CHAPTER II AN OVERVIEW OF RESEARCH IN FINANCE推荐.pdfVIP

CHAPTER II: AN OVERVIEW OF RESEARCH IN FINANCE The purpose of this section and the reviews that follow is to provide a brief historical perspective regarding the major theoretical concepts of financial economics and basic techniques of empirical financial research. In addition, content of certain important review articles will be briefly described. Unfortunately, this and other literature reviews have many significant gaps in them. Nonetheless, the reader may find this and other literature reviews useful when initiating financial research and determining how one‟s own work will fit into the content of an already rich body of literature. It is also important to understand how this existing body can be used to solve financial problems of concern to the scholar, practitioner or policy maker. A. Early Research As we discussed earlier, prior to 1950, financial literature in the academic realm was primarily descriptive, anecdotal and prescriptive. However, there were a few important exceptions of analytical work prior to 1950. First, some of the early innovations in mathematics were intended to facilitate finance and commerce. For example, Leonardo Fibonacci (born Leonardo Pisano in 1170) discussed applications of the Arabic numerical system to interest calculations, exchange rates and bookkeeping, detailing the mathematics needed for present value computations. In 1494, Pacioli argued for double-entry bookkeeping and discussed principles that served as a foundation for modern accounting practice. Another of these earlier exceptions was Bernoulli [1738], who wrote on diminishing marginal utility and risk aversion. He proposed a problem commonly referred to as the St. Petersburg Paradox at a meeting of