Background
The term “bear” in financial markets refers to investors who anticipate falling asset prices. These traders adopt strategies aimed at profiting from declining market values.
Historical Context
The term “bear” has been used for centuries, originating from interactions in the world of trading, particularly from medieval times when the practice of selling the “bear’s skin” before catching the bear became likened to short selling.
Definitions and Concepts
A bear is a trader who expects prices to fall. This stance leads bears to sell shares or commodities they currently own with the intention of repurchasing them at a lower price. In certain extreme cases, bears might engage in speculative activities by selling forward shares or commodities that they do not actually hold, instead aiming to buy these at a lower price before their delivery date.
Major Analytical Frameworks
Classical Economics
In classical economics, the bear’s behavior can be related to the individual pursuit of profit through market predictions and rational expectations.
Neoclassical Economics
Neoclassical economics examines the bear’s expectations of market declines within the context of utility maximization and market equilibrium theories.
Keynesian Economics
In Keynesian economic theory, bear market speculation could be seen as part of the broader behaviors contributing to market cycles and fluctuations.
Marxian Economics
Marxian economics might analyze the bear notion in terms of capitalist market dynamics, focusing on how speculation and differing market expectations reflect broader socio-economic structures.
Institutional Economics
Institutional economics studies the behaviors of bears within the different regulatory, organizational, and cultural frameworks shaping their actions.
Behavioral Economics
Behavioral economics delves into the psychology of the bear, exploring how cognitive biases and emotions might influence expectations of falling prices.
Post-Keynesian Economics
Post-Keynesian approaches highlight the role of uncertainty and the influence of herd behavior seen in bearish sentiments.
Austrian Economics
Austrian economists would consider the entrepreneurial aspect of bearish speculation as part of the dynamic and ever-changing economy.
Development Economics
Though less commonly discussed in development economics, bear market behavior can impact developing economies by influencing investor confidence and capital flows.
Monetarism
Monetarist perspectives would relate bear markets to monetary supply and demand impacts on price levels.
Comparative Analysis
Comparing “bear” strategies with “bull” strategies provides a fuller picture of market dynamics, highlighting the contrasting behaviors of expecting price rises versus price falls.
Case Studies
Famous bear market events, such as the Great Depression and the Dot-com Bubble burst, offer deep insights into the implications and outcomes of widespread bearish sentiment.
Suggested Books for Further Studies
- “Market Wizards” by Jack D. Schwager
- “Irrational Exuberance” by Robert J. Shiller
- “The Big Short” by Michael Lewis
Related Terms with Definitions
- Bull: A trader who expects prices to rise and buys assets expecting to sell them at a higher price.
- Speculation: Trading financial instruments involving high risk, with the expectation of significant returns.
