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Traditional Finance Paradigm

"As we all saw from this class, many of the building blocks of the traditional finance theory were questioned and challenged when it came to the relevance of such theory to the problems that investors and managers face in the real world every single day. Building blocks like all the risk definitions and tools; and even the whole CAPM, lies at the heart of the working of financial markets. So I would say there is nothing left of the traditional finance paradigm that we could use to solve problems in the real world!"

How would you respond to the above statements? Do you agree or disagree with the above; and which parts? Explain your thoughts and reasoning in necessary detail. Make sure you are very clear in the position you take on for any key issue. Also feel free to reference your position(s).

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I do not fully agree with the above mentioned statements. The traditional finance paradigm does provide us strong fundamental knowledge and a platform to develop strong understanding about the financial markets. It is true that such a paradigm cannot be interpreted or used in the exact manner or as per stated guidelines and their efficacy in the real world has been reduced due to fundamental shifts in the current financial world. It is also true that they are not completely wrong and can be utilized by modifying or ...