What kind of knowledge is finance?

In short, it is the knowledge about financial intermediaries.

Complex said:

School of Finance originally belongs to economics, and economics belongs to social science. This stereotype is because the attributes of any social science are defined as different ways of thinking about the same problem: how humans form groups and societies, and how they behave. Obviously, the research methods of social science and natural science should be distinguished. If we don't distinguish them, we are actually using philosophy to solve the rationality of the distinction. For example, political science explains human collective from the perspective of government organization and its behavior, while economics explains human collective from the perspective of production, exchange and division of labor, and each has its own assumptions. The idea of social science becoming a unified whole was shot in the debate at the end of the 9 th century. Although economics has been labeled as "imperialism" for several years, finance is still getting farther and farther away from economics academically.

First of all, I want to make an assumption that finance is a discipline that studies human behavior, so it is a social science rather than a natural science. However, the financial system is such a special system. With the help of modern information tools, the input-output speed of this entity has far exceeded our expectation of the change speed of social structures such as government and factories. Here, everyone's behavior and psychology have formed a complex adaptive complex system due to the rapid interaction. From a microscopic point of view, this kind of stabbing pain may really have the specificity of self-organization and reinforcement like the human brain. However, if this is true, then our assumptions must be adjusted. Because in such a system, people have been abstracted into cells, or a pollen with irregular movement, or a molecule that is attacked irregularly by martial arts examples. Then, it must be affirmed that finance is a branch of social science, which may be a bit far-fetched. This can be used to help us understand why field theory and neural network methods are applied to the financial field, so that physicists should be ashamed of the mathematical level of financial economists.

If possible, I'd like to discuss some other mature disciplines together when discussing finance. Because in a complex system research institute in New Jersey, USA, there are experts in physics, biology, mathematics and economics working for it. There is a term called lattice work. My understanding is that it can be imagined as a network, and each node is the result of various forces. Don't many of our brain cell groups think so?

Let's talk about physics first, because since Newton's mathematical principles were published, you began to believe that the meaning of God is not so important, and the world is dominated by some universal laws. Newton's serious universe is as orderly, decomposable and powerful as he cooks clocks and watches, and can explain everything, moving or static. After that, scholars in almost all disciplines believe that balance is the ultimate destination of nature, and any deviation will eventually lead to a new round of process leading to balance. Does it look familiar? Yes, Marshall brought this celestial mechanics theory into economic theory. Marshall told us that the boy didn't continue picking strawberries because his desire to play (giving up strawberries) was equal to his desire to eat strawberries. This is a great theoretical reference, although Adams's economic theory system is much richer, because there are some parts about happiness (not just utility), division of labor and organization. , but not so accurate. Of course, the pursuit of accuracy may not be Marshall's wish alone. Therefore, Zhang Wuchang's complaint that he would rather be roughly right than subtle mistakes should not be borne by Marshall. Is that weird? It turns out that the modern theoretical cornerstone of economics, a social science, comes from physics.

The concept of balance in economics was quickly applied to the financial field. Economists have always believed that the market always has a real price, but the market is always fluctuating, so the debate about what is real value is endless. Kendall of the London School of Economics predicted in the 1950s that there was no structure that would allow people to make accurate price estimates. The popularity of this paper aroused the interest of another person, that is Samuelson. His landmark paper introduced the "Rational Expectation Hypothesis". The audition price of every moment is the result of people's rational expectation. It applies the concept of equilibrium in economics to the stock market. Because the stock price of each period is the result of rational prediction, the shadow price reflecting the real value is also the real value. Are you familiar with it? Some people will say, isn't this the efficient market theory? Of course, Fama is not from another planet. He must have studied Samuelson before writing his doctoral thesis on stock price changes. Samuelson, Fama and, of course, Sharp, the generalized stock market equilibrium theory is the cornerstone of all their theories and modern financial theory.

It seems that people who are challenged by masters like them will not have a better fate than Copernicus who challenged Heliocentrism. Especially those who have received Ph.D. training in physics and mathematics, when they become investment bankers, I am afraid they will not find a good job against them. But we must say that since the stock market is actually a complex system, it is as complex as a group of ants, ecological cycle and central nervous system. The essence of this system is that individuals can communicate and interact with other individuals to accumulate experience and adapt (yes, natural science and social science are intertwined, and perhaps human knowledge structure is also a complex system). Because the complex actual system is always in the process of constant adaptation, it also brings great problems to the classical equilibrium theory. Because he has assumed that every market participant has the same rational expectation and responds effectively, but there is no such adaptation process. Of course, do you think behavioral finance is explaining those so-called anomalies? Yes, we'll talk about psychological factors later, but not yet. Now, first of all, I would like to invite finance students who are very good at mathematics and physics to begin to give up Newton's view that the concept of balance has ruled everything for 300 years, and at the same time start to think about whether the premise of the world is wrong like Newton. It is aimed at God, and we are rethinking Newton.

Brian Arthur is not the former chairman of the US Securities Regulatory Commission, nor is he the famous Arthur who wrote about equality and efficiency. But he has compared the characteristics of old and new economics, and the result of the comparison is that he thinks the development direction of economics is more similar to biology than mechanics. But this is not the first person to say so. Sorry, I have to open another e-book to find this passage: the holy land of economists is economic biology, not economic mechanics. But the concept of biology is so complicated that we have to let mechanics precede most areas of mini-economics. Guess who said this sentence? These words are from the preface of Principles of Economics of 1920, written by Marshall. In fact, it is worth our attention to summarize the essence of complex systems, that is, individuals in the system first form their own expectations or models, and then use them to make predictions, but Ken will soon find that this model will no longer be applicable and must be changed or even completely abandoned. Is this done by countless pricing strategies and theories and countless pricing models in the past 100 years? In fact, I think there is nothing wrong with these models, whether it is technical analysis or mathematical simulation, there is no right or wrong. They don't apply, only for one reason, the system is evolving. Trading strategies, like species, must evolve according to the reactions of other organisms and the natural (perhaps classified as regular) environment, otherwise it will be difficult to survive. The market's desire for currency appreciation is as selfish as gene self-replication. There are countless models competing in the market every day. If you continue to use the appropriate one, the author can keep a salary. But every day, many people lose their jobs, and more people are playing spreadsheets, trying to surpass others. Actually, I am not a social Darwinist, but I firmly believe in Laozi's worldview. Of course, all these can be explained in Laozi's theory, but the problem of sophomore year may be more familiar to everyone (speaking of which, I strongly recommend that you go to the history page to see my article entitled "World Outlook Conception").

But there is one characteristic that is unique to financial markets, and that is the speed of "evolution". Modern network and billions of participants, * * * together constitute a system, and its evolution speed and speed are beyond imagination. Perhaps many people in it can't understand this, but just like the human evolution we are experiencing now, many people have no feeling about it-this is because biological evolution is too slow, and the effect of a generation may not be seen at all. However, a year's financial market can make countless star fund managers feel ashamed. This is a cruel reality. When a society advances to such an acceleration, who will not have the fear of being in time and space and sliding off the train on Mount Everest?

So are all individuals in the market really effective? Although individual talents are different, we generally believe that those who are wise, such as Nobel Prize winners, can also succeed in the market. Unfortunately, we often see the opposite example. Some winners in economics end up losing miserably. Well, I quote an empirical study on ant colony to illustrate whether our view of "noise traders" is too biased now. When ants go out for food, they usually act independently, leaving a smell to avoid unnecessary repetition. But if food is found, it will add flavor and let other ants act together. Some scholars use computers to test human ability to solve similar problems, such as walking a maze. Including inexperienced and experienced people. But in the end, the result of a large number of experiments is that even if everyone has no experience, they can find the exit quickly. However, if this experiment only includes those senior people, perhaps the game makers or other highly educated people, then the level of solving housing cases will often be reduced. A simple inference is that a stock market is made up of all kinds of people, which is more sound than a market made up of all smart people. Diversified market participants are always more efficient than single market groups. Yes, biodiversity is very important to the ecological environment, as well as to the market. So, maybe we don't have to think that only the smartest people can enter the financial market. This is completely wrong, and practice has proved it. So I understand that Merrill Lynch rejected my application, because this result does not mean that I am stupid, hehe.

But students who have studied complex systems will know that the trend of the system is very likely to cycle all the possibilities one by one. So will the market trend be very dangerous because of this randomness? Will soon collapse. One scholar has proved that the direction of the market depends on personal choice. As long as individuals' preferences for different choices are similar, the system is not so dangerous, that is, the danger comes from the extreme unity of individual behavior ... Remember the familiar scenery? Macroscopically, only a micro-chaotic economy is healthy. Well, we finally talked about psychology. But behavioral finance has become a hot field. In order to avoid making a fool of myself, I will say less. I recommend you to watch Popular Fantasy and Collective Madness. Because behavioral finance mainly discusses overreaction caused by psychological factors, his hypothesis is still a deviation from a certain equilibrium benchmark. Today, what we are actually discussing is whether there is such a balance.

Next, I want to introduce a person I admire most in the financial field, namely Soros. I believe countless people admire him. Because young European immigrants have no chance to enter the top financial institutions, but because of the thinking and reflective principles of an open society, they have successfully operated funds ranging from $6.5438+0.2 million to tens of billions. In fact, it is the deviant of traditional finance, and he never believes that the market is correct. After reading several of his books, I think this market is a system with a certain trend of self-evolution. No one can judge the direction of this system unless you can master the "change rationality" of all participants. Just like how did the dinosaur know it was another animal, and an animal weaker than him was more suitable for this world? Especially in this cruel and fast market, we will all die in the long run, so how can we give you time? The performance of this market is self-realization and self-regulation. You said the dollar was overvalued. How can it be overestimated? Will he definitely return to equilibrium? However, the overvaluation of the US dollar will cause the market equilibrium interest rate to fall, and after stimulating the economy, the US dollar will really have an overvalued basis. Do you think those initial judgments were wrong? Maybe it's because you can't judge the direction of the world change. Therefore, Soros stressed that there is no place for cowardice in financial markets. Securities investment is a kind of behavior that enlarges all behavioral characteristics to the extreme because of the improvement of speed. It can be said that the securities market is designed according to human weakness, and it is a game that tries to compete with its own limitations. In this simulated ecological environment, human beings may be able to glimpse some clues in the future. But can this market explain it?

I can't answer this question simply. Because I need to make a living, and I also need to exchange some necessary rations in this market. Dear students, how I hope you can give your judgment after reading such a long article of mine. What is finance? Is the financial market balanced? What is the essence of the market?

If you want me to express my opinion, I still recommend you to read Laozi and Yijing, which contain a perfect understanding of nature. Of course, I can simply describe it:). Because this understanding is not a western understanding of the pursuit of victory, nor is it an understanding of the accuracy of numbers. I believe ysdxf must have its reasons for studying the Book of Changes. In fact, more financial scholars are trying to study philosophy, which I think is a good thing, because finance may be a Babel created by human beings, which may inadvertently bring us great promotion in philosophical thinking and understanding of the universe.

For utilitarian purposes, I recommend St. John's College. The purpose of this missionary college is to train thinkers, not businessmen or investment bankers. His students must read more than 100 "literary books" from ancient Greece to federalists in four years, although their major may be finance or accounting. People who come here can be seen everywhere on Wall Street. You can find many people, such as the president of Merrill Lynch. When some of them were asked why they succeeded, they said that it was because their understanding of philosophy made them not confused by those complicated mathematical pricing models, which were essentially the same. But please note that what I recommend are those books. Ha ha.