Conclusions

In this chapter, we have argued that there has been a transformation of the relation­ship between finance and its media image. As the centrality of the traditional arbiters was unsettled by disintermediation and the growing financial literacy, the media have become a key means of coordination in the financial markets, but a set of arbiters whose primary mode of delivery is infotainment rather than hard news.

has undergone a revolution. Moving from sober reporting to daily entertainment, has meant moving into a world dominated by video clips, the rush and clash of symbols, and the need to entertain minute after minute, day after day Stock-tipsters have attained cult followings. These changes are of fundamental importance. Before them, there were producers of financial knowledge (financial professionals and analysts working in, and determining the course of, the markets) at the core and there were consumers of financial knowledge (the media and, through them, investors) at the outside. However much the producers of financial knowledge may dislike it, they now have to share the stage with a set of media which has become both consumer and producer. In a very short time, the Reichian symbolic analysts of finance have had to accommodate an influential external presence and recognize that markets move on their volition. The boundaries between the producers and consumers of financial knowledge are fuzzy.

All this might be unproblematic if it were simply the case that such images and personalities are mere “froth” set atop the fundamentals driving investment decision-making. However, during the 1990s individual investors entered the market drawn by the promise of enormous unearned wealth and the erroneous belief that electronic communication networks provided them with sufficient information and knowledge to be competitive with much larger institutional investors.

There are many implications that flow from these observations. In the first instance, greater scrutiny needs to be paid to the relationship between financial reporting in the print media and financial reporting in the television media. We know little about the design and structure of financial reporting in these rather different environments just as we know very little in fact about the significance of historically derived codes of practice in sustaining the divide between reporting information and making opinions about the significance or otherwise of that information. Even articulating this implies that there are wider media responsibilities than chasing ratings, responsibilities not to hype markets or to chase the latest story. Indeed, the integrity of capital markets may demand (but not necessarily achieve) such distinctions; just as regulators will have paid increasing attention to the integrity of corporate accounting practices in the aftermath of Enron, these same regulators ought to be paying closer attention to the roles and responsibilities of media image managers.

Of course, it is arguable that the entertainment value of electronic images has been drastically curtailed by the collapse of the technology, media and com­munications (TMT) bubble.

Performingfmance 179 proved once again that attention to fundamentals is a necessity even if fashion and hype would dictate otherwise. It would seem that both propositions are entirely plausible. However, market volatility remains an important characteristic of Anglo- American capital markets; diverse expectations and behavior will not simply “go away” by reference to the supposed virtues of fundamentals. Any appeal to fundamentals must be tempered with the realization that such appeals are hardly ever unambiguous and risk-free recipes for long-term investment success. Furthermore, it is apparent to many in the market, whether expert or amateur, that increased market volatility has provided opportunities for risk-taking and reward. There are fashions of theory just as there are fashions in opinion. The increasingly close relationships over the last two decades between financial theorists and investment firms is evidence, surely, of the burgeoning market for ideas.

In any event, the transformation of financial reporting into the world of image and entertainment has also transformed how we understand regulation. Whereas in the past the regulation of capital markets was intimately related to “hard data” such as measures of capital adequacy, the efficacy of transaction settlements systems, and the management of risk-taking internal to large financial conglomerates, it is arguable that regulation must also be sensitive to the interests of consumers. Here the world of financial markets is increasingly the world of consumer protection, going beyond regulatory regimes designed to maintain competition and ensure stable markets to regulatory regimes which are sensitive to the possibility that financial institutions may exploit the ignorance and inexperience of consumers. This is surely the implication of recent moves by the New York attorney general (themselves interpreted by some as a calculated media strategy) to hold financial institutions accountable for their expressed opinions (given reservations about the value of stock recommendations).

Finally, there remains a most important issue to be confronted: if, as it seems, individuals will be required to bear a higher proportion of the risk associated with their long-term wealth and retirement income, financial literacy must be given greater significance than has been the case. It is apparent in the UK that this issue is an important agenda item for the Financial Services Authority (FSA). The publication of decision trees, flow charts, and handbooks devoted to the assessment of risk all suggest that the FSA has taken on a most important educative role. However, this is just the beginning. Much of this type of educative material presumes a level of cognitive sophistication and access to information of integrity at odds with the actual circumstances of individual investors. Moreover, this type of material suggests a level of quality of information and decision-making competence that would put television outlets like CNBC out of business. If, as we have suggested here, all kinds of market participants are caught-up in the market for image and media time, appeals to rationality shorn of media hype seem to us to be forlorn attempts to institutionalize a clinical conception of decision-making and proof that are at odds with what we are beginning to know about media-driven financial markets which suggest that we may now be beginning a new chapter in the history of how financial markets are co-ordinated (Clark and Marshall, 2002).

Notes

1 Some of the more deleterious impacts of a cultural shift within the finance industry towards taking risks also migrated into the corporate and municipal realms, as the behavior of a small number of corporate treasurers and municipal authorities began to resemble gamblers rather than money managers (for example, in Orange County in California and Hammersmith and Fulham in the UK (see Tickell, 2000).

2 For example, the Financial Times has been the only UK newspaper whose circulation figures consistently grow on an annualized basis and now publishes separate editions for the UK, Europe and North America.

3 This demand notwithstanding, what little evidence there is suggests that individuals who actively trade on the financial markets consistently underperform the professionals and the financial markets. For example, empirical research during the 1980s suggested that small speculators in the futures markets lost 20 per cent of their money every year (Zeckhauser et al., 1991). More recently, during the dot.com boom the media widely (over-)reported the emergence of the ‘day-trader’ phenomenon. Day traders are individuals who actively trade stocks on their own account in the hope of arbitraging profits or second guessing market moves. Although a few lionized day traders were wildly successful during the period when the NASDAQ appeared unstoppable and commentators were claiming that the Dow Jones index should properly be valued at 36,000 (Glassman and Hassett, 1999), the majority lost money.

4 As illustrated by the Enron scandal, managing reported earnings and financial positions is a widespread phenomenon. While most obvious in the Anglo-American world, it should be noted that European corporate reporting practices are typically even less shareholder friendly than Anglo-American practices. In fact, so significant is insider information in many continental European countries that common Anglo-American portfolio investment strategies such as passive index matching are demonstrably poor investment vehicles when compared with active stock selection and exclusion (see Clark and Wojcik, 2002, on the design and execution of European investment strategies).

5 Here, we have obviously cribbed our section title and argumentative logic from Marshall McLuhan. See his seminal contributions on the semiotics of the media and the status of image in modern (postmodern) society; McLuhan (1964) and McLuhan and Fiore (1967). Even so, we should recognize that these issues have developed in ways perhaps unanticipated by McLuhan especially as regards the question of peoples’ cognitive capacities to process information and make informed decisions.

6 This is in stark contrast to the print media where considerable skepticism is now dominant - contrast Levi (1987) with the interpretive understandings of the collapses of Barings (Tickell, 1996) and Long Term Capital (MacKenzie, 2000; de Goede, 2001) - in part because of the different timeframe in which such media run.

7 In constructing this argument, we are drawing upon empirical work carried out over the last five years by the three authors including: (i) over 100 in-depth interviews in major financial institutions in London, New York, Chicago, Frankfurt and Sydney; (ii) observations and discussions at industry conferences, including a recent conference attended by 200 European financial institutions and fund managers; and (iii) research for the [UK] National Association of Pension Funds and Watson Wyatt on decision­making models in pension fund investment allocation. This latter study, by Clark, developed formal models which analyzed predetermined protocols and tested responses to a range of variables, including the role of expertise and external ‘noise’.

8 See, for example, the puzzle involving choice amongst a pre-determined set of options set in Clark and Marshall (2002) for participants in the Annual Investment conference of the UK National Association of Pension Funds. Increasingly, these puzzles are based upon cognitive psychology and are designed to record deeply-embedded biases common to all kinds of people whatever their cultures and environments.

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