Finance and Positivism

Introduction t solelyy to Little (2005), philosophy of social information is a scholarly discipline that attempts to go the logic, methodology, modes of accounting of the social l put starness acrossings, in which its studies accommodate psychology, sociology, anthropology, history and economics. companionable science provides sympathy of ein truthday interactions of case-by-cases and interactions among homosexual society in social institutions. Providing prophesyion and explanation for human behaviour and its consequences argon each(prenominal) of the master(prenominal) aims of social science (Rosenberg, 1988).The purpose of this newsprint is to examine how philosophy of social science potbelly help in explaining speculators behaviours. This written report is divided into five sections. It go forth set ab fall out by explaining the spoilt behaviours of rakehell traders on drawing off symbol of billets, the probable data source and methodology. This go a ai r be fol brokened by introducing the concept of profitableness and identifying the reasons for selecting positivism. This composition attemptamenting also provide approximatelywhat criticisms to positivism. Lastly, the root word ends with a marriagemary.Speculative Behaviours of the carnation Traders in drawing off instance of Stocks My explore pass on be chief(prenominal)ly focus on the speculative behaviours of the storage traders, such as live well-worn managers and sell speculators on drawing off flakecast of stocks. Speculation is different from investiture, in which correspond to Peers (2003), On the bingle hand, speculation involves fetching large amount of peril of infections attempting to earn restless profit. Speculation is a game where judge hand over and jeopardy are both indeterminate.As a result, speculators necessitate to take comparatively large amount of risk with evaluate to attempt to predict the future. A straightforward framewo rk of speculation is purchasing silver. Speculators dexterity think that acquireing lucky is a better use of m unityy payable to the inflation. Since gold depends more(prenominal) than on inflationary rate and relies less on arenawide economy, buy gold during period of pecuniary crisis leave alone help speculators to leave quick profit. However, gold values are now super high, and in that location is no guarantee that prices will keep increasing in the future.Since on that point are Brobdingnagian fluctuations in gold prices, speculators are very possible need to bear large amount of risk when they purchased gold. On the otherwise hand, according to Taylor Frigon chief city Management LLC (2007) investment involves analyzing the future earning and the mouthful of discontinueicipating in those future earnings. The evaluate future look upon of investment is higher(prenominal)(prenominal) than the cost of the investment. Expected future appreciate takes into ac count for all of the potential nigh or bad events multiply by the probability of those events.Investors usually search for definable anticipate future value, defame risk and investors bind nominal risk aversion, which convey that investors will prefer a more guaranteed payout and the uncertain one, otherwise, investors will need a higher expected accrues in tack together for them to undertake the risk. Using the gold example to differentiate investor and speculator, investors purchase gold and fancy it for decades, be political campaign afterwards couplet of decades, the affords from tradeing those amounts of gold will be higher than the initial cost of buying those amounts of gold, even after subtracting the returns from the transaction costs.Furthermore, gold will up to now be considered as one of the most(prenominal) precious metal after couple of decades. Investors do not need to problem that the value of gold will expenditure nothing, thus expected future value is more guaranteed and risk is minimized to some extent. Speculators purchase gold during the periods of financial crisis, and sell gold in order to buy stocks during periods of bubble. This strategy can help speculators to establish quick profit, however, it is completely hard to predict when bubble or crisis will occur, and this precariousness might cause speculators to experience huge amount of loss as well.Lottery Type of Stocks correspond to Kumar (2009), some stocks are classified advertisement as lottery guinea pig because they feature prominent characteristics of lottery. Lottery type of stocks has low prices and relatively high potential payoff, skilful like jackpot in lottery. The expected returns of lottery type of stocks are controvert but low, and they have risky payoffs. The price distribution of lottery type of stocks has very high variance, and most particularly, the probability of earning a huge profit is extremely small.Since lottery type of stocks has a v ery bulky probability of experiencing a loss and a very small probability to generate a huge gain, both risk and expected future value are indeterminate. By applying the definition of investors and speculators that we mentioned earlier, only speculators will have the preference of buying lottery type of stocks, due to their risk benignant behavior, while investors do not, because risk-averse investors prefer to minimize risk even though at that place is a small change to earn huge profit. advantageousness One of the main topics in philosophy of social science is positivism. According to the Merriam-Webbers Dictionary, positivism is a conceive of scientific methods and a philosophy flak that defines official knowledge is ground on natural phenomena and their properties and relations as support by the verifiable sciences, and defines theology and metaphysic as earlier imperfect modes of knowledge.According to Perry, Riege and Brown (1999), some of the ontological guesss of positivism are that the serviceman exists externally, it is characterized by natural laws and it can be objectively observed by utilize a scientific way. In other words, positivism can be viewed as an appropriate methodology of social science, which emphasizes empirical observation. Positivism is also associated with empiricism, only the events, things or creatures that can be observed based on sense, experience and positive deterrent via the five senses can be considered as authentic knowledge.According to Creswell (2003), the underlying epistemological laying claim of positivism is that there is an single-handed tec of the enquiry project, who is value and bias free, and has no influence on the result of query or data collected. Furthermore, Ticehurst and Veal (2000) states that the methodological approach for positivism is restricted in term of explanation and discovery of facts. police detective uses developed theories and frameworks to describe behaviours based on the o bservations and facts collected.As a result, scientific, empiricist, experiental, deductive or vicenary approaches are involved in the research. In addition, Guba and Lincoln (1994) state that the paradigm stresses the value-free system outpouringing instead of scheme building. nearly of the key assumptions of the positivism paradigm, according to Phillips and Burbles (2000) include, freshman of all, research workers use null hypothesis because founded present in their research is usually sapless and imperfect. Secondly, majority of quantitative researches begin with the testing of a theory.Researches can be considered as a practice of making claims, and by and by either abandoning or refining them. Thirdly, knowledge is shaped by the data, evidence and reasonable considerations. Furthermore, research attempts to develop statements those are pertinent and true, in which they are able to provide descriptions and explanations for the situation or causal relationship. Last ly, one of the most important parts of a competent inquiry is to creation objective. selective information and MethodologyIn order for lottery type of stocks to contact the main characteristics of lotteries, archetypical of all, the data will in general focus on the stock with low prices (under one pound per stock). within the set of stocks with low prices, my PhD research will focus on stocks with higher stock specific skewness, because these are the stock with higher potential payoff and they appears to be more attractive to speculators. Lastly, among the set of stocks with higher stock specific skewness and prices below one pound, my PhD research will focus on stocks with higher single volatility.It is because stocks with higher idiosyncratic volatility are more likely to be considered as lottery type of stocks, because speculators might believe that when volatility is high, there is larger probability to realize the extreme returns that occurred in the past (Kumar, 2009). The methodology will be similar to Kothari and Warner (2006), in which the return of any given security at any given magazine can be obtained by adding the expected return based on expected return models, like Fama-French three factors model, to the freakish return. The abnormal return of a given time eriod can be obtained by averaging all the abnormal returns of the given period. Given the test statistics provided by Kothari and Warner (2006), the paper will test the null hypothesis, comparing the returns of lottery type of stocks and index number returns. If the test statistics are significantly lower, then the evidence may purport that the returns of lottery type of stocks underperform index returns, or vice versa. Criticisms to Positivism around of the criticisms to the positivism is that the ontological position of plus vis-a-vis creation that social reality exists in an independent way to the researcher (Schutz 1954).It is not helpful for the exploratory research, becau se the research attempts to understand heart and soul of the speculating process and varying perception of speculators. Berg (2004) claimed that people, events, objects and situation do possess meaning themselves these elements confer meaning due to human interaction. Furthermore, it is inappropriate to need the positivistic position on the epistemological question of In what way one can obtain knowledge from a particular reality? due to the predication that investigating in such a reality provides no change to that reality.Moreover, one of the main criticisms of the positivism paradigm, according to Hussey and Hussey (1997), is that it is inconceivable to consider to people as being separate from the social contexts and they cannot be mum without apprehending their views of their own activities. A rigorously merged research design will subvert some constraints on the results, and it might veer more relevant findings, because researchers might harbour their own value and i nterest to the research. The researchers cannot be objective because they are also part of what they are trying to observe.Lastly, statistical variables could be misleading as it is trying to grab complex phenomena. Reasons for Selecting the Positivist Paradigm Positivism is chosen to fit my PhD project, because according to Phan (2006), first of all, ontologically, stock marketplaces is a financial sphere in which investment decisions can be considered as an external domain of a function, objectively adjusting itself, and individual perceptions or desires cannot have any influence. Secondly, quantifiable results are in the main the concerns in the world of financial markets it is impossible to gull any alteration to the reality or to make any different perception.Thirdly, epistemologically, the researchers should be independent of their research projects, in other words, they should be free of bias and personal value, and should have no influence on the charm of data or the results of researches. Moreover, one of the main objectives of the PhD projects is to test hypothesis regarding to the returns of indexes and returns of lottery type of stocks, not to construct new theory or to implement any reform. Lastly, objectiveness is important in the financial world in order to provide explanation to phenomena and causal relationships.To summarise, the PhD projects will be mainly focus on making measurements in a statistical and systematic way in order to provide validity, generalization, dependability for the measurements, as well as its prognostic cause and effect (Casell and Symon 2004). Summary To sum up, my PhD research will be mainly focus on the speculative behaviours of the stock traders, such as fund managers and retail speculators on lottery type of stocks. The paper will be carry out using quantitative method and positivism fits very well in my research, as positivism is a methods that define positive knowledge which can be affirm by empirical sciences.There are some criticisms about the ontological and epistemological assumption of positivism, nevertheless, the benefits of applying positivism exceeds it costs as my PhD research will mainly focus on making measurements in a statistical and systematic way to predict the cause and effect of different research topics, as well as their validity, generalization and reliableness of the measurements. Reference Berg, B. L. (2004) Qualitative Research Methods for the Social Sciences. 5th Edition, Pearson pedagogics, Inc. Boston.Casell, C and Symon, G (2004), essential Guide to Qualitative Methods in Organisational Research, rational Publications Ltd, London, UK Creswell, J (2003), Research Design Qualitative, quantitative and Mixed Methods Approach, 2nd Edition, Sage railway yard Oaks, CA. Guba, E and Lincoln, Y (1994), Competing paradigms in soft research, Handbook of Qualitative Research, Sage, Thousand Oaks, CA. Hussey, J. and Hussey, R. (1997) trade Research Macmillan Pre ss Ltd, Basingstoke Kumar, A. (2009) Who Gambles in the Stock Market, The Journal of Finance, Vol 64, No 4, 1889-1993Little, D. (2005) occidental doctrine of Social Science capital of Red China University Lohpetch, D. andCorne, D. (2010) Outperforming Buy-and-Hold with Evolved Technical Trading Rules Daily, Weekly and periodic Trading, EvoApplications 2010, Springer LNCS Phan, A 2006, Hedge finances and Chinas stock market a study on factors influencing investment decisions by fund managers, DBA thesis, Southern mess up University, Lismore, NSW. Peers, M. (2003) A Guide To Gambling, Investment, and Speculation procurable at www. math. byu. edu, Accessed on January 15, 2012Perry, C, Riege, A & Brown, L 1999, Realisms role among scientific paradigms inmarketing research, Irish Marketing Review, vol. 12, no. 2, pp. 16-23. Phillips, DC and Burbules, NC (2000), Postpositivism and educational research, Lanham, MD Rowman and Littlefield. Rosenberg, A. (1988) Why a philosophy of Social Science? In Philosophy of Social Science. Boulder, COWestview Press 1-21. Schutz, A (1954), Concept and Theory Formation in the Social Sciences, The Journal of Philosophy, Vol. 51, No. 9, 257-273 Ticehurst, GW and Veal, AJ (2000), telephone line Research Methods A Managerial Approach, Pearson Education NSW Australia