Franck Jovanovic

The Construction of the Canonical History of Financial Economics

This article takes place in the revision of the history of financial economics. The major argument is that the history of financial economics nowadays known was built to defend theoretical viewpoints, and therefore, to convince the scientific community to adopt these theories. More precisely, this “history” was built thanks to the creation of the first canon of texts during the 1960s; and therefore it constitutes a canonical reading of the past of financial economics –what I call here a canonical history of a discipline. This revision leads to break with this canonical reading that has been imposed and provides new results. Indeed, breaking with the canonical reading, it is possible to conciliate the history of financial economics with historical data. To demonstrate that, this article examines in particular the link between the introduction of financial economics into the scientific field during the 1960s and the construction of a canonical history of that discipline. This article analyzes, first, the structure, the aim, and the positioning of the discipline during this decade, second, how and why this canonical history was elaborated. Finally, this article shows how the canonical history of financial economics was elaborated to support theoretical viewpoints.

Does God practice a random walk? The 'financial physics' of a nineteenth-century forerunner, Jules Regnault

We analyse the work of a neglected French economist, Jules Regnault, whose Calcul des Chances et Philosophie de la Bourse (1863) laid the basis of modern stochastic models of price behaviour and contains an anticipation of econometrics. At a time when short-term speculation was denounced as immoral, he approached this question ‘scientifically’ and constructed two models. The first one was relative to short-term speculation and took the shape of a random walk - a model used by Bachelier (1900). The second one deals with long-term speculation and aims at evaluating the mean value of the French 3 per cent bond.

The Emergence of Econophysics: A New Approach in Modern Financial Theory

Financial economics and mathematical finance are the two traditional scientific disciplines that constitute modern financial theory. Although they still largely dominate modern financial theory, in the past few years a new “player” has increasingly been making itself felt and could lead to a rethinking of some of the theoretical foundations of modern financial theory. This new player is econophysics. Econophysics is a very recent movement that is beginning to interest increasing numbers of financial practitioners. To date, no history of econophysics has been produced. This article aims at filling this gap. It analyzes the theoretical foundations of econophysics and their connections with the history of financial economics. It also explores the reasons underlying the emergence of econophysics and explains how econophysics has become the third component of modern financial theory.

ECONOPHYSICS: A NEW CHALLENGE FOR FINANCIAL ECONOMICS?

Financial economics was born in the 1960s. It took less than two decades for the new discipline’s main theoretical results to become established, creating what is considered to be mainstream financial economics. Less than thirty years later, a new field of research called “econophysics” was created. This field aims to reinvent modern financial theory and, indirectly, financial economics. This article proposes to study, by an historical analysis, to what extent econophysics today could constitute one of the major theoretical challenges to financial economics. It shows how these two fields have historical similarities, and analyzes how these similarities call the future evolution of financial theory into question.

Towards a transdisciplinary econophysics

This paper deals with the disciplinary dimension of a very new field called econophysics and shows that despite the fact that econophysics is regularly described as an interdisciplinary approach, it is in fact a multidisciplinary field. Beyond this observation, we note that recent developments suggest that econophysics could evolve towards a more integrated field. We therefore propose a prospective approach by analyzing how this field could become transdisciplinary. In this article, we focus on financial work, and we show that a common scheme is attainable and we investigate the possibilities of a trandisciplinary econophysics which will make possible to revisit the theoretical foundations of financial economics and develop new models and theories better suited to the management of financial risks and financial markets.

Pioneers of financial economics: Das Adam Smith Irrelevanzproblem?

This paper is a contribution to the debate surrounding the steady decline in importance of the history of economic thought within the economics curriculum. The relevance of the history of financial economics to this debate is examined and a ‘histories of economic thought’ strategy is suggested to improve the future prospects of the subject. In the process, Das Adam Smith Irrelevanzproblem is identified and discussed. Das Irrelevanzproblem is concerned with the question: why do Adam Smith and other classical political economists continue to play such a central role in traditional thought when the relevance of these thinkers to modern economics, particularly new additions such as financial economics, is so limited? This paper demonstrates that the history of financial economics commences at least a century prior to The Wealth of Nations and is largely independent of the traditional thought which commences with the role of Adam Smith as the leading Enlightenment thinker on issues relevant to political economy.

Bachelier: Not the forgotten forerunner he has been depicted as. An analysis of the dissemination of Louis Bachelier's work in economics

Abstract This article presents the results of new research on the history of financial economics by analysing the dissemination of Louis Bacheliers work. Louis Bachelier is doubtless the best known French mathematician in the history of modern finance theory. While recent studies have given us a fairly complete picture of the man himself, his work and the results he arrived at, knowledge of his contribution to the development of ideas remains imprecise. Although the direct influence of his work is analysed on occasion, no study has assessed the dissemination of Bacheliers work, and hence its impact on all scientific disciplines. This is precisely the purpose of this article: to examine the dissemination of Bacheliers work in order to better assess his impact on the development of financial economics (Jovanovic (2010) makes a similar analysis of the dissemination of Bacheliers work in mathematics). Based on a bibliometric analysis of Bacheliers work, this study aims at shedding light on his influence and explaining how the idea of his ‘rediscovery’ in the 1950s gained credence. This article demonstrates that, contrary to the widely accepted view, Bacheliers work has never been forgotten; it also shows that the discovery of Bacheliers work by economists has had no significant influence on the development of financial economics.

Was There a “Vernacular Science of Financial Markets” in France during the Nineteenth Century? A Comment on Preda's “Informative Prices, Rational Investors”

This article deals with the emergence of the random walk hypothesis and the nineteenth-century “Science of Financial Investments”. It examines the relevance to explain this emergence thanks to an international “vernacular science of financial markets”, as Alex Preda (2004) suggested. The article shows that 1) there is no existence of such an international “vernacular science of financial markets”; 2) the relevance of the distinction between vernacular economics and academic economics for economic or financial theoretical work in nineteenth-century France remains unclear. Finally, this distinction is not enough for explaining the introduction of the random walk hypothesis by Regnault (1863). Although Regnault’s book felt within a global movement, it took place in academic debates and had no similitude with other financial publications of that time: indeed, before Bachelier (1900), the use of the probability calculus to analyze and to give a theoretical explanation to stock price variations was not common.