Abstract
Financial analysts seek to forecast future changes in the price of financial instruments. The idea is to find opportunities to buy instruments that are likely to increase in value. However, is it really possible to predict the future value of a company, a category of goods, a country, or a region? In Stories of Capitalism: Inside the Role of Financial Analysts, Stefan Leins outlines two reasons why this should not be. The first reason is that financial analysis goes against the efficient market model in neoclassical economic theory. According to the efficiency model, functioning markets are supposed to be information efficient. This means that all relevant information should already be “priced in.” Following this, it should not be possible to foretell future price changes as the information relevant for those price changes should already be reflected in the current price. The second reason is the poor performance of financial analysis itself. Here Leins cites how analysts often fail to forecast correctly and how both a monkey and a cat have beaten them at their own game. However, despite lacking theoretical foundations and true success, financial analysts are still around and they are being listened to.
In order to understand the role financial analysts play in contemporary banking, Stefan Leins has carried out ethnographic fieldwork within a financial analysis department at a Swiss bank. Having introduced the question and reviewed the lack of support for the phenomenon in economic theory, Leins then draws a picture of the world of financial analysis and contemporary banking. In doing so, he moves through an introduction to the history of Swiss banking and the changing attitudes and roles that emerged with the rise of investment banking and aggressive speculation in the 1980s and 90s. With the stage set, the main characters are introduced. Here Leins outlines the different categories of Swiss bankers, their different ways of dressing, speaking, and acting. Financial analysts are outlined as “highly educated bankers who see themselves as experts on financial markets” (Leins, 2018: 47) and who reinforce their expert status by their symbolic capital in the form of a conservative dress code and a constant highlighting of educational titles.
Having outlined how financial analysts gather and weigh information, how they construct their forecasts, and how the forecasts are produced, Leins then proceeds to answer the question. The reasons why there are financial analysts, it turns out, are threefold: (i) Financial analysts have successfully created a role for themselves as experts on financial markets. By distinguishing themselves from other categories of bankers, analysts carve out a space for themselves within banks and within markets; (ii) The forecasts produced by financial analysts work as “investment narratives” that can be used by wealth managers and other actors within banks as well as by the banks’ clients. The ever changing investment narratives, Leins argues, encourage bank clients to buy and sell financial products, which in turn produces commissions for the bank, and; (iii) By performing their role as experts, financial analysts provide the impression that it is possible to navigate financial markets through reason and not only speculation. Here, Leins leans on Beckert's (2016) discussion of how fictional expectations––such as the investment narratives produced by analysts––enable actors to navigate uncertain futures by producing points of reference. Having outlined these three findings, Leins then enters into dialogue with performativity theory in order to argue a theoretical contribution stating that “the knowledge that emerges from financial analysis as a market practice can shape markets––the object it aims to describe” (Leins, 2018: 156). Whether this makes for a substantial contribution to performativity theory is perhaps best left unsaid at this point. However, it becomes clear at this point that Stories of Capitalism is less about forecasting markets than it is about banking cultures and the apparent disjunction between economic theory and financial practice.
This last point is perhaps of importance here. Throughout Stories of Capitalism Leins engages with the production and use of forecasts without engaging with the existing literature on predictions. Instead, the discussion in Stories of Capitalism focuses on what can be described as the “latent functions” (Merton, 1968) of financial analysis, and not on the making of them. This is, arguably, unfortunate as Leins shows that there are many interesting sides to the predictive work performed by financial analysts. The primary example of this is how the quality of a forecast is described as a property of the expertise held by the individual analyst rather than of the calculative devices employed in forecasting. This becomes clear when Leins describes how financial analysts often construct market forecasts based on affect, and how forecasts are then supported by calculations, and not the other way around. According to Leins, analysts many times begin constructing their forecast narratives before they have even run their models and they then use the results from their calculations to support their forecasts. This finding could have been tied in with existing discussions of prediction-work and whether good predictions are a result of the devices and models used, or if it is a result of good predictors doing the work (see Fine, 2010, also Rescher, 1998). Stories of Capitalism thus opens up interesting conversations about how prediction-work and forecasts are made, but this opportunity is not followed through on. Sociologists interested in prediction-work and forecasting may therefore find Stories of Capitalism a somewhat unrewarding read.