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Value without valuation? An example of the cocos market

Research output: Contribution to journal › Article › Academic › peer-review

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Abstract

In this paper, I suggest that financial products simultaneously inhabit two regimes of valuation: calculative and consumptive. There are constant endeavors in the market to develop formal mathematical methods of valuation and to use them as a base for investment decisions. Using the example of contingent convertible bonds (“cocos”), I argue that our understanding of how financial markets function would remain limited if we were to focus only on those formal endeavors. In the case of cocos, stringent mathematical valuation is impossible due to the contingent nature of this product and many future uncertainties. Based on various empirical materials, I demonstrate that the lack of established valuation tools is complemented and compensated by the purposeful efforts to sell this product. Cocos are categorized as simple bonds in order to be sold; they are associated with brands; their risks are marketed in a particular way. This consumptive regime of valuation allows for determining value and investing where formal mathematical valuation is deferred. Thus, incorporating the insight that marketing constitutes markets, the paper sheds light on how financial markets function, and amends the purely calculative perspective of mainstream finance. Furthermore, the paper relates consumptive finance to major issues in critical finance, such as power and governance, risk ignorance and financial illiteracy. More generally, it argues that active selling efforts represent a severe research gap in critical and social studies of finance and should be more clearly outlined and developed.

Original languageEnglish
Pages (from-to)69-78
Number of pages10
JournalCritical perspectives on accounting
Volume52
DOIs
Publication statusPublished - May 2018
Externally publishedYes

UN SDGs

This output contributes to the following UN Sustainable Development Goals (SDGs)

  1. SDG 8 - Decent Work and Economic Growth
    SDG 8 Decent Work and Economic Growth

Keywords

  • Contingent convertible bonds
  • Financial markets
  • Financial risk communication
  • Valuation
  • n/a OA procedure

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