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International conference on Model-Based Reasoning

MBR 2018: Model-Based Reasoning in Science and Technology pp 393–406Cite as

Models and Data in Finance: les Liaisons Dangereuses

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Part of the book series: Studies in Applied Philosophy, Epistemology and Rational Ethics ((SAPERE,volume 49))

Abstract

In my paper, I examine the role that models play, and the relation between models and data, in financial systems, in particular in stock markets. I discuss several dangerous liaisons between models and data both from a theoretical and a practical viewpoint, and I consider their effects on the behaviour of the financial systems and their actors.

I will examine two issues in particular.

First, these liaisons defy the way traditional philosophy of science accounts for models and the relation between models and data, as stock markets exhibit several dynamics and features that do not fit them. For instance, they challenge the ontological issue about models (the debate about the fictional character of models), or the way models and phenomena are connected, and consequently undermine classical taxonomies as ‘models of data’, ‘models of phenomena’, ‘models of theory’.

Second, these relations and liaisons open the way to possible exploitations and manipulation of stock market’s dynamics by means of appropriate use of models and data, including ‘reverse finance’, which should be closely analysed in order to contribute to better functioning and serving of the financial systems.

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Notes

  1. 1.

    In particular see Boldyrev and Ushakov (2016), Brisset (2017a, 2016, 2017b, 2018, Brisset 2019), Svetlova (2012).

  2. 2.

    See also Aspers (2007), Curran (2018), Davis (2006), Healy (2015), Vosslemand (2014) and Wullweber (2016).

  3. 3.

    More in detail, this means that, if the model underprices risks, we will have a reality (a market) where risks are underpriced; if the models misprice an asset, then that asset becomes mispriced in the ‘real’ markets.

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Author information

Authors and Affiliations

  1. Department of Philosophy, Sapienza University of Rome, Rome, Italy

    Emiliano Ippoliti

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  1. Emiliano Ippoliti
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Correspondence to Emiliano Ippoliti .

Editor information

Editors and Affiliations

  1. Department of Philosophy, Logic and Philosophy of Science, University of Seville, Seville, Spain

    Ángel Nepomuceno-Fernández

  2. Department of Humanities, Philosophy Section, and Computational Philosophy Laboratory, University of Pavia, Pavia, Italy

    Lorenzo Magnani

  3. Department of Spanish Language, Linguistics and Theory of Literature, University of Seville, Seville, Spain

    Francisco J. Salguero-Lamillar

  4. Department of Philosophy, Logic and Philosophy of Science, University of Seville, Seville, Spain

    Cristina Barés-Gómez

  5. Centre for Philosophy of Science of the University of Lisbon, University of Lisbon, Lisbon, Portugal

    Matthieu Fontaine

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Ippoliti, E. (2019). Models and Data in Finance: les Liaisons Dangereuses. In: Nepomuceno-Fernández, Á., Magnani, L., Salguero-Lamillar, F., Barés-Gómez, C., Fontaine, M. (eds) Model-Based Reasoning in Science and Technology. MBR 2018. Studies in Applied Philosophy, Epistemology and Rational Ethics, vol 49. Springer, Cham. https://doi.org/10.1007/978-3-030-32722-4_22

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