What type of methodology is generally used for financial research and why?
There are two different methodologies that can be used to conduct research – a quantitative as well as a qualitative one. In order to find a response to which of these methodologies is most likely to be used in financial research, it is important to first gain a broader understanding of the context in which they appear in theory. Also, it is necessary to specify important assumptions underlying those theories in order to make a distinction between them and therefore evaluating their role within the specific subject area of finance. The theoretical background is mainly formed by the concept of epistemology, which is the philosophy of knowledge. It expresses the different types of relationships between the known and the person who knows, as well as what counts as knowledge and how we know what we know. It states that the differences are rather philosophical than methodological, therefore a theoretical paradigm about the phenomena under investigation is required to understand the perspective from which the study is carried out. Epistemology distinguishes between the positivistic (also considered the quantitative, or even deductive) approach and the naturalistic/constructivistic (also considered the qualitative, or inductive) approach. According to positivism knowledge is derived by measuring and observing independent facts about one single reality or phenomena without adding any value to them. The researcher is convinced that there is a deterministic world, in which the law of cause and effect applies. In a positivistic epistemology point-of-view, in case the results may show that the theory is flawed by any factor, the theory likely has to be revised. Key approach for research in this area is the experiment. Kolakowski (1972) describes a doctrine of four points, which basically describe the positivistic – or quantitative – research: phenomenalism (only experiences shall be included),...
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