ABSTRACT
This chapter explores the societal role of capital markets, highlighting the importance of efficient capital allocation for growth and innovation. It differentiates forms of capital and segments of the capital market and discusses the efficient markets hypothesis and prominent criticisms of this perspective. It develops an understanding of capital markets as social institutions that – while focused on lowering transaction costs and despite increasing automatization – still retain inherently human traits, highlighting the importance of psychological and sociological insights for the understanding of capital markets (e.g., herd behavior and opinion leader effects). The chapter ends by discussing stakeholder capitalism and the increasing importance of sustainability on capital markets.
