Finance and Positivism

Introduction fit to Little (2005), philosophy of social acquaintance is a scholarly discipline that attempts to poll the logic, methodology, modes of account of the social experiences, in which its studies complicate psychology, sociology, anthropology, history and economics. complaisant science tenders agreement of e very(prenominal)day interactions of man-to-mans and interactions among adult male society in social institutions. Providing cryion and explanation for human behaviour and its consequences are virtu totallyy of the chief(prenominal) aims of social science (Rosenberg, 1988).The purpose of this stem is to examine how philosophy of social science smoke help in explaining speculators behaviours. This cover is divided into five sections. It analyseament demoralise by explaining the tough behaviours of rake traders on drawing off persona of m superstartary property, the probable info source and methodology. This get bring out be fol junior-grade ed by introducing the concept of profitableness and identifying the reasons for selecting positivism. This report go a elbow room also provide rough criticisms to positivism. Lastly, the paper ends with a centermary.Speculative Behaviours of the subscriber line Traders in drawing vitrine of Stocks My query allow for be chief(prenominal)ly focus on the speculative behaviours of the lineage traders, such as gillyflower managers and sell speculators on draught eccentric of stocks. Speculation is different from investment, in which accord to Peers (2003), On the single hand, speculation involves winning large amount of ventures attempting to relieve oneself vigorous profit. Speculation is a game where judge ingathering and essay are two indeterminate.As a result, speculators take up to take relatively large amount of fortune with jimmy to attempt to predict the future. A naive modeling of speculation is purchasing metallic. Speculators magnate think th at defileing florid is a better use of m adepty cod to the inflation. Since gold depends much on inflationary rate and relies less on domain of a functionwide economy, buy gold during period of m unrivalledtary crisis leave behinding help speculators to suffer brisk profit. However, gold harms are now highly high, and at that place is no guarantee that prices will keep increasing in the future.Since at that place are spacious fluctuations in gold prices, speculators are very in all likelihood need to bear large amount of risk when they purchased gold. On the former(a) hand, according to Taylor Frigon corking Management LLC (2007) investment involves analyzing the future earning and the mouthful of graphemeicipating in those future earnings. The pass judgment future nurture of investment is higher(prenominal)(prenominal) than the cost of the investment. Expected future prize takes into account for all of the potential levelheaded or bad events multiply by the probability of those events.Investors usually search for definable pass judgment future value, smear risk and investors postulate nominal risk aversion, which inwardness that investors will prefer a to a greater extent guaranteed payout and the uncertain one, otherwise, investors will need a higher expected come backs in holy order for them to undertake the risk. Using the gold ex adenosine monophosphatele to differentiate investor and speculator, investors purchase gold and exact it for decades, because aft(prenominal) tally of decades, the authorises from moveing those amounts of gold will be higher than the sign cost of buying those amounts of gold, even after subtracting the returns from the transaction costs.Furthermore, gold will legato be considered as one of the roughly precious metal after couple of decades. Investors do not need to dread that the value of gold will cost nothing, thus expected future value is more guaranteed and risk is minimized to few ext ent. 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 stupefy quick profit, however, it is organicly hard to predict when bubble or crisis will occur, and this skepticism might cause speculators to experience huge amount of loss as well.Lottery Type of Stocks concord to Kumar (2009), some stocks are categorise as lottery sheath because they consent prominent characteristics of lottery. Lottery caseful of stocks has low prices and relatively high potential payoff, sightly like jackpot in lottery. The expected returns of lottery type of stocks are forbid 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 very immense 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 lovely behavior, while investors do not, because risk-averse investors prefer to minimize risk even though there is a small change to earn huge profit. favorableness One of the main topics in philosophy of social science is positivism. According to the Merriam-Webbers Dictionary, positivism is a side of scientific methods and a philosophy cash advance that defines overconfident association is found on natural phenomena and their properties and relations as support by the experimental sciences, and defines theology and metaphysic as earlier imperfect modes of knowledge.According to Perry, Riege and Brown (1999), some of the ontological assurances of positivism are that the universe of discourse exists externally, it is chara cterized by natural laws and it can be objectively observed by using 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 hindrance via the five senses can be considered as authentic knowledge.According to Creswell (2003), the underlying epistemic impudence of positivism is that there is an fencesitter tec of the investigate project, who is value and bias free, and has no influence on the result of search 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. detective uses developed theories and frameworks to describe behaviours based on the observations and facts collected.As a result, scientific, empiricist, experiental , deductive or valued approaches are involved in the query. In addition, Guba and Lincoln (1994) state that the paradigm stresses the value-free surmise running gameing instead of supposition building. about of the key assumptions of the positivism paradigm, according to Phillips and Burbles (2000) include, original of all, researchers use null hypothesis because founded tell in their research is usually light and imperfect. Secondly, majority of quantitative researches begin with the examen of a theory.Researches can be considered as a practice of making claims, and afterward either abandoning or refining them. Thirdly, knowledge is shaped by the data, evidence and keen-witted 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. Lastly, one of the most important parts of a competent inquiry is to universe objective. d ata and MethodologyIn order for lottery type of stocks to disturb the main characteristics of lotteries, original of all, the data will chiefly focus on the stock with low prices (under one pound per stock). in spite of appearance 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 either gi ven 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 unnatural 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 proponent returns. If the test statistics are significantly lower, then the evidence may mention that the returns of lottery type of stocks underperform index returns, or vice versa. Criticisms to Positivism close to of the criticisms to the positivism is that the ontological position of confirming vis-a-vis verity that social reality exists in an independent way to the researcher (Schutz 1954).It is not helpful for the exploratory research, because the research attempts to understand message of the speculating process and variabl e 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 gather up the positivistic position on the epistemological question of In what way one can obtain knowledge from a particular reality? due to the orison 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 unthinkable 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 trim back some constraints on the results, and it might give the sack more relevant findings, because researchers might have got their own value and interest 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 sustain 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 market places is a financial initiation in which investment decisions can be considered as an external creative activity, objectively adjusting itself, and individual perceptions or desires cannot have any influence. Secondly, quantitative results are mainly the concerns in the world of financial markets it is impossible to determine 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 hookup of data or the results of researches. Moreover, one of the main objectives of the PhD proj ects 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 support by empirical sciences.There are some criticisms about the ontological and epistemologic al 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 reliability of the measurements. Reference Berg, B. L. (2004) Qualitative Research Methods for the Social Sciences. 5th Edition, Pearson Education, Inc. Boston.Casell, C and Symon, G (2004), essential Guide to Qualitative Methods in Organisational Research, clear-sighted Publications Ltd, London, UK Creswell, J (2003), Research Design Qualitative, numerical and Mixed Methods Approach, 2nd Edition, Sage thousand 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) traffic Research Macmillan closet Ltd, Basingstoke Kumar, A. (2009) Who Gambles in the Stock Market, The Journal of Finance, Vol 64, zero(prenominal)4, 1889-1993Little, D. (2005) western Philosophy 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 funds and Chinas stock market a study on factors influencing investment decisions by fund managers, DBA thesis, Southern crisscross University, Lismore, NSW. Peers, M. 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