Finance and economics suffer a severe disease. Hubris reigns in these domains, and our minds play against the logic and rationality that are required in these fields. Let's go through a few biases which cripple finance and economics, but also many other disciplines.
On Wednesday 13th, Peabody Energy filed for bankruptcy in the US, as it failed to make a interest payment of $71.1m due 16 March 2016. The firm had a 30 days grace period to find a way out of its liquidity problem, and finally ended up filing for bankruptcy.
If you too are studying for the level 1 exam of the CFA, you might find the following document useful:
CFA lvl 1 Summary Sheet - 01 Ethics
More will follow in the future!
Bank of Japan
For quite some time now, several governments started issuing bonds with negative interest rates. Our gut dislikes negative interest rates. First, how could a negative interest rate even exist? And Why would anybody be fool enough to pay an interest rate in order to lend money, i.e. to take a risk without apparent reward? Truth is, many investors purchase this securities, but the underlying reasons differ.
John Kenneth Galbraith died in 2006 after a very full life that lasted 97 years. But the theories of this brilliant economist are far from going extinct. His vision of the “Modern Firm” and of the so-called “technostructure”, which he described in his book published in 1967 The New Industrial State, has never been more accurate to describe present times. In particular, as we are going to highlight, Merger and Acquisitions (M&As) support very strongly Galbraith’s thesis.