Between arbitrage and speculation

An Economy of Belief and Doubt

Datos Bibliográficos

ID2159463
AutoresHirokazu Miyazaki (0000-0002-2526-0103, Museum of Indian Arts and Culture, autor de correspondencia)
Año2007
Volumen36
Número3
Páginas396-415
Fecha de publicación2007-08-01
Peer ReviewedSí
Open AccessNo
TipoARTICLE
RevistaEconomy and Society (JOURNAL)
Identificadores de la revistaISSN: 0308-5147 • E-ISSN: 1469-5766
EditorialTaylor & Francis (PUBLISHER • GB)
DOI10.1080/03085140701428365
OpenAlexW2108397232
IdiomaEN
Citas recibidas41
Referencias citadas57

The recent debate concerning the 'sociology of arbitrage' has firmly established arbitrage as a category of theoretical significance in the social studies of finance. In this article, I seek to complicate this debate by drawing attention to a particular kind of ambiguity inherent in the category of arbitrage, as it is put to use in financial markets. I present certain Japanese arbitrageurs' reflections on the difference between arbitrage and speculation and examine the interplay of belief and doubt underlying arbitrage operations. I argue that the resulting ambivalence towards the category of arbitrage is a marker of arbitrageurs' particular epistemological stance, identity and ethical commitment. Finally, I consider the implications of arbitrage's ambiguity for the dominant trope of speculation in the critical study of financial markets more broadly. Keywords: arbitragespeculationambiguityfaithfinancial marketsJapan Acknowledgements This article is based on my ethnographic research completed in Japan from 1997 to 2005. The research project was supported by the American Bar Foundation, the Abe Fellowship Program of the Social Science Research Council with funds from the Japan Foundation Center for Global Partnership and Cornell University. An earlier version of this article was presented at the 'Ethnographic Fictions' conference organized by Susan Coutin, Annelise Riles and Barbara Yngvesson for the Clarke Program in East Asian Law and Culture at Cornell University in April 2006. I am grateful to the organizers of the conference, especially Annelise Riles, for the inspiration to rethink my ethnographic material from the standpoint of the problem of 'as if'. My discussion of 'as if' owes a great deal to her extensive work on the subject. I benefited greatly from comments made by Tom Boellstorff, Susan Coutin, Mitchell Lasser and Barbara Yngvesson at the conference. I also thank Marieke de Goede, Amy Levine, Donald MacKenzie and Elana Shever for taking time to read and comment on a draft of the article. Special thanks are due to Bill Maurer and, once again, Annelise Riles for their critical guidance as to the direction of my broader project of which this article is part. Notes 1. Beunza et al. align themselves with behavioural economists, such as Andrei Shleifer and Robert W. Vishny, and suggest that 'there are potentially productive linkages between the emerging literature in economics on the limits of arbitrage and the "material sociology" of arbitrage that we advocate' (Beunza et al. 2006: 724). 2. Hull has eliminated the term 'riskless' in his definition of arbitrage in a subsequent edition of the textbook but the overall nuance of the definition remains the same: 'Arbitrage involves locking in a profit by simultaneously entering into transactions in two or more markets' (Hull 2000 Hull, J. C. 2000. Options, Futures, and Other Derivatives, 4th edn, Upper Saddle River, NJ: Prentice Hall. [Google Scholar]: 14). 3. Contrasting arbitrage with speculation in terms of their divergent approaches to risk has long been a standard practice in writings about financial markets. For example, in his Speculation on the Stock and Produce Exchanges of the United States, Henry Crosby Emery notes, 'Arbitrage, at least in the case of securities, is not speculation at all. If both prices are actually known at the same moment, to buy at one price and sell at another is not to take a risk, and so is not speculation. It is trade' (Emery 1896 Emery, H. C. 1896. Speculation on the Stock and Produce Exchanges of the United States, New York: Columbia University. [Google Scholar]: 138). Likewise, Max Weber characterizes arbitrage as an operation based on precise calculation and therefore a virtually riskless operation: 'The "arbitrageur" seeks a profit in that he simultaneously sells a good at a place where it is, at that moment, able to be sold at a higher price, while he buys it at a place where it is to be had more cheaply. His business is therefore a pure example of calculating the numbers. ... When things are correctly calculated, there is no other risk involved, but, when one compares the volume of transactions with the gain that is being sought, there are therefore also relatively modest chances for profit' (Weber 2000 [1924]: 344-5). In contrast, speculation 'is no example of pure and simple calculation - for, [the speculator's] success is dependent upon the onset of the expected change in the general price of the specific good - and the speculator must take into account the circumstances that possibly contribute to that' (Weber 2000 Weber , M. (2000 [1924]) 'Commerce on the stock and commodity exchanges [Die Borsenverkehr]' , trans. Steven Lestition , Theory and Society 29 ( 3 ): 339 - 71 .[Crossref], [Web of Science (R)] , [Google Scholar] [1924]: 345, emphasis in original). 4. For example, proponents of organized securities trading sought to distinguish speculation from gambling by arguing that speculation stabilized prices and therefore enabled exchange-based trading to be used by hedgers (see, e.g., Crump 1874 Crump, A. 1874. The Theory of Stock Exchange Speculation, 3rd edn, London: Longmans, Green, Reader & Dyer. [Google Scholar]; Huebner 1910 Huebner, S. S. 1910. 'Scope and functions of the stock market'. Annals of the American Academy of Political and Social Science, 35(3): 1-23. [Crossref] , [Google Scholar], 1911 Huebner S. S. (1911) 'The functions of produce exchanges' , Annals of the American Academy of Political and Social Science 38 ( 2 ): 1 - 35 .[Crossref] , [Google Scholar]). For more comprehensive treatments of the long chains of debates about the distinction between gambling and speculation, see, e.g., Brenner (1990 Brenner , R. and Brenner , G. A. (1990) Gambling and Speculation: A Theory, a History, and a Future of Some Human Decisions , Cambridge : Cambridge University Press . [Google Scholar]: 90-112), de Goede (2005: 47-85) and Lurie (1979 Lurie, J. 1979. The Chicago Board of Trade, 1859-1905: The Dynamics of Self-Regulation, Urbana, IL: University of Illinois Press. [Google Scholar]). 5. Hardie defines arbitrage as 'any financial market activity which guarantees a profit within the timeframe acceptable to the actor engaging in it, net of the cost of any capital and/or borrowing required to undertake the activity, without credit or liquidity risk, except normal settlement risk, being essential to the generation of that profit. Most importantly, profit from arbitrage must be guaranteed, excluding anything that in reality involves taking risk on the value of an asset, relative or otherwise' (Hardie 2004: 243, emphasis removed). 6. My attention to market participants' uses of the textbook typology of market participants may recall Ellen Hertz's ethnographic study of the Shanghai stock market. In that study, Hertz identifies three salient categories of market participants in the Shanghai stock market - dahu ('big players'), sanhu ('dispersed players') and guojia (the State). Hertz examines the interplay of these categories and ultimately traces the rise of a new category of collectivity she terms 'the trading crowd' (1998 Hertz, E. 1998. The Trading Crowd: An Ethnography of the Shanghai Stock Market, Cambridge: Cambridge University Press. [Crossref] , [Google Scholar]: 28). My focus, however, is on more standard categories of economic actors that appear in economic analysis - hedgers, speculators and arbitrageurs. 7. For nuanced discussions of different versions of defence of LTCM's trading strategy, see de Goede (2005: 135-7) and MacKenzie (006: 218-42). 8. It is important to note, however, that MacKenzie also draws attention to the 'limits of arbitrage' (2006: 268-73). In his view, because arbitrage is fundamentally social and sociological, arbitrageurs' capacity to effect market efficiency is limited (see also Beunza et al. 2006). 9. See, e.g., 'Nibanzoko wo saguru tenkai-ka?' (In search of a second bottom?), Nihon Keizai Shinbun, 13 January 1990, p. 16; 'Saiteitorihiki sage hakusha' (Arbitrage has spurred the downfall [of stock prices]), Nihon Keizai Shinbun, 22 February 1990, p. 3; 'Kappatsuka-suru saiteitorihiki' (Arbitrage is becoming more frequent), 1-4, Nihon Keizai Shinbun, 23 February 1990, p. 20; 24 February 1990, p. 16; 27 February 1990, p. 20; 28 February 1990, p. 20; 'Puroguramu-baibai ga sage kasoku' (Program trading has accelerated the downfall [of stock prices]), Asahi Shinbun, 22 February 1990, p. 9; 'Kabuka oyure ni toshika azen' (Investors stunned by the stock price fluctuations), Asahi Shinbun, 27 February 1990, p. 3. 10. For a similar argument presented by an academic, see, e.g., Kunimura (1990 Kunimura , M. (1990) 'Saitei-torihiki wa kabukaboraku wo kasoku shinakatta' (Arbitrage did not accelerate the stock-price crash) , Ekonomisuto (Economist) 27 March: 22 - 5 . [Google Scholar]). 11. It is commonplace to observe that the entire world of money and finance rests on a kind of faith (see, e.g., Henwood 1998: 151; Taylor 2004 Taylor, M. C. 2004. Confidence Games: Money and Markets in a World without Redemption, Chicago, IL: University of Chicago Press. [Google Scholar]: 286). Marieke de Goede has recently complicated this observation by noting that 'the creation and maintenance of faith in modern currencies is a much more tenuous and unstable project than is generally conceded' (de Geode 2005: xxiv). de Goede's attention focuses on instances of failure of such faith as points of critical intervention (see 2005 de Goede, M. 2005. Virtue, Fortune, and Faith: A Genealogy of Finance, Minneapolis, MN: University of Minnesota Press. [Google Scholar]: xxvi, 150-1). The goal of the present article is somewhat different but my ethnography confirms her implicit assumption that faith requires continuous work (see also Miyazaki 2004). 12. Leach's work constitutes a critique of the typologizing of social systems characteristic of the structural functionalist school of British social anthropology: 'My own view is that equilibrium theory in social anthropology was once justified but that it now needs drastic modification. We can no longer be satisfied with attempting to set up a typology of fixed systems' (Leach 1970 [1954]: 284-5). Instead, seeing that '[e]very real society is a process in time' (Leach 1970 [1954]: 5), Leach seeks to capture its dynamism: 'I hold that it should be possible for anthropologists to develop methods for the analysis of changing social systems which avoid metaphysical generalisations' (1970 [1954]: 285). In order to achieve this goal, however, following Hans Vaihinger's work, The Philosophy of As If, Leach redeploys the static mode of modelling deriving from structural functionalism with a qualification that such models are 'as if' models: 'Candid recognition that social systems are not necessarily naturally stable need to not compel the structurally minded social anthropologist to abandon all his traditional techniques of analysis, for he will still be justified in continuing his use of scientific fictions' (Leach 1970 Leach , E. R. (1970 [1954]) Political Systems of Highland Burma: A Study of Kachin Social Structure , London : Athlone Press . [Google Scholar] [1954]: 285). In other words, for Leach, these fictional models constitute merely a means to an end (see Riles 2004, forthcoming), that is, the goal of depicting society as a dynamic process. 13. For example, Paul Harrison has told a history of financial economics as a process of 'intellectual arbitrage' (1997). Likewise, Mahmoud A. El-Gamal has described a history of Islamic finance as 'Shari'a arbitrage' (2006; cf. Maurer 2005). Interestingly, El-Gamal associates arbitrage with attention to 'form', that is, analogical thinking as contrasted to attention to 'substance', that is, economic reasoning. El-Gamal proposes to recover the latter in Islamic finance (2006 El-Gamal, M. A. 2006. Islamic Finance: Law, Economics, and Practice, Cambridge: Cambridge University Press. [Crossref] , [Google Scholar]: xii, 20-5). 14. For anthropological analyses of the practical uses to which ambiguity and ambivalence are put in other ethnographic settings, see, e.g., Battaglia (1997 Battaglia, D. 1997. 'Ambiguating agency: the case of Malinowski's ghost'. American Anthropologist, 99(3): 505-10. [Crossref], [Web of Science (R)] , [Google Scholar]), Brenneis (1986 Brenneis, D. 1986. 'Shared territory: audience, indirection and meaning'. Text, 6: 339-47. [Google Scholar]), Herzfeld (1997 Herzfeld, M. 1997. Cultural Intimacy: Social Poetics in the Nation-State, New York: Routledge. [Google Scholar]), Keane (1997 Keane, W. 1997. Signs of Recognition: Powers and Hazards of Representation in an Indonesian Society, Berkeley, CA: University of California Press. [Crossref] , [Google Scholar]) and Miyazaki (2004 Miyazaki, H. 2004. The Method of Hope: Anthropology, Philosophy and Fijian Knowledge, Stanford, CA: Stanford University Press. [Crossref] , [Google Scholar

Arbitrage · Economics · Financial economics · Macroeconomics · Monetary economics · Neoclassical economics · Speculation · Housing, Finance, and Neoliberalism · Political and Economic history of UK and US