What Type of Methodology Is Generally Used for Financial Research and Why?

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), nominalism (there shall be no linguistic phenomena occurring), separation of facts and values as well as unity of scientific method. This shows that positivism is a very objective methodology where the researcher remains uninvolved and independent of his/her study.
The naturalistic or constructivistic (also considered the qualitative) approach on the other hand views the phenomenon in its context rather than in a limited way, because there are not only one but several realities. Due to the fact that within the research the researcher interacts with several unique personalities, knowledge is established through experience with the underlying phenomena and the meaning it has been given by every single personality. Norms, values and cultures play an important role in constructing a meaning that represents not the values of the researcher but the reflection of how he picks it up and restates their point-of-view. The underlying data analysis is therefore highly intuitive and has the power to generate new levels and forms of meaning. The goal of qualitative investigation comprises the understanding of a complex world and of human behavior from their point-of-view in an inquiry process. The design used for qualitative research is flexible, it can consist of e.g. a data collection or an analysis of research. There is no “right” way of drawing conclusions because this methodology is highly sensitive to biases and subjectivism, therefore the way of drawing these conclusions needs to be disclosed properly. To perform this kind of research a hands-off-approach (as used in positivism) is not possible, the researcher has to immerge into the setting of the research.