Financial Noise


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This chapter examines how a central concept in finance theory, namely noise, can be productively put to use in a sociology of financial markets. The concept of noise arose in the 1970s in theoretical accounts of financial markets as an answer to logical contradictions inherent to the notion that markets incorporate information efficiently into the prices of financial assets, and thus efficiently allocate resources. At its core, the notion of noise postulates that, in order to exist, financial markets have to include traders willing to trade even if they do not consistently make any money. There is ample literature in finance dealing with survivorship in the market, but this latter is overwhelmingly attributed to individual cognitive biases and/or to imperfect learning processes. Grounded in a critical discussion of the finance literature on noise, the chapter adopts a different perspective and asks to what extent is noise in the market generated by the organization of financial transactions, and to what extent should such organization be seen as more than a supposedly efficient allocative mechanism? This requires an analytical approach focused on the notions of strategic interaction, reciprocal observation, and motivational logics in markets, as a genuine contribution to a sociology of financial markets.
Original languageEnglish
Title of host publicationThe Routledge Handbook of Critical Finance Studies
EditorsChristian BORCH, Robert WOSNITZER
PublisherTaylor and Francis Ltd.
Number of pages19
ISBN (Electronic)9781351627160
ISBN (Print)9781138079816
Publication statusPublished - 16 Sept 2020
Externally publishedYes


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