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Adaptive Markets: Financial Evolution at the Speed of Thought

Adaptive Markets Financial Evolution at the Speed of Thought A new evolutionary explanation of markets and investor behaviorHalf of all Americans have money in the stock market yet economists can t agree on whether investors and markets are rational and effic

  • Title: Adaptive Markets: Financial Evolution at the Speed of Thought
  • Author: Andrew W. Lo
  • ISBN: 9780691135144
  • Page: 458
  • Format: Hardcover
  • A new, evolutionary explanation of markets and investor behaviorHalf 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 and as financial bubbles, crashes, and crises suggest This is one oA new, evolutionary explanation of markets and investor behaviorHalf 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 and as financial bubbles, crashes, and crises suggest This is one of the biggest debates in economics and the value or futility of investment management and financial regulation hang on the outcome In this groundbreaking book, Andrew Lo cuts through this debate with a new framework, the Adaptive Markets Hypothesis, in which rationality and irrationality coexist.Drawing on psychology, evolutionary biology, neuroscience, artificial intelligence, and other fields, Adaptive Markets shows that the theory of market efficiency isn t wrong but merely 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.A fascinating intellectual journey filled with compelling stories, Adaptive Markets starts with the origins of market efficiency and its failures, turns to the foundations of investor behavior, and concludes with practical implications including how hedge funds have become the Galapagos Islands of finance, what really happened in the 2008 meltdown, and how we might avoid future crises.An ambitious new answer to fundamental questions in economics, Adaptive Markets is essential reading for anyone who wants to know how markets really work.

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      Published :2019-02-06T07:03:01+00:00

    1 thought on “Adaptive Markets: Financial Evolution at the Speed of Thought

    1. Andrew Lo specializes in derivatives. What he does not know about them is really not worth knowing. Funny thing is, there isn’t one sentence in this book about derivatives. A very highly-regarded author and academic has written a book about the physiology of fear, the experiments of Danny Kahneman, the chemistry of pleasure, Charles Darwin, quantum mechanics, but not his subject of expertise.How come?Once upon a time, many good (and other not-so-good) people believed that the role of derivativ [...]

    2. Intriguing idea - 'adaptive markets hypothesis' replacing the efficient markets hypothesis. Emphasizes irrationality of human behavior and behavioral heuristics. I found the book a touch long. I should have gone for his papers.

    3. As I was slogging through a lot of brain terms which I had little interest in memorizing (it seems Lo is a fan of neuroscience) I kept asking myself, I am halfway into the book and I still do not have a full grasp of what adaptive markets is all about. Without a primer from Andrew there was no way of knowing whether a course of action is due to adaptive markets or if it was efficient markets.My eureka moment came about three quarter way into the book when I related Andrew's ideas to an idea I ha [...]

    4. This one took longer than it should have and I’m pretty sure it was due to it not being entirely what I thought it would. Half of it was spent talking about evolution to set the stage for his mindset regarding market activity. A few more chapters were about the 2008 crash as well, which is well covered. I guess I got a little disinterested during the book.I agree with another review here that this is just a start for another theory of market activity. The jist of the theory is that humans make [...]

    5. Andy Lo is a nice guy. Nice people have good intentions. Some wise person once said, "The road to hell is paved with good intentions."The good:So many behavioral biases that demonstrate that people don't necessarily behave in a way that is consistent with decision-making axioms have been documented in the scientific literature that there is now a well-accepted field in economics and finance called "Behavioral Economics and Finance." The question is why do people behave this way? The answer may l [...]

    6. This is easily the most important book about finance this decade. The conventional economic wisdom is the Efficient Market Hypothesis. That is, demand will magically meet supply somehow, and we are all homo economicus. Lo clearly explained why that is not the case, and in the best case scenario this is an ongoing process until the 2 meet in ‘economic nirvana’. Other times, they may never meet and there is ‘economic purgatory’.Ok so classical EMH is dead, otherwise there will be no hedge [...]

    7. I love how Andrew takes you on a journey of evolution and intertwine views the financial system with an evolutionary perspective. He shows the limitations of the Efficient Markets hypothesis, where it fails, and proposes that there has to be new way of viewing markets. Of course, he gives his own take on the financial crisis and other events through his own lens and why the system failed, beyond the usual narrative. He ends on a optimistic note of a financial utopia where people's investments en [...]

    8. Andre Lo, professor of finance and director of the Laboratory for Financial Engineering at MIT, has spent his career measuring, analyzing and theorizing about financial assets (stocks, derivatives, funds) and financial markets. Among his many publications is a 2005 paper entitled “The Adaptive Markets Hypothesis”, which sought to integrate traditional and behavioral finance. More than a decade later, Lo has expanded his academic effort into an excellent book aimed broadly at enquiring minds. [...]

    9. Andrew Lo's Adaptive Markets deserves more recognition. For me, it's one of the definitive books of the post-crisis era, on par with Piketty's Capital and Kahneman and Tversky's Thinking, Fast and Slow. Lo has made an admirable effort to ground his hypothesis of how financial markets behave, gathering together disparate threads from neuro-biology, evolutionary psychology, ecology and cultural evolution together with the decades-old framework of the homo economicus and Efficient Markets theorem. [...]

    10. Cuốn sách hại não nhất mà tôi đã đọc kể từ đầu 2018. Andrew đã trình bày một cách tỉ mỉ về các khía cạnh của tài chính, các cuộc khủng hoảng tài chính, bản chất của đồng tiền. Từ trong lịch sử, tiền là một concept về các con sốsố. Khi chúng ta muốn biết chúng ta có bao nhiêu tiền, chúng ta phải đếm, và như vậy các thuật toán lần lượt ra đời để "theo dõi" đồng tiền.Bản chấ [...]

    11. We shouldn't let finance drive our goals; our goals should be driving finance. The finance of the future will be able to address all of our social priorities. Consider a world where many megafunds are hard at work, not only at the difficult task of curing cancer, but wherever there's an important social goal with a possible technological solution, whether it's curing rare and orphan diseases, developing new source of energy, moderating the effects of climate change, or finding new treatments for [...]

    12. This is an excellent book describing Andrew Lo's ideas of why efficient market hypothesis (EMH) is not valid, and he attempts to propose a new model of how financial markets work. The model, of course, it is not as mathematical solid as EMH as it does not come from math/physics as EMH but instead of biological systems.The book would be a disappointment for the people who would read it for practical advice of how to trade or invest, or any other practical purpose. Actually, the main idea of the b [...]

    13. Let me start by saying that Economics, particularly Behavior Economics is a subject that I love. It started with Freakonomics, but I think I’ve read more that ten books on the topic (full list below).Having that said, this book is not for everybody, but it is one of the best books I’ve read about the subject ever. Not only it presents a ground-breaking hypothesis for how the markets work, but a compelling one, with real-life implications and proposals. Economics/Behavior Economics Related bo [...]

    14. Markets are powerful and this book really hammered home their ability to solve (certain) problems better than most carefully constructed plans. I'm not an academic but I appreciated the books ability to waiver back and forth between hard science and relatable metaphors and analogies. I also appreciate the fact that Lo doesn't just blindly follow some sort of market credence and constantly prefaces statements with the existing academic arguments against them.What stuck with me the most was the id [...]

    15. I liked this book, but found it a bit meandering. Lo's core idea (and the title of the book) is that neither market efficiency nor bounded rationality theory fully explain market behavior. Instead, markets are "adaptive," undergoing phase shifts as new technologies create temporary information asymmetries which yield advantage over the short run until the overall market adapts, becoming more efficient (within the limits of bounded rationality). Makes sense, Lo's data seems to back it up.The rest [...]

    16. A powerful shift in perspectiveI teach in a business school but have no background in finance. This book is readable to the financial layperson and takes you on a journey through a revolution in the field - re-grounding finance in the discipline of evolutionary biology and psychology from its roots in neoclassical economics and physics. But the more important shift in perspective comes in the later chapters where Lo envisions a future of financial regulation and financial engineering. His "Star [...]

    17. 4.5/5I would have liked to learn more about Adaptive Markets Hypothesis. The author talks about a lot of what it "is", but doesn't really delve into details. I'll try reading his papers. Overall, the book is very good, especially if you are not already heavily into behavioral economics. Andrew provides a lot of connections between biology, computer science and finance, and talks about a wide range of different fields. (God I love polymaths. <3) More a description of what a new paradigm in eco [...]

    18. This book was not an easy read, but it is worthwhile. The thesis is both necessary and obvious. Of course, markets evolve and adapt, but as the author says, sometimes you need a new theory to shake an old one (the old theory here is the efficient markets hypothesis). There is a lot of unnecessary background materials on evolutionary science and other market theories, but the payoff at the end is worthwhile.

    19. Very interesting book. My only caveat would be to delete the last chapter. Adaptative Markets Hypothesis is a good idea, its argumentation borrows from unconventional sources but remains credible. Until the last chapter. Claiming that it can help cure cancer and eliminate poverty is a bit of an overreach.

    20. One of the, if not the best book I have ever read. Having a true passion for behavioral finance and a vision for creating a better future, I see this as a must read for anybody in the field of finance or anybody interested in how the domestic markets work and how they could change.Well done. Thank you for this book.

    21. Andrew wrote a book addressing EMH, pointing out the various flaws that EMH has consistenly failed to address. Throughout the book he provided more guidance with regards to the role of psych in helping us explain human irrationality. I was extremely impressed by the last chapter (where no financier has gone before). This is a must read for all finance & economics majors.

    22. The author claims to bridge two opposing thoughts about the nature of markets. Efficient Markets vs Behavioral Finance. However, the book ends up a review of biology and finance. The applications he proposes at the end are not exclusively product of his theory.

    23. Great beginning for something that will hopefully replace effective market hypothesis as the standard. Not there yet, but valuable start. Slightly fractured.

    24. A good review of prevailing market theories and behaviour. Some interesting discussion around the efficient market hypothesis and some alternative concepts.

    25. A great way of looking at markets Professor Lo's view on the markets is truly unique. His ideas may be the first inning of how we approach investments.

    26. new conceptsInnovative comprehensive clearly expounded , explaining many difficult concepts and drawing from several disciplines and never dullhopes for a brighter future

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