George Soros, in a speech at Davos, stated that we know very little about how financial markets work(click here). 61 years after Harry Markowitz's famous paper, and 50 years since Samuelson and Fama developed the efficient markets hypothesis, and 40 years after the Black-Scholes-Merton model, we are still no further forward in understanding financial markets according to Soros! What are we to do? Some scholars think that behavioural finance is the way to go. The application of psychology to financial markets is certainly interesting and potentially fruitful. However, my own hunch is that we need to understand better the role of government in manipulating and influencing financial markets.
