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The dominant paradigm What’s behind financial crises, notably those of 1929 and 2008? Why is financial activity so constantly fluctuating, more generally? Why are financial variables, particularly financial asset prices, so volatile compared to real economic variables? According to the dominant paradigm, the so-called ‘efficient market hypothesis’, the price of a financial asset (stock, bond, currency) moves in reaction to new information coming to the market, which makes investors reevaluate the ‘intrinsic’ or ‘fundamental’ value of the asset, that is, the real economic perspectives of its issuer (a corporation, a state). Thus, in this view, financial markets are externally driven, for they are merely reacting to exogenous real news. The real sector, in other words, drives the financial one

The Intrinsic Instability of Financial Markets Sabiou Inoua