Finance theory altered its own empirical object of study

Evidence

Bringing finance theory into confrontation with reality turned out to be a complex matter. The results of empirical testing were often equivocal, and argument broke out over whether the Capital Asset Pricing Model could be tested at all. The efficient-market hypothesis seemed empirically the sturdiest of finance theory’s central propositions, but it too began to encounter anomalies. “Reality” was not a stable backdrop against which testing could take place: finance theory’s effects on its object of study were growing. — Donald MacKenzie, An Engine, Not a Camera, 388

Categorization

• DEEPTHINKING: The phrase ‘reality was not a stable backdrop’ plus ‘theory’s effects on its object’ is the sharpest early statement of the performativity loop itself — worth sitting with.
• XREF: connects to: Financial-sector growth from asset inflation may have exhausted its own model. — Mark Blyth, Austerity: The History of a Dangerous…, 629; Critical finance studies treat markets as discursively constituted rather than merely material — Aris Komporozos-Athanasiou, Speculative Communities: Living with…, 578; Financial theories can become true by guiding the practices they describe — Gerald F. Davis & Suntae Kim, Financialization of the Economy, 38 (+10 more)

Broader Connections

• The efficient market hypothesis survived every empirical refutation and became finance orthodoxy #exemplifies (0.78) — Philip Mirowski, Never Let a Serious Crisis Go to Waste, 758
• Finance theory developed cumulatively like a technological cascade from Markowitz to trading room practice #expands (0.72) — Donald MacKenzie, An Engine, Not a Camera, 1090