Adaptive Markets by Andrew W. Lo
Financial Evolution at the Speed of Thought

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The result is dazzling in both its erudition and its charm. I suspect that Lo’s book will join the financial texts that have come to symbolise schools of thought in the public mind, like Burton Malkiel’s A Random Walk Down Wall Street (1973) or Nassim Nicholas Taleb’s The Black Swan (2007).
-Financial Times

Synopsis

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—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 Galápagos 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.

 

About Andrew W. Lo

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Published April 24, 2017 by Princeton University Press. 504 pages
Genres: Business & Economics.
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Critic reviews for Adaptive Markets
All: 2 | Positive: 1 | Negative: 1

The Economist

Above average
on Apr 08 2017

The adaptive-markets theory does not really produce any testable propositions, or market-beating strategies. And regulators might benefit from his suggestions on monitoring financial risk but might still struggle to know what to do in response.

Read Full Review of Adaptive Markets: Financial E... | See more reviews from The Economist

Financial Times

Excellent
Reviewed by John Authers on Apr 24 2017

The result is dazzling in both its erudition and its charm. I suspect that Lo’s book will join the financial texts that have come to symbolise schools of thought in the public mind, like Burton Malkiel’s A Random Walk Down Wall Street (1973) or Nassim Nicholas Taleb’s The Black Swan (2007).

Read Full Review of Adaptive Markets: Financial E... | See more reviews from Financial Times

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