chapter ii an overview of research in finance

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1、CHAPTERII:ANOVERVIEWOFRESEARCHINFINANCEThepurposeofthissectionandthereviewsthatfollowistoprovideabriefhistoricalperspectiveregardingthemajortheoreticalconceptsoffinancialeconomicsandbasictechniquesofempiricalfinancialresearch.Inaddition,contentofcertainimportantreviewarticleswillbebrieflydes

2、cribed.Unfortunately,thisandotherliteraturereviewshavemanysignificantgapsinthem.Nonetheless,thereadermayfindthisandotherliteraturereviewsusefulwheninitiatingfinancialresearchanddetermininghowone‟sownworkwillfitintothecontentofanalreadyrichbodyofliterature.Itisalsoimportanttounderstandhowthis

3、existingbodycanbeusedtosolvefinancialproblemsofconcerntothescholar,practitionerorpolicymaker.A.EarlyResearchAswediscussedearlier,priorto1950,financialliteratureintheacademicrealmwasprimarilydescriptive,anecdotalandprescriptive.However,therewereafewimportantexceptionsofanalyticalworkpriorto19

4、50.First,someoftheearlyinnovationsinmathematicswereintendedtofacilitatefinanceandcommerce.Forexample,LeonardoFibonacci(bornLeonardoPisanoin1170)discussedapplicationsoftheArabicnumericalsystemtointerestcalculations,exchangeratesandbookkeeping,detailingthemathematicsneededforpresentvaluecomput

5、ations.In1494,Pacioliarguedfordouble-entrybookkeepinganddiscussedprinciplesthatservedasafoundationformodernaccountingpractice.AnotheroftheseearlierexceptionswasBernoulli[1738],whowroteondiminishingmarginalutilityandriskaversion.HeproposedaproblemcommonlyreferredtoastheSt.PetersburgParadoxata

6、meetingofmathematicians.Thisproblemwasconcernedwithwhygamblerswouldpayonlyafinitesumforagamblewithaninfiniteexpectedvalue.PaulSamuelson[1937],asa22year-oldstudent,publishedhisextensionofthismodeltoanintertemporalsetting.AlessquantitativeearlyworkwaspreparedbyTurgotdeL‟Aulnewhoin1766attempted

7、tousetheconceptofarbitragetoexplainequilibriumpricedifferencebetweenhigh-qualityandlow-qualityland.Hearguedthatthemarket(arbitrageurs)wouldpricehigh-andlow-yieldlandsuchthattheirexpectedreturnswouldbeidentical.Hefurthersurmisedthatmoreriskyassets(l