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Theoretical and Applied Economics
No. 1 / 2006 (496)

Asymmetrical Information and Uncertainty on the Capital Market

Petru Prunea
Universitatea Tehnica Cluj

Abstract. The paper analyses the paradox found on the stock exchanges where routine operations are regulated on a very detailed scale while important decisions regarding investments in financial asset are taken under uncertainty conditions. Thus, the paper emphasizes the debate of the source, the nature and the dimension of this uncertainty, present in all phases where decisions regarding the stock exchange’s operations are taken and applied. The author shows that in the stock exchange decisions remains, at least theoretically, under certainty and rationality but these characteristics have to be approached in a probabilistic way. And this statement is detailed. The level of knowledge gathered from a participative study of the market, through both fundamental and technical analysis, gives to the concept of reducing uncertainty an objective character. But still, all this is done by achieving a better cognitive image without the reducible uncertainty. In the opposite situation, the uncertainty grows. Those taking decisions regarding the investments aspects have to deal with two main problems. Thus, the investors have at their disposition two strategies: “step by step continuous optimization” and “good enough investments”. These strategies are critically presented and analyzed, considering their advantages and disadvantages, the main approach being the acquisition or the selling price of the financial assets. The description of these decisional strategies used in a stock exchange’s operations is followed by the presentation of the criteria that should be considered when choosing these strategies. The emerged conclusion is that in the presence of uncertainty, which accompanies a stock exchange, a high level of performance cannot be obtained without possessing a large amount of relevant information gathered in the past but relevant for the present.

Keywords: uncertainty; decision; informal uncertainty; portfolio optimization; cognitive uncertainty.

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