What is Economic Research?
Economic research in the area of finance studies the factors that affect financial markets and their behaviors. Economic research in finance can be applied to a variety of problems, such as predicting the probability that a firm will declare bankruptcy or forecasting changes in currency markets. Economists use economic modeling techniques to predict how people behave when faced with various situations, such as an increase in taxation rates or an under-supply of raw materials needed for production. Fintalent’s economic research consultants also use the technique to gain insight into how collective decision-making can affect societal well-being.
Economic research in finance also studies the decision-making of individual investors, traders, and corporations. Studies of behavioral finance have been used to understand how people make decisions that are rational from their own point of view but appear irrational to economists. Much economic research in finance focuses on price behavior in financial markets where the goal is not to predict prices but to understand investor reactions. Economic researchers have studied issues such as the impact of competition from a new firm on existing firms, the effect of expectations about future prices on market prices for various assets, and the effect on market prices if one firm decides to withdraw from a particular market.
Interest rates are an important part of economics research in finance since they determine how much people save and borrow. Higher interest rates discourage borrowing and encourage people to save more. So, if interest rates were kept low, there would be more savings. If interest rates are high, people save less and borrow money to buy things they want but don’t necessarily need. So an increase in the value of a currency might make it easier for a country to borrow money because foreign lenders would want to lend money at lower interest rates from the new currency value.
The fluctuations of markets are part of economics research in finance. This can be measured with various types of price indices that chart movement of prices for a broad range of assets over time. Analysis provides insight into what drives markets such as their liquidity, efficiency, or instability.
Economic research in finance is an important part of the financial market system. By analyzing how markets work and how people act, economists can help create better market systems that operate more efficiently and effectively.
