Ethics and speculation in financial markets

Abstract

Our CCS deals with the relationships between ethics and speculation in financial markets. Speculation is the assumption of risk. Speculators play a fundamental role in the market by assuming risks that other participants do not want to accept. In this way, speculators minimize the risk borne by others . The ethics is the investigation into the basic concepts and fundamental principles of human conduct. It includes study of universal values such as the essential equality of all men and women, human or natural rights, obedience to the law of land, concern for health and safety and, increasingly, also for the natural environment . In the past few years, there have been a lot of financial and human scandals (e.g. Barings in 1995, Société Générale and its Trader Jérôme Kerviel in 2007…). It is acknowledged that any company has to take some risks to develop, but this risk needs to be controlled especially in financial markets. It has not always been the case so far. For instance, the subprime crisis has highlighted this lack of control in the risks taken by many traders. All of this can have consequences for the bank itself, but also for the world economy. Anyone can be affected when some investors are speculating for example on oil or on soft commodities. The recent commodity speculative bubble has for instance pushed 120 million additional people into poverty. But there’s also a ‘good speculation’ which could be then seen as ethical. For instance, by risking their own capital in the hope of profit, speculators add liquidity to the market and make it easier for other counterparties to offset risk, including those who may be classified as hedgers and arbitrageurs. Thus our report is focused on three main topics. The first one will be a theoretical approach of speculation, its positive and its negative effects. We will then use these theories to understand what the role of speculation in today’s crisis was. We will then look at the solutions that have been adopted so far and the measures that our banks and our governments can adopt to keep on improving the functioning of our stock exchanges.