global financial market
Financial market is a platform where buyers and sellers come together with the intension of buying or selling of financial goods. Global financial markets are the platforms where financial goods can be bought and sold. (1)
The main function of global financial market is to trade securities, stock, bonds and commodities in the place known as stock exchange.
In this assignment we are going to analyse and discuss the contribution some of the famous analyst of their time like Charles H. Dow, Nichols Kondratieff and Joseph Schumpeter.
In this assignment we will also discuss about the efficiency of the global financial market and try to evaluate the credibility of market on the bases of the Efficient Market Hypothesis (EMH). Also try to find out by the observation that the EMF is effective in the real sťance or it just a theory that has no effect on the financial market at all.
The global financial crises will also be discuss in this assignment to understand the fact that the crises was predicted or unpredicted and if it is known then was it is possible to prevent the financial market or it is suppose to be the way it is, in crises.
It's now so many years that the people are trading the financial goods in the market. Every one wants to get the maximum profit out of it. For the purpose many people who have knowledge and experience of financial markets wrote many books and journals about the way financial markets works. The approach might be different but the aim of each research is to better understand the market in order to get profit out of it. There are some famous economist who gave their thoughts on the way market works. From those I am discussing the Charles H. Dow, Nichols Kondratieff and Joseph Schumpeter theories.
Charles H. Dow
The William P. Hamilton, Robert Rhea and E. George Schaefer presented Dow theory. They arrange H. Dow editorials to present them as a theory. Charles H. Dow wrote 225 editorials. Dow him self never present them in the from of theory.
Charles H. Dow defined market according to the trends of volume change and concern with Primary and Secondary markets. The six basic rules or pillers of Dow Theory as summarized by Hamilton, Rhea are described below. (2)
According to Dow Theoty there are three basic movements in the market.
(1) The "main movement", primary movement or major trend may last from less than a year to several years. It can be bullish or bearish.
(2) The "medium swing", secondary reaction or intermediate reaction may last from ten days to three months and generally retraces from 33% to 66% of the primary price change since the previous medium swing or start of the main movement.
(3) The "short swing" or minor movement varies with opinion from hours to a month or more. The three movements may be simultaneous, for instance, a daily minor movement in a bearish secondary reaction in a bullish primary movement.
Market trends has three phases
Dow Theory explains that major market trends are made of three phases: an accumulation phase, a public participation phase, and a distribution phase.
The accumulation phase (phase 1) is a period when investors are actively trading stock against the general opinion of the market. In this phase, the stock price does not change much because these investors are in the minority absorbing stock then the market at large is supplying.
Market catches investors (phase 2) Eventually, the market catches with these primery investors and the rapid change in the price can be seen in the market. This occurs when trend followers and other technically oriented investors participate. This phase continues until rampant speculation occurs.
Astute investors selling holdings (phase 3) when phase 2 comes to its saturated state, the primory buyers in the market start selling their shairs. That time is best for profit selling.
If Schumpeter were alive today, he would surely ask, What caused this crisis? And, is this kind of scandal or drama endemic to the nature of capitalism itself? While a lot of attention has been given to the first question, I want to focus on the more ominous second one. Namely, how to save capitalism from a potentially fatal reaction to this crisis.
We need to remember that Schumpeter embraced capitalism not as a reaction or as the second-best solution to the unproductive reality of utopian economic planning. Rather, he saw capitalism as the foundation of two complementary forces. The first was economic expansion. The second was its role in protecting individual freedom.
For Schumpeter, to sacrifice one was to imperil the other. More starkly, he would remind us in no uncertain terms that, whatever our present doubts, the only way freedom is secure for any individual is within a growing economy. In other words, political freedom depends on economic expansion. In our own time, the Indian-born economist Amartya Sen has shown the importance of this tandem for the world's developing economies where economic expansion has become synonymous with freedom.
The connection between economic growth and democracy is, as political scientist Michael Mandelbaum says, a "tendency," not an "invariable law" of political economy. Economic growth usually brings higher rates of literacy and education, as well as a general shift from rural to urban living, elements shown to be correlated with democracy. Moreover, the overlap between free markets and democracy -- in private property, limited government, a thriving civil society, and established rule of law -- makes the causal connection even stronger.
As a general rule, only capitalism can create wealth and liberty at the same time. And, of course, capitalism can expand welfare faster than any other social or economic order has ever done.
However, given the pressures of the current crisis, a future where growth and freedom continue to jointly secure each other and anchor civil society is not assured. It seems that when economic contractions occur in their inevitable, yet unpredictable way, the critique of capitalism itself becomes more powerful and shrill.
From Schumpeter's vantage point, capitalism's very success allows rich societies to use government to relax the impersonal rules that govern markets, creating new rules that buffer citizens from the rigors of risk-taking and failure. In that sense, government invents for itself the task of mediating market outcomes. Schumpeter had seen the dangers of this play out in Bismarck's conception of Prussia's welfare state. In the face of the Marxist threat, the elite secured its position by causing government to dispense social benefits. Political entrenchment, not charity, had motivated Bismarck. When distorted in such a way, free-market capitalism is seen to suppress -- rather than to encourage -- social and economic mobility.
Since the New Deal, Americans have come to see government as somehow the ultimate protector of their financial welfare. In reality, though, the evidence of the U.S. government behaving in this way during the New Deal is thin to say the least. Although it is largely forgotten now, much of the government's action during the Depression actually had a marginal impact on individual lives. Monetary expansion and technological innovation boosted the economy, while the "second" depression of 1937-1938 is widely understood as having been induced by Roosevelt's attempt to manipulate credit markets.
So what about the ultimate Schumpeterian challenge: Can capitalism be saved? France's President Nicolas Sarkozy in October 2008 proposed a brilliant formulation. He said: "The financial crisis is not the crisis of capitalism. It is the crisis of a system that has distanced itself from the most fundamental values of capitalism, which betrayed the spirit of capitalism."
No doubt, in the face of the continuing financial crisis, entrepreneurial capitalism is threatened. All over the world, people are giving greater emphasis to personal security. Their taste for assuming personal risk may be chastened, at least for the moment. This is an altogether rational and expected response.
Where that becomes troublesome, however, is the moment when government comes to be seen as the sole source of security. What we, the public, need to understand is that the best guarantor of security is not government. It's economic growth. While we want to believe otherwise, the cold fact is that government can't guarantee economic permanency. Nobody, and nothing, can.
Pragmatically speaking, we must figure out how to increase people's sense of security without making government itself bigger or more powerful.
Joseph Schumpeter's answer to all this is that the most important citizen is not the politician, nor the big businessman, nor the bankers on Wall Street. They are important, but not central to the renewal of democratic capitalism. That role, that burden falls to our fellow citizens who, in the face of the challenges we see all around us, are ready to pursuit what entrepreneurs do: Create the new, create jobs and make the wealth that will be more necessary than ever to purchase a future worth living.
Whatever road we choose, entrepreneurial capitalism cannot be revived or flourish if new government security programs end up attenuating the individual's ultimate responsibility to attend to his or her own welfare.
1) Eric Benhamou, Global derivatives, in 2007, page 1.
2) Cowles, Alfred, 1934, "Can Stock Market Forecasters Forecast?" Econometrica, pp.309-324.