1976), Mayshar (1979), and Leape (1987) re-explored investors under the premise of cost (transaction cost, taxation, etc.). The combination of the choices, but their research did not have an in-depth analysis of the impact of preferences on investor portfolio choices, and did not involve the impact of preferences on investor pricing, and thus did not fundamentally change CAPM.
According to Coase's analysis of social costs, we must re-examine the rationality of the principle that “fully decentralized asset portfolio is the consistent optimal choice for all investors”: the decentralization can reduce risks, and The higher the degree of decentralization, the more obvious the effect of reducing risk; on the other hand, the increase in the degree of decentralization is accompanied by the increase in costs (such as transaction costs, management costs, information collection costs, etc.), which reduces the actual income of investors. . At this time, is there still an optimal combination in the market that has nothing to do with investor preferences? The exchange relationship between the increase in utility brought about by risk reduction and the reduction in utility brought by cost increase must be indirectly through investor preference. In fact, it can be concluded that there is no optimal combination of all investors in the market, and the portfolio choice of investors is related to their preferences.

2The development of financial theory

The analytical paradigm that is inconsistent with market characteristics and the premise premise hypothesis are the fundamental reasons why standard financial theory is far from the real market.
In view of the shortcomings of standard financial theory, the researchers have revised them from different angles and proposed some new market theories: such as the relaxation rational person hypothesis, behavioral finance formed on the basis of Kahneman and Amos Tversky research; Peters (1994) proposed fractal market hypothesis based on market liquidity and stability. At the same time, based on these theories, corresponding risk metrics and management methods such as the first security model (Roy, 1952) and its improvement (Telser, 1955; Arzav and Bawa, 1977) and behavioral combination theory (she n&Statman) have been developed. , 2000), Hurst Index, etc.

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