On a Constructive Theory of Financial Markets (Prologue)

Abstract

This article is a prologue to the article "Why Markets are Inefficient: A Gambling 'Theory' of Financial Markets for Practitioners an Theorists", available here: http://ssrn.com/abstract=2925532.

It presents important background for that article - why gambling is important, even necessary, for real-world traders, the reason for the superiority of the strategic/gambling approach to the competing market ideologies of market fundamentalism and the scientific approach, and its potential to uncover profitable trading systems. Much of this article was drawn from Chapter 1 of the forthcoming two volume set of books, "The Strategic Analysis of Financial Markets."

Keywords: market efficiency, market fundamentalism, behavioral finance, strategic analysis, game theory, stock markets, trading, investing, rationality, the no-arbitrage principle, market anomalies

JEL Classification: B50, C50, C57, D53, G00, G01, G02, G12, G14, G17