Topic: Market Volatility and stability of the real subject
close up to the ENA in 1997: Financial markets are they a source of economic efficiency? Introduction
Globalization and his retinue of deregulation gives rise to a vast international capital market. Economic agents meet on financial markets to finance the real economy. While some provide capital in return for potential capital gains, the others are to meet their financial needs.
This connection between monetary and real economy should translate into a similar pattern of two spheres. Indeed, the market value of a company is supposed to translate its performance. There would be no reason why a share price is favorable from when its results show its economic trouble.
Notwithstanding this analysis, a priori, it is clear recurrent and massive speculation. This is especially the resounding crashes they are accompanied by that worry. Yet at the same time, the real economy appears stable. Indeed, growth rates are steady and inflation remains moderate in the euro zone countries. This market instability concomitant with a stable real economy has taken place in 1987 and 1998 in France. The facts and contradicts the a priori analysis of a parallel development of two spheres. For
However, the scholarship can not flourish, however, sustained in a real economy down. Conversely, the situation on financial markets eventually weigh on the economy. Therefore, analyzing the causes and effects of this complex relationship is needed.
Two opposing theories. The first invokes the disconnection of the real and financial spheres to explain the coexistence of market volatility and a stable economy. Despite this disconnect or even because of this disconnection, the markets are volatile effects. The second argues for a link between the real economy and financial economics. This second approach ensures that the real economy has positive consequences due to volatile markets.
I-A total disconnection and harmful
A-A disconnection of the financial sphere and the real
1 - To explain this disconnect, due to several factors involved may be invoked. First, greed does not take into account the fundamentals of the real economy as it is to pocket a profit in the short term. The principle of speculation takes little account of actual effects. Then, fear generated by speculation leads to herd behavior. Finally, the interpretation of economic information is incomplete or even irrational. The incompetence in economic analysis explains this disconnect. Phases of euphoria and depression succeed one another.
2 - Other factors confirm and deepen the divergent trends between the real economy and financial markets. First, the importance of capital flows is incommensurate with the exchanges of the real economy. These are a hundred times less than the flow passing through the financial markets. Secondly, derivatives markets on which financial intermediaries are involved, evolve according to the financial markets. They provide an annuity to such intermediaries more lucrative than the amplitude of fluctuations is important.
B-harmful and contagious instability of the real economy.
1 - Instead of limiting interest rate risks or currency risks to which they were designed, futures markets are in fact to speculation. This perversion reinforces evil it was supposed to disappear. The risk of a major crisis hanging over the futures markets. The bursting of speculative bubbles has adverse effects on the real economy. First, financial crises affect the creditworthiness of financial institutions that have fueled the rise. Secondly, their ability to finance other agents is limited. Tercio, a public care to losses often result from financial crises.
2 - This independent operation of markets ousts the States of their powers and creates the feeling that their economic policy is taken hostage by the financial markets. Real threat to the rulers held responsible for the economic situation, unwinding in case of economic policy that is unfavorable to them, agents in financial markets and would go against the interests of the real economy.
While the characteristic of speculative bubbles is to keep the course of their fundamental values. However, it is necessary to determine whether the price changes are at the heart of the real economy which could if necessary to find an advantage.
Il-A financial volatility associated with the real and beneficial
A A definite link between the two spheres despite the different logics
1 - The financial markets are faced with the difficult problem of uncertainty. To make this expectations are needed. By following closely the indicators of the real economy, we must also consider the reactions of other actors. These interactions are complex. The reactivity of financial operators gives the financial economy a response time faster than the real economy.
2 - Financial markets are increasingly integrated world that the real economies. Thus, the small size of the French market makes it dependent on international operators. Capital across the Atlantic are present, exerting a strong impact on stock prices because of their low capitalization. Suddenly, the stock market developments are the same contrary to the evolution of real economies that remain staggered.
financial globalization is precisely this which is responsible for the stock market euphoria followed by the crash in 1998. The Asian crisis of 1997 revealed the instability of emerging markets. In response to these economic troubles, a shift of capital to Europe bearing greater opportunities took place. This improvement was followed by a correction amount relative. B-
markets are efficient because volatile
1 - The financial markets reflect the underlying trends in the real economy and enable to predict turning points. The indeterminacy of short-term market is the very basis of their efficiency. The principle of speculation ensure market efficiency.
2 - States are forced to be as efficient as private investors. Markets scrutinize their budget and economic choices. Forced to adapt, states are required to make choices efficients.Paradoxalement, markets contribute to the stability of the real economy by encouraging states to more transparent and rational choices and therefore predictable.
Conclusion In sum, the thesis according to which one adheres or not it will create a global regulator of the markets.
While it is possible to promote coordination of supervisors of the various exchanges. However, it appears difficult to establish a world body that would take in respect of the financial markets.
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