A Review Of Literature On How Professional Speculators View Their Role In Financial Markets and The Capital Formation Process

Authors

  • Ronald P. Volpe
  • Lisa L. Dickson

Abstract

This paper examines how professional speculators view their role in financial markets and the capital formation process. Though they are often vilified by the public and media as greedy parasites wreaking havoc on financial markets and economies, an examination of their views reveals they perceive their endeavors as more noble. They view themselves as an essential element in the capital formation process by providing liquidity and efficiency to financial markets. Through the art of balancing supply and demand, they regulate financial asset prices, keep financial markets efficient, and facilitate the process of capital formation and economic growth. Periodically, professional speculators experience large financial losses when complex highly leveraged trades do not turn out as planned. Professional speculators, who claim to be regulators of fair pricing, have a responsibility to monitor their actions and to be extra vigilant not to cause irreparable financial damage to themselves and other members of society. (JEL G20)

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Published

2004-12-01