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# The (Mis)Behavior of Markets

"Together with Richard L. Hudson, Benoit Mandelbrot turns a fractal eye to the behavior of financial markets and overturns the "random walk" theory that is the underpinning of all contemporary financial analysis. Markets, we learn, are far riskier than we have wanted to believe." "The ability to simplify the complex has made Mandelbrot one of the century's most influential...more

Kindle Edition, 354 pages

Published
(first published 2004)

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The theory goes that the markets already consolidate all the information available to them, so that price already incorporates all the information available to the market. From there, we get the random walk theory -- that prices will mo...more

Jan 26, 2012
David
rated it
4 of 5 stars
·
review of another edition

Shelves:
mathematics,
economics

Benoit Mandelbrot is the inventor of the mathematical concept of fractals. His earlier book The Fractal Geometry of Nature was a truly groundbreaking book about fractals and how they are seen in nature. In

1) are not independent from one time period to the next

2) appear to be the same, regardless of the time scale involved (hours/days/months/years)

3) do no...more

*The Misbehavior of Markets*he turns his attention to the application of fractal concepts to markets. Mandelbrot shows that price fluctuations:1) are not independent from one time period to the next

2) appear to be the same, regardless of the time scale involved (hours/days/months/years)

3) do no...more

1. Risk, Ruin and Reward

We start with a brief history of finance. The author asks us to play a game. Out of 4 charts we nee...more

*The (Mis)Behavior of Markets*by Mandelbrot and Hudson is a pretty good book about a fascinating topic. Mandelbrot's thesis is that many common beliefs underpinning market modeling software are fundamentally incorrect, and that in using them we are exposing ourselves to massively more risk than we expect. This book was published in 2004.

To describe Mandelbrot as prescient in characterizing the inadequacy of market modeling is to understate the situation. Using very little serious math and very fe...more

All in all, some interesting beginnings of theories and comparisons. There is almost no math involved. But if you're scared of math, this is a great glimpse into fractals and it starts to show glimpses...more

I discovered that the last book of Mandelbrot was precisely devoted to this problem. Mandelbrot proposes to modify the econometric algorythmes used by the banks. Those would be responsible amplify the disorders.

It is a difficult work. I...more

"Why is he writing about financial markets?" I wondered.

I knew of Mandelbrot in mathematics, computer science, and natural sciences -- I had no idea how deep his obsession with economics was till I read this book.

In a way, it's almost depressing, his biggest contributions were to fields he didn't seem to care about as much as economics (a field that in turn didn't seem to care about his work).

Mandelbrot's...more

-Benoit Mandelbrot, author

-The Market, the protagonist/antagonist/chorus as per Greek drama

-Benoit Mandelbrot's ego

Maybe it's a side effect of some incident as a child but the author has no reservations about promoting himself. Whole paragraphs are devoted to his "enlightened breakthroughs" and profound understanding of market mechanics. An understanding so deep he proposes no significant market model and merely a direction.

He stands as the most cited author...more

The book is divided into 3 sections. First, Mandelbrot gives an account of financial theory and outlines its flaws. Second, he provides his own insights. These were interesting in that I think they gave a more numerically analytic explanation to fat tails, namely he provides a mathematical model that explains fat tails (which have been pointed out by others such as Taleb, who provide a more psychologi...more

In the (Mis)behavoir of Markets, Mandelbrot attempts to apply theories of fractals onto economic phenomenon like the ups and downs of the stock market. If you look closely, he argues, the charts of stocks and indices is very much a continuous fractal and has bearings that can predicted by the diligent ob...more

Benoit, as always, looks at the world differently. Thats how he developed fractal geometry and how chaos theory evolved from that. When he took a look at cotton prices over 100 years he immediately realized that the data doesn't fit the current then nor now rules of evaluating risk.

He has been writin...more

What does a fractal view of the world of finance look like?

*The (Mis)Behavior of Markets: A Fractal View of Financial Turbulence*elucidates on the answer and does so in bril...more

Apr 08, 2014
Katherine Collins
rated it
5 of 5 stars
·
review of another edition

Shelves:
investing-money-capitalism

I only met Prof. Mandelbrot once, at a Santa Fe Institute/CSFB conference, and I remember being astounded that he could explain decades of groundbreaking and highly technical work in just three words: “I study roughness.” This, of course, was the basis of his fractal geometry work (not just work, but invention!), and these concepts were extended to modeling and analysis of financial markets. When I first read this book I underlined almost every paragraph, as I was in the midst of a crisis involv...more

Also enjoyed this near-closing quote ...

"We lurch from crisis to crisis. In a networked world, mayhem in one market spreads instantaneously to all others - and we have only the vaguest of notions how this happens, or how to regulate it. So limited is our knowledge that we resort, not to science, but to shamans. We place control of the world's largest economy in th...more

Mandelbrot is the "father of fractal geometry." He's a mathematician who has spent much of his career looking at prices and markets. He argues pretty forcefully that any of the risk management techniques used by Wall Street are based on false assumptions and have been proven to fail time and again.

Mandelbrot is Nassim Taleb's mentor. I've gotten to the point where I wonder if, as a Christian, I can still teach economic orthodoxy (much less finance classes like risk management) with a clear consc...more

It provides an overview of how the market started to be modeled, how the models evolved to the present day and gives some hints on what we might like to consider when creating new models. I liked the examples of analysis provided on cotton prices and other phenomena(like the quantity of water from rain over time and drought).

The scariest part of this book is how large financial institutions use Gaussian statistics (the bell-shaped curve) for risk management. Such a mista...more

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Benoît B. Mandelbrot was a French mathematician, best known as the father of fractal geometry. He was Sterling Professor of Mathematical Sciences, Emeritus at Yale University; IBM Fellow Emeritus at the Thomas J. Watson Research Center; and Battelle Fellow at the Pacific Northwest National Laboratory. He was born in Poland, but his family moved to France when he was a child; he was a dual French a...more

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Aug 23, 2010 09:31PM

Aug 23, 2010 09:50PM

updated Aug 23, 2010 10:01PM