StudentShare
Contact Us
Sign In / Sign Up for FREE
Search
Go to advanced search...
Free

Analysis of Financial Article - Essay Example

Cite this document
Summary
The article “Chaos in the Capital Markets: A New View of Cycles, Prices, and Market Volatility” by Edgar Peters aims to apply R/S analysis to different capital markets and capital market instruments. …
Download full paper File format: .doc, available for editing
GRAB THE BEST PAPER95.1% of users find it useful
Analysis of Financial Article
Read Text Preview

Extract of sample "Analysis of Financial Article"

?Running Head: Analysis of Financial Article Analysis of Financial Article [Institute’s Analysis of Financial Article The article “Chaos in the Capital Markets: A New View of Cycles, Prices, and Market Volatility” by Edgar Peters aims to apply R/S analysis to different capital markets and capital market instruments. The author believes that in all cases, fractal structures and non-periodic cycles were found, which accordingly suggests and provides evidence that capital markets have a non-linear system, which thus makes the EMH doubtful. The author begins the article by asserting that logarithms will be applied to analyze data instead of percentages as logarithms can calculate cumulative returns and percentages cannot. Thus, the steps to analyzing R/S for capital markets include first converting prices into logarithms and then applying the suggested equations. Then each capital market instrument and data is analyzed turn by turn to gauge volatility, cycles, and price changes. The author uses Hurst statistics to analyze various capital market instruments and implies at the end of the article that prices are reflections of investors’ concept of ‘fair value”. While some may believe this to be a single value, this can actually be a range of values which is based on information such as the earnings from an investment, the management system, the new products offered, and the economic environment in that area. After fundamental analysis and technical analysis of what other investors believe their counterparts are willing to pay, the price is automatically adjusted to what is perceived as fair price and thus other investors become attracted to the investment and begin to purchase it. A Hurst statistic of more than 0.5 suggests that new information and previous events may affect the future prices of securities while one, which is lower than 0.5 implies the opposite. The author claims that the capital markets have a fractal nature and thus models such as the CAPM, APT, and Black-Scholes model fail. It is mainly due to their simple assumptions and their lack of acknowledging the importance of time when making vital decisions. Hence, the author believes that fractal analysis is a better measure of the reality of capital markets and the outcomes of human decision making. Fractal analysis is a reflection of the reality of life and how messy and complicated results can be. Thus, while it makes mathematics more difficult, it also explains the qualitative aspects of decision making and capital markets. It also gives capital markets a number of air values, cycles, trends, and recognizes the fact that there are innumerous possibilities. Thus, in the author’s point of view, fractal analysis is a better measure of the capital markets rather than the simple models as it accounts for a number of things, which are not accounted for in simple analysis. Hence, even though it is more complicated, the author encourages its use. The important points in the article are as follows: Logarithm returns are a better measure than percentages when calculating changes in price The author suggests that enough data is collected when the natural period of the system is visible and several cycles are available for analysis The first regression analysis is applied to the S&P 500 from 1950 to July 1958 The high value of H suggests the fractal position of the market The stock market results are not in accordance with the efficient market hypothesis The author suggests that market returns are persistent and have a fractal probability distribution The system is non-periodic and reinforces trends According to CAPM, a higher beta stock value is riskier than a lower beta stock value This is due to higher volatility The author suggests that high H values pose less risk and low H values may pose more risk High H values have less noise in the data while lower H values have more noise High H values may change abruptly Portfolio diversification reduces risk Market efficiency can be determined by the level of noise in the data The article examines a 30-year bond to examine the volatility of the bond market The author observed slightly more noise in the Hurst statistics for Treasury Bills compared to long bonds However, it was difficult to draw any conclusions from the data presented regarding the bonds To analyze currency in the capital market, the Singaporean dollar, US Dollar, Japanese Yen, British Pound, and the German mark. Currency markets may abruptly change due to controls imposed by governments Currencies are not exceptionally persistent Lack of data led to the cycles of currency not being completely visible Currency markets have a fractal structure as well which is confirmed by the occurrence of the values of H R/S analysis shows that economic indicators have very persistent H values Thus, this suggests that economic indicators follow a non-periodic cycle There is too much subjective data, thus it is difficult to analyze data in economic indicators The implications of the study explain that the existence of Hurst statistics is because of investors aiming to set a “ fair value” for a security However, the value does not remain constant New information regarding the security or changes in market conditions can cause a lot of volatility A 0.5 H value suggests that events are unrelated and today’s information does not affect tomorrow However, a value greater than 0.5 suggests that new information will impact the security and present events affect future events The fractal nature of the markets contradicts all simple models such as the CAPM, the APT, and the Black-Scholes option pricing model Simplifying reality and ignoring the influence of time has led to the failure of these models amongst others Fractal analysis may be a cause for more complications and confusion However, the results obtained through fractal analysis are more accurate and practical Fractal analysis considers all the possibilities and returns a multitude of results Cycles, Trends, and a number of fair values are evident from fractal analysis It outlines the qualitative effects of human decision making and gives them a quantitative measurement Thus, such statistics recognize and account for the fact that life may be quite complicated and messy and has innumerous outcomes and possibilities References Peters, Edgar E. n.d. Chaos and Order in the Capital Markets. John Wiley & Sons. Read More
Cite this document
  • APA
  • MLA
  • CHICAGO
(“Analysis of Financial Article Essay Example | Topics and Well Written Essays - 1000 words”, n.d.)
Analysis of Financial Article Essay Example | Topics and Well Written Essays - 1000 words. Retrieved from https://studentshare.org/business/1460240-write-an-outline-and-critical-assessment-for
(Analysis of Financial Article Essay Example | Topics and Well Written Essays - 1000 Words)
Analysis of Financial Article Essay Example | Topics and Well Written Essays - 1000 Words. https://studentshare.org/business/1460240-write-an-outline-and-critical-assessment-for.
“Analysis of Financial Article Essay Example | Topics and Well Written Essays - 1000 Words”, n.d. https://studentshare.org/business/1460240-write-an-outline-and-critical-assessment-for.
  • Cited: 0 times

CHECK THESE SAMPLES OF Analysis of Financial Article

Analysis of Articles about the Poverty Issue

The author gives a summary of these articles and identifies their importance… The article is beneficial because it offers official poverty data as released by the government, which includes the approach of the government in addressing the issues associated with poverty eradication and analysis.... Importance The article is beneficial because it offers official poverty data as released by the government, which includes the approach of the government in addressing the issues associated with poverty eradication and analysis....
4 Pages (1000 words) Article

Using foreign financial statements

The article is about a very important field in contemporary financial world,the skills' requirements to read financial statements of foreign companies and extracting information of interest from these financials.... he article presents some techniques that organizations usually employ when their financial statements are provided to foreign users.... … This ranges from doing nothing (in which case the financial statements might be in non-English language with figures shown in local currency and might not follow Generally Accepted Accounting Principles - GAAP, or International financial Reporting Standards - IFRS) to a completely new set of statements, explicitly prepared for United States....
3 Pages (750 words) Article

Banking Development in Financial Structure by Harry Huizinga

The article is written in the overall milieu of the financial development and development of financial structure and their concomitant and possible impact on bank performance as measured by the chosen indicator(s).... Authors of the article have, however, taken a snapshot view of the phenomenon of financial development, financial structure and bank performance from domestic operations of the banks without emphasizing or building in the international dimension....
10 Pages (2500 words) Article

Rhetorical Analysis Two Publications by the New York Times

In summary, it described Facebook, presented Facebook users' dislike on Facebook's new design, mentioned Facebook's financial challenges and Facebook users' love-hate relationship with Facebook.... This article seeks to compare and contrast two articles published by the New York Times....
5 Pages (1250 words) Article

Petrobras Sets Ambitious Capital Budget by J. Fick

It is clear that the balance of power is changing in terms of financial resources as well as energy dynamics.... The article's strength lies in the way in which the reporter has culled the financial data pertaining to the firm to provide an analysis of the plans of the firm in the next few years....
2 Pages (500 words) Article

The Impact of Corruption on Liquidity, and Foreign Equity Investments in International Capital Markets

The calculations based on average risk on average level of corruption and its correlation with calculated execution risk is clearly assessed for the easy analysis of economic constraints.... While the article suggest that the well-functioning of a financial enterprise is only possible with the reliability of sustainable market conditions and crystal clear transparency of transactions.... Many authors like Shleifer and Eleswarapu consider financial business confronts several conditions that pose dangerous threat to liquidity; most of them are centered to corruption, government involvement in the financial sector and malpractices due to poor management....
3 Pages (750 words) Article

Summary/Analysis/Synthesis

The articles are a brief discussion on the proposed US government $1 billion spending under the Veteran Jobs Corps (VJC) dubbed ‘rebuilding America'.... This arises against a backdrop of the president's campaign and policy for withdrawal of US troops from warfronts-for… These political articles assess the intended unemployment cut of estimated at 20,000 amongst its veteran population over the period 2012-2017 versus Proponents argue that the proposal can be funded using the net gains from reduced military operations overseas....
3 Pages (750 words) Article

Do Firms Target Credit Ratings or Leverage Levels

B-rated firms are associated with constant financial distresses therefore, their marginal financing behavior is influenced more by their lack of access to the debt market (Kisgen, p1331).... Credit rating has for a long time been documented as an important determinant of the capital structure policy decisions....
4 Pages (1000 words) Article
sponsored ads
We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.
Contact Us