![]() ![]() ![]() Extreme price swings are the norm in financial markets-not aberrations that can be ignored.Finally, I think the real underlying issue is that viewing all returns as drawn from a single distribution, regardless of which one you pick, is probably not useful.As people scramble to get in on the action before it’s too late, the availability of the stock decreases, thus further lifting its price. A trend might result, for instance, from major news leaks, like the FDA’s approval of a novel drug. Our following book summary reveal how to describe economic development more accurately and cautiously. Clearly, the mainstream theories of finance are unconvincing. However, many phenomena and processes in both markets and nature are inherently complex, irregular or rough, and not smooth like a bell curve. Theories that embrace the market’s roughness would be more accurate and helpful. Mainstream financial theories try their best to impose a smooth understanding of market dynamics, but can’t match up to reality. Hudson been sitting on your reading list? The Misbehavior Of Markets Key Idea #7: An Adequate Theory Of Real Markets Doesnt Measure Time With A Clock Has The Misbehavior of Markets by Benoit Mandelbrot and Richard L. With enough relevant information about a particular stock, there will be one choice which will yield the greatest profit, and this is what we’ll choose. Mainstream theories of finance, like those of the Chicago School, contend that each individual will make the most profitable, obvious rational choice. For example, this could mean that they’ll all hold their stocks for five years before deciding what to do with them. Additionally, they’re all thought to have the same time horizon, the point at which they re-evaluate their investment decisions. However, it’s not uncommon for a scientific theory to simplify its subjects for the sake of clarity. In The behavior of MarketsMandelbrot seems rather caustic in his assessment of the EMH. This is not what Mandelbrot has argued exists in markets, so I’m surprised to see his name associated with the EMH. ![]() I have interpreted the EMH as arguing that the markets follow a more or less Gaussian distribution, without long term memory. River networks are useful metaphors, but markets are a thing onto themselves, if rivers behaved like markets then we’d experience more turbulent waters, things like flash draughts and jumping water levels. To use the river dam analogy, our current investment dams are not sufficient to weather the actual storms that will hit. The (mis)behavior Of Markets In 25 Quotes.The Misbehavior Of Markets Key Idea #7: An Adequate Theory Of Real Markets Doesnt Measure Time With A Clock. ![]()
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