Adaptive Markets: Financial Evolution at the Speed of Thought

Andrew W. Lo

Book

Adaptive Markets

Financial Evolution at the Speed of Thought

Andrew W. Lo
Afterword by: Andrew W. Lo and Andrew W. Lo

Language: English

Published/Copyright: 2019

Published by

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About this book

A new, evolutionary explanation of markets and investor behavior

Half of all Americans have money in the stock market, yet economists can’t agree on whether investors and markets are rational and efficient, as modern financial theory assumes, or irrational and inefficient, as behavioral economists believe. The debate is one of the biggest in economics, and the value or futility of investment management and financial regulation hangs on the answer. In this groundbreaking book, Andrew Lo transforms the debate with a powerful new framework in which rationality and irrationality coexist—the Adaptive Markets Hypothesis. Drawing on psychology, evolutionary biology, neuroscience, artificial intelligence, and other fields, Adaptive Markets shows that the theory of market efficiency is incomplete. When markets are unstable, investors react instinctively, creating inefficiencies for others to exploit. Lo’s new paradigm explains how financial evolution shapes behavior and markets at the speed of thought—a fact revealed by swings between stability and crisis, profit and loss, and innovation and regulation. An ambitious new answer to fundamental questions about economics and investing, Adaptive Markets is essential reading for anyone who wants to understand how markets really work.

Author / Editor information

Andrew W. Lo is the Charles E. and Susan T. Harris Professor at the MIT Sloan School of Management and director of the MIT Laboratory for Financial Engineering. He is the author of Hedge Funds and the coauthor of A Non-Random Walk Down Wall Street (both Princeton), among other books.

Reviews

"[Adaptive Markets] delivers an important contribution to the ongoing discussion about the EMH in a very entertaining way."---Christoph Kaserer, Journal of Economics --- "[Adaptive Markets] is very well written, striking a right balance between education and teaching."---Mathis Mörke, Markets and Portfolio Management --- "One of Bloomberg’s Best Books of 2017, chosen by Robert Shiller" --- "One of Bloomberg’s Best Books of 2017, chosen by Vitor Constancio" --- "One of Financial Times (FT.com) Best Books of 2017: Economics" --- "One of the Microsoft Best Business Books of 2017" --- "One of The Wall Street Journal’s What Business Leaders Read in 2017" --- "One of MoneyWeek’s “Five of the best books of 2017” (chosen by Dr. Matthew Partridge)" --- "One of Exame’s “9 books that will help you get rich in 2018”" --- "One of The New York Times Deal Book “Business Books Worth Reading” 2017 (chosen by Andrew Sorkin)" --- "One of Foreign Affairs Best of Books 2017 – Economic, Social, and Environment / Finance" --- "One of the CNBC 13 Best Business Books of 2017" --- "Shortlisted for the 2017 Financial Times and McKinsey Business Book of the Year Award" --- "Finalist for the 2017 TIAA Paul A. Samuelson Award, TIAA Institute" --- "Winner of the 2018 PROSE Award for Business, Finance & Management, Association of American Publishers" --- "Winner of the 2018 PROSE Award for Excellence in Social Sciences, Association of American Publishers"

Topics

Frontmatter Publicly Available Download PDF	i
Contents Publicly Available Download PDF	vii
Adaptive Markets Publicly Available Download PDF	xi
Introduction Requires Authentication Unlicensed Licensed	1
CHAPTER 1. Are We All Homo economicus Now? Requires Authentication Unlicensed Licensed	12
CHAPTER 2. If You’re So Smart, Why Aren’t You Rich? Requires Authentication Unlicensed Licensed	45
CHAPTER 3. If You’re So Rich, Why Aren’t You Smart? Requires Authentication Unlicensed Licensed	75
Chapter 4. The Power of Narrative Requires Authentication Unlicensed Licensed	102
Chapter 5. The Evolution Revolution Requires Authentication Unlicensed Licensed	135
Chapter 6. The Adaptive Markets Hypothesis Requires Authentication Unlicensed Licensed	176
Chapter 7. The Galapagos Islands of Finance Requires Authentication Unlicensed Licensed	222
Chapter 8. Adaptive Markets in Action Requires Authentication Unlicensed Licensed	249
Chapter 9. Fear, Greed, and Financial Crisis Requires Authentication Unlicensed Licensed	296
Chapter 10. Finance Behaving Badly Requires Authentication Unlicensed Licensed	330
Chapter 11. Fixing Finance Requires Authentication Unlicensed Licensed	365
Chapter 12. To Boldly Go Where No Financier Has Gone Before Requires Authentication Unlicensed Licensed	395
Afterword Requires Authentication Unlicensed Licensed	421
Notes Requires Authentication Unlicensed Licensed	427
References Requires Authentication Unlicensed Licensed	445
Acknowledgments Requires Authentication Unlicensed Licensed	469
Index Requires Authentication Unlicensed Licensed	475

Publishing information

Pages and Images/Illustrations in book

eBook published on:

June 4, 2019

eBook ISBN:

9780691196800

Edition:

2nd edition

Pages and Images/Illustrations in book

https://doi.org/10.1515/9780691196800

eBook ISBN: 9780691196800

Keywords for this book

Investor; Adaptive market hypothesis; Efficient-market hypothesis; Homo economicus; Financial crisis; Hedge fund; Prediction; Finance; Economist; Financial technology; Probability; Behavioral economics; Investment; Stock market; Financial services; Market (economics); Technology; Year; Calculation; Behavior; Random walk hypothesis; Financial economics; Economics; Central bank; Financial crisis of 2007–08; Financial institution; The Wisdom of Crowds; Share price; Result; Risk aversion; Competition; Venture capital; Fraud; Systemic risk; Human behavior; Currency; Career; Bank; Macroeconomics; Speculation; Income; Uncertainty; Hedge Fund Manager; Risk management; Insider; Psychology; Portfolio manager; Asset; Market maker; Heuristic; Funding; Warren Buffett; Customer; Saving; Financial innovation; Wealth; Bank run; Trader (finance); Employment; Probability matching; Entrepreneurship; Thought; Ecosystem; Trade-off; Theory; Market Dynamics; Rationality; Myron Scholes; Prefrontal cortex; Scientist

Audience(s) for this book

For an expert adult audience, including professional development and academic research

Adaptive Markets

Overview

About this book

Author / Editor information

Reviews

Topics

Table of contents

Bibliographic data