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Methods and Finance pp 121–128Cite as

Methods and Finance. A View From Inside

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Part of the book series: Studies in Applied Philosophy, Epistemology and Rational Ethics ((SAPERE,volume 34))

Abstract

The view from inside maintains that not only to study and understand, but also to profit from financial markets, it is necessary to get as much knowledge as possible about their internal ‘structure’ and machinery. This view maintains that in order to solve the problems posed by finance, or at least a large part of them, we need first of all a qualitative analysis. Rules, laws, institutions, regulators, the behavior and the psychology of traders and investors are the key elements to the understanding of finance, and stock markets in particular. Accordingly, data and their mathematical analysis are not the crucial elements, since data are the output of a certain underlying structure of markets and their actors. The underlying structure is the ultimate object of the inquiry. This chapter examines how the view from inside raises, and deals with, critical issues such as markets failure, information disclosure, and regulation (Sect. 2), the notion of data (Sect. 3), performativity (Sect. 4), and the study of micro-structures (Sect. 5).

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Notes

  1. 1.

    A decision is ‘lexical’ when somebody prefers A instead of B because A is considered better along a single dominant feature, without considering other ‘compensating’ properties that B might have in comparison to A. For example we chose a pizza A over B in a lexical fashion when A is selected just because it is cheaper, without looking at other features.

  2. 2.

    Let us consider, for instance, one of the most basic fast and frugal heuristics—the recognition heuristic. In this case, the heuristics could be exploited in several ways. As a stock example, let us consider an advertiser that work to ensure that her product or brand be merely recognized, exploiting the fact that consumers often jump to the conclusion that recognition and product desirability are connected.

  3. 3.

    Common examples are overfitting data or integrating incommensurable values.

  4. 4.

    O’Hara [22] defines it as the “study of the process and outcomes of exchanging assets under explicit trading rules. While much of economics abstracts from the mechanics of trading, microstructure literature analyzes how specific trading mechanisms affect the price formation process.

  5. 5.

    Mini Flash Crashes were first identified by Nanex Llc., and defined as follows.

    A down crash has to be such that the stock price change:

    (i) it has to tick down at least 10 times before ticking up,

    (ii) price changes have to occur within 1.5 s,

    (iii) price change has to exceed −0.8 %.

    An up crash has to be such that the stock price change:

    (i) it has to tick up at least 10 times before ticking down,

    (ii) price changes have to occur within 1.5 s,

    (iii) price change has to exceed 0.8 %.

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Authors and Affiliations

  1. Department of Philosophy, Sapienza University of Rome, Rome, Italy

    Emiliano Ippoliti

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  1. Emiliano Ippoliti
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Correspondence to Emiliano Ippoliti .

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  1. Philosophy Department, Sapienza University of Rome,Dipartimento di Filosofia Via Carlo Fea 2, Rome, Italy

    Emiliano Ippoliti

  2. National School of Development, Peking University, Beijing, China

    Ping Chen

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Ippoliti, E. (2017). Methods and Finance. A View From Inside. In: Ippoliti, E., Chen, P. (eds) Methods and Finance. Studies in Applied Philosophy, Epistemology and Rational Ethics, vol 34. Springer, Cham. https://doi.org/10.1007/978-3-319-49872-0_7

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