The (Mis)Behavior of Markets
Mathematical superstar and inventor of fractal geometry, Benoit Mandelbrot, has spent the past forty years studying the underlying mathematics of space and natural patterns. What many of his followers don't realize is that he has also been watching patterns of market change. In The (Mis)Behavior of Markets, Mandelbrot joins with science journalist and former Wall Street Jo...more
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
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
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
A trader will tell you that it can be impossible to tell the difference between a daily, weekly or monthly price chart, if the axis labels are removed. This is the ...more
Great companion to Nassim Taleb's books.
"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).
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
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
-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 very interesting in parts, some of the explanations are very lucid, but in parts it is repetitive and some the layman explanations of don't make much sense. Overall I enjoyed the book and learned what's wrong with present theories of finance, but to go beyond that I need to learn the actual math used by ...more
Although he is clearly opinionated and sure of his own correctness and insight and convinced of his contraryness, he is not as hectoring or smug as Taleb and also more prepared to admit that as of now he cannot turn his work to a definitive investment method beyond simple (but profound) insights into market behaviour.
He stresses simplicity of models and id ...more
What celebrated mathematician (inventor of fractal geometry and the famous Mandelbrot Sets) Benoit Mandelbrot discovered when analyzing market behavior is that the markets tend to go to extremes. Instead of deviating from an average in a well-mannered linear way (as one might see in a Gaussian bell-shaped distribution) prices tend to rocket up and down according to a power law. In other words the variance in price movements was greater than economists realized ...more
But the 2007/8 credit crisis was magnified by a phenomenon new to our generation: an over-confidence in our understanding of markets, as reflected in the industry’s increasingly sophisticated computer models.
We have long had precise measurements and elaborate physical theories for such basic sensations as heat, sound, color, and motion. Until Mandelbrot, we never had a proper theory of the irregular, the rough—all the ...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
This would be the best drilling into the weaknesses of the Efficient Markets Hypothesis (price changes are not independent, are not normally distributed, and are not stationary) that I've read and it is valuable both for the knowledge imparted and the stories told to help make it stick.
It's part biographical and really enjoyable for its coverage of such ...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
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
Modern finance theory is fairly new (compared to, say, geometry) and he hits on the history behind our well-accepted theories of how they c ...more