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False Market

What is 'False Market'

A market where prices are manipulated and impacted by erroneous information, preventing the efficient negotiation of prices. These types of markets will often be marred by volatile swings because the true value of the market is clouded by the misinformation.

Explaining 'False Market'

When investors use inaccurate information to guide their decisions, they tend be irrational and over- or underreact to news. The illogical decisions made by these investors skew the market, causing the true value of a security to be misrepresented


Further Reading


Banks and the false dichotomy in the comparative political economy of finance
heinonline.org [PDF]
… BANKS AND FALSE DICHOTOMY … Zysman asserts that "[w]hat makes the financial systems different is the relative importance of two types of financial markets; capital markets and loan markets" 46 and implies a distinction between bank-based and market-based provision …

False (and missed) discoveries in financial economicsFalse (and missed) discoveries in financial economics
onlinelibrary.wiley.com [PDF]
… BANKS AND FALSE DICHOTOMY … Zysman asserts that "[w]hat makes the financial systems different is the relative importance of two types of financial markets; capital markets and loan markets" 46 and implies a distinction between bank-based and market-based provision …

Investor optimism, false hopes and the January effectInvestor optimism, false hopes and the January effect
www.tandfonline.com [PDF]
… BANKS AND FALSE DICHOTOMY … Zysman asserts that "[w]hat makes the financial systems different is the relative importance of two types of financial markets; capital markets and loan markets" 46 and implies a distinction between bank-based and market-based provision …

Mental accounting and false reference points in real estate investment decision makingMental accounting and false reference points in real estate investment decision making
www.tandfonline.com [PDF]
… BANKS AND FALSE DICHOTOMY … Zysman asserts that "[w]hat makes the financial systems different is the relative importance of two types of financial markets; capital markets and loan markets" 46 and implies a distinction between bank-based and market-based provision …

False promises? A sociological critique of the behavioural turn in law and economicsFalse promises? A sociological critique of the behavioural turn in law and economics
link.springer.com [PDF]
… BANKS AND FALSE DICHOTOMY … Zysman asserts that "[w]hat makes the financial systems different is the relative importance of two types of financial markets; capital markets and loan markets" 46 and implies a distinction between bank-based and market-based provision …

Detecting false financial statements using published data: some evidence from GreeceDetecting false financial statements using published data: some evidence from Greece
www.emerald.com [PDF]
… BANKS AND FALSE DICHOTOMY … Zysman asserts that "[w]hat makes the financial systems different is the relative importance of two types of financial markets; capital markets and loan markets" 46 and implies a distinction between bank-based and market-based provision …

Do false financial statements distort peer firms' decisions?Do false financial statements distort peer firms' decisions?
meridian.allenpress.com [PDF]
… BANKS AND FALSE DICHOTOMY … Zysman asserts that "[w]hat makes the financial systems different is the relative importance of two types of financial markets; capital markets and loan markets" 46 and implies a distinction between bank-based and market-based provision …

The HIPC initiative: true and false promisesThe HIPC initiative: true and false promises
onlinelibrary.wiley.com [PDF]
… BANKS AND FALSE DICHOTOMY … Zysman asserts that "[w]hat makes the financial systems different is the relative importance of two types of financial markets; capital markets and loan markets" 46 and implies a distinction between bank-based and market-based provision …

Speculative leverage: a false cure for pension woesSpeculative leverage: a false cure for pension woes
www.tandfonline.com [PDF]
… BANKS AND FALSE DICHOTOMY … Zysman asserts that "[w]hat makes the financial systems different is the relative importance of two types of financial markets; capital markets and loan markets" 46 and implies a distinction between bank-based and market-based provision …

Repurchase announcements, lies and false signalsRepurchase announcements, lies and false signals
link.springer.com [PDF]
… BANKS AND FALSE DICHOTOMY … Zysman asserts that "[w]hat makes the financial systems different is the relative importance of two types of financial markets; capital markets and loan markets" 46 and implies a distinction between bank-based and market-based provision …



Q&A About False Market


What does it mean to say that markets rely on sellers offering their goods or services to buyers in exchange for money?

It means that the seller offers his good or service to the buyer in exchange for money.

How do markets facilitate trade?

Markets facilitate trade by allowing any item to be priced so that individuals can make decisions about what they want to buy and sell based on price information. This allows people who want something badly enough (demand) to find those who will give it up easily (supply). The price system also provides incentives for people to produce more of something when its price rises and less when its price falls, which tends toward an equilibrium where supply equals demand at the going price.

Why do investors make irrational decisions in false markets?

Because they overreact or underreact to news.

Are markets composed of goods or services?

Markets are composed of both goods and services.

What is a false market?

A false market is a market where prices are manipulated and impacted by erroneous information, preventing the efficient negotiation of prices.

How do we know if there is a market present?

We can tell if there is a market present when we see prices being established by supply and demand.

How does inaccurate information affect markets?

Investors use inaccurate information to guide their decisions, causing irrational reactions to news.

How does resource allocation occur within a society with respect to resources like labor, land, capital etc.?

Resource allocation occurs within society through the interaction between markets and government regulations such as taxes, subsidies, zoning laws etc.. Government regulation may allow certain resources (e.g., land) not be traded freely (i.e., owned privately), while other resources must be traded freely (e.g., labor). In this way governments use both monetary policy (taxes) and non-monetary policy instruments (such as building codes) to influence how resources are allocated between different uses (""allocation""). For example, minimum wage laws raise the cost of using labor;

Are there any other effects caused by false markets?

Yes, volatile swings occur because the true value of the market is clouded by misinformation.

What causes the true value of a security to be misrepresented?

The illogical decisions made by these investors skew the market, causing the true value of a security to be misrepresented.

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