Explaining the Financial Crisis of 2007-2009 by Efficient Markets Hypothesis [2]
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论文字数:2324论文编号:org201406111716569907语种:英语 English地区:中国价格:免费论文
关键词:Financial Crisis金融危机Efficient Markets HypothesisBehavioral Finance有效市场
摘要:The traditional financial theories thought that the investor’s decision is based on the many hypotheses, including rational expectation, risk aversion, profit maximum, and so forth. According to psychology, many researchers indicated the investor’s subjective judgment influence the final decision, which is cognitive influence on finance.
ajor financial markets lack of liquidity, as a result of the bankruptcy of subprime mortgage lenders, the investment funds were forced to close and the securities market is shocked tempestuously. The basic reason for forming U.S. subprime crisis was the rising interest rates leading the high pressure for repayment for the users, so that appearing the possibility of default on bank loans which forming the financial crisis. Based on the Efficient Markets Hypothesis, the financial crisis between 2007 and 2009 is not accidental, but a result of both internal cause and external cause.
From the internal cause point of view, the subprime chain is too long caused by the information asymmetries and attenuation of information transmission efficiency is the root reason for this financial crisis. First of all, the U.S. commercial banks issued a large number of high-risk mortgage loans. In order to transferring the bank potential risks and withdrawal funds as soon as possible, the commercial banks sold these subprime loans to Fannie Mae and Freddie Mac (Bondi, 2009). Therefore, Fannie Mae and Freddie Mac packaged these loans according to the payment order and credit rating by the approach of asset securitization for forming mortgage-backed securities, and sold it to many investment banks, such as, Goldman Sachs, Merrill Lynch, and so forth. For chasing the high returns, these investment banks were using a variety of complex financial innovations for transferring the low grade subprime loans into other varieties for absorbing different risk preferences investors. Lastly, the investment banks sold these structured products to many financial institutions and investors by using the global market network (Suetin, 2009).
Although the U.S. financial institutions had transferred and dispersed the risks, the too long subprime chain made the information had the phenomenon which is information distortion and information leakage in the process of information transmission. Neely, et al (2009) indicated the basic hypothesis for the Efficient Market Hypothesis is the information is distributed adequately and equably for market participators. The original high risk and low grade subprime loans have been packaged to be the high grade structured products is the representation of information distortion, as a result of it covered up the high risks. And then, each part of the available information is the fragment, so that affected the investors’ judgments for those bonds and derivatives. In a word, the information distortion and information leakage cause the phenomenon of information asymmetry and the attenuation of information transmission efficiency, which violates the important precondition of efficient markets. The result for that are the American financial markets departed from the Efficient Market Hypothesis which brought serious attenuation of financial market’s efficiency, and the U.S. financial markets have come though the processes of strong-from to the semi-strong form, and then to the weak-form market which leading to a serious global financial crisis.
From the external cause point of view, the U.S. financial regulatory institutions over-relaxed the supervision for the financial market is the fuse of financial crisis, as a result of the misinterpretation of Efficient Market Theory. Gwinner & Sanders (2009) has pointed out that the U.S. financial regulatory institution thought that the U.S. fi
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