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Chaos and Order in the Capital Markets: A New View of Cycles, Prices, and Market Volatility
The latest developments in chaos theory - from an industry expert
Chaos and Order in the Capital Markets was the first book to introduce and popularize chaos as it applies to finance. It has since become the classic source on the topic. This new edition is completely updated to include the latest ripples in chaos theory with new chapters that tie in today's hot innovations, such as fuzzy logic, neural nets, and artificial intelligence.
Critical praise for Peters and the first edition of Chaos and Order in the Capital Markets
"The bible of market chaologists." - BusinessWeek
"Ed Peters has written a first-class summary suitable for any investment professional or skilled investor." - Technical Analysis of Stocks & Commodities
"It ranks among the most provocative financial books of the past few years. Reading this book will provide a generous payback for the time and mental energy expended." - Financial Analysts Journal
This second edition of Chaos and Order in the Capital Markets brings the topic completely up to date with timely examples from today's markets and descriptions of the latest wave of technology, including genetic algorithms, wavelets, and complexity theory.
Chaos and Order in the Capital Markets was the very first book to explore and popularize chaos theory as it applies to finance. It has since become the industry standard, and is regarded as the definitive source to which analysts, investors, and traders turn for a comprehensive overview of chaos theory. Now, this invaluable reference - touted by BusinessWeek as "the bible of market chaologists" - has been updated and revised to bring you the latest developments in the field.
Mainstream capital market theory is based on efficient market assumptions, even though the markets themselves exhibit characteristics that are symptomatic of nonlinear dynamic systems. As it explores - and validates - this nonlinear nature, Chaos and Order repudiates the "random walk" theory and econometrics. It shifts the focus away from the concept of efficient markets toward a more general view of the forces underlying the capital market system.
Presenting new analytical techniques, as well as reexamining methods that have been in use for the past forty years, Chaos and Order offers a thorough examination of chaos theory and fractals as applied to investments and economics. This new edition includes timely examples from today's markets and descriptions of cutting-edge technologies-genetic algorithms, wavelets, complexity theory-and hot innovations, such as fuzzy logic and artificial intelligence.
Beyond the history of current capital market theory, Chaos and Order covers the crucial characteristics of fractals, the analysis of fractal time series through rescaled range analysis (R/S), the specifics of fractal statistics, and the definition and analysis of chaotic systems. It offers an in-depth exploration
* Random walks and efficient markets - the development of the efficient market hypothesis (EMH) and modern portfolio theory
* The linear paradigm - why it has failed
* Nonlinear dynamic systems - phase space, the Henon Map, Lyapunov exponents
* Applying chaos and nonlinear methods - neural networks, genetic algorithms
* Dynamical analysis of time series - reconstructing a phase space, the fractal dimension
Tonis Vaga's Coherent Market Hypothesis - the theory of social imitation, control parameters, Vaga's implementations
Plus, Chaos and Order now contains a Windows-compatible disk including data sets for running analyses described in the appendices.
Written by a leading expert in the field, Chaos and Order in the Capital Markets has all the information you need for a complete, up-to-date look at chaos theory. This latest edition will undoubtedly prove to be as invaluable as the first.
Chaos and Order in the Capital Markets was the first book to introduce and popularize chaos as it applies to finance. It has since become the classic source on the topic. This new edition is completely updated to include the latest ripples in chaos theory with new chapters that tie in today's hot innovations, such as fuzzy logic, neural nets, and artificial intelligence.
Critical praise for Peters and the first edition of Chaos and Order in the Capital Markets
"The bible of market chaologists." - BusinessWeek
"Ed Peters has written a first-class summary suitable for any investment professional or skilled investor." - Technical Analysis of Stocks & Commodities
"It ranks among the most provocative financial books of the past few years. Reading this book will provide a generous payback for the time and mental energy expended." - Financial Analysts Journal
This second edition of Chaos and Order in the Capital Markets brings the topic completely up to date with timely examples from today's markets and descriptions of the latest wave of technology, including genetic algorithms, wavelets, and complexity theory.
Chaos and Order in the Capital Markets was the very first book to explore and popularize chaos theory as it applies to finance. It has since become the industry standard, and is regarded as the definitive source to which analysts, investors, and traders turn for a comprehensive overview of chaos theory. Now, this invaluable reference - touted by BusinessWeek as "the bible of market chaologists" - has been updated and revised to bring you the latest developments in the field.
Mainstream capital market theory is based on efficient market assumptions, even though the markets themselves exhibit characteristics that are symptomatic of nonlinear dynamic systems. As it explores - and validates - this nonlinear nature, Chaos and Order repudiates the "random walk" theory and econometrics. It shifts the focus away from the concept of efficient markets toward a more general view of the forces underlying the capital market system.
Presenting new analytical techniques, as well as reexamining methods that have been in use for the past forty years, Chaos and Order offers a thorough examination of chaos theory and fractals as applied to investments and economics. This new edition includes timely examples from today's markets and descriptions of cutting-edge technologies-genetic algorithms, wavelets, complexity theory-and hot innovations, such as fuzzy logic and artificial intelligence.
Beyond the history of current capital market theory, Chaos and Order covers the crucial characteristics of fractals, the analysis of fractal time series through rescaled range analysis (R/S), the specifics of fractal statistics, and the definition and analysis of chaotic systems. It offers an in-depth exploration
* Random walks and efficient markets - the development of the efficient market hypothesis (EMH) and modern portfolio theory
* The linear paradigm - why it has failed
* Nonlinear dynamic systems - phase space, the Henon Map, Lyapunov exponents
* Applying chaos and nonlinear methods - neural networks, genetic algorithms
* Dynamical analysis of time series - reconstructing a phase space, the fractal dimension
Tonis Vaga's Coherent Market Hypothesis - the theory of social imitation, control parameters, Vaga's implementations
Plus, Chaos and Order now contains a Windows-compatible disk including data sets for running analyses described in the appendices.
Written by a leading expert in the field, Chaos and Order in the Capital Markets has all the information you need for a complete, up-to-date look at chaos theory. This latest edition will undoubtedly prove to be as invaluable as the first.
288 pages, Hardcover
First published November 1, 1991
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Displaying 1 - 4 of 4 reviews
October 4, 2014
The bedrock of financial theory for decades has been the work done by various economists linked to the University of Chicago, including Eugene Fama, Harry Markowitz, and others. The Ten Commandments of these laws are the Capital Asset Pricing Model, or CAPM. From CAPM flows the Efficient Market Hypothesis, which states that all available information about an asset is immediately incorporated into the asset price. This model like others related to it (Efficient Frontier, Arbitrage Pricing Theory, Beta) assume a normal probability distribution of returns.
Once you kick out that normal bell-shaped curve, the rest of the theoretical construct is like a house built on sand. Or more realistically, only a theoretical model that doesn't capture 100% of the influences on Capital Asset pricing, such as stock price returns.
This book, which, written in the mid-90's has pieces that are outdated, is an attempt to show that markets are not efficient nor built on normal probability distributions (actually they're leptokurtotic - fatter tails and higher median than a traditional bell curve). Parts of it are comprehensible, others I had to skim. The tool that Edgar Peters uses is the Hurst exponent, which is a mathematical variable to measure persistence in a data set, i.e. non-randomness. His work asserts that equity price returns have a strong persistence (Hurst exponent between 0.5 and 1.0), or a long-term 'memory'.
If true, that opens up a whole world (and career path) for bright math jocks like the author to predict, based on prior data and trends, future prices. Tools that are being used in this endeavor (or were, as of the date this book was written) include neural networks, fuzzy logic, and the behavioral finance analysis associated with the University of Chicago (e.g. biases such as 'anchoring and adjustment' influencing decision-making).
The content and vocabulary of the book are targeted somewhere between a beginner and an expert. The most intriguing parts of this book are when the author presents fractals and fractal dimensions, the derivation of the Hurst exponent, and an introduction to chaos theory. Finishing it made me want an update to the current state of the art, and an analysis whether Hedge Fund math PhDs have been able to crack the code in a consistent manner in the 20 or so years since publication.
"Because numerous studies have consistently shown that the distribution of stock returns is not normally distributed, standard deviation as a measure of comparative risk is of questionable usefulness."
Once you kick out that normal bell-shaped curve, the rest of the theoretical construct is like a house built on sand. Or more realistically, only a theoretical model that doesn't capture 100% of the influences on Capital Asset pricing, such as stock price returns.
This book, which, written in the mid-90's has pieces that are outdated, is an attempt to show that markets are not efficient nor built on normal probability distributions (actually they're leptokurtotic - fatter tails and higher median than a traditional bell curve). Parts of it are comprehensible, others I had to skim. The tool that Edgar Peters uses is the Hurst exponent, which is a mathematical variable to measure persistence in a data set, i.e. non-randomness. His work asserts that equity price returns have a strong persistence (Hurst exponent between 0.5 and 1.0), or a long-term 'memory'.
If true, that opens up a whole world (and career path) for bright math jocks like the author to predict, based on prior data and trends, future prices. Tools that are being used in this endeavor (or were, as of the date this book was written) include neural networks, fuzzy logic, and the behavioral finance analysis associated with the University of Chicago (e.g. biases such as 'anchoring and adjustment' influencing decision-making).
The content and vocabulary of the book are targeted somewhere between a beginner and an expert. The most intriguing parts of this book are when the author presents fractals and fractal dimensions, the derivation of the Hurst exponent, and an introduction to chaos theory. Finishing it made me want an update to the current state of the art, and an analysis whether Hedge Fund math PhDs have been able to crack the code in a consistent manner in the 20 or so years since publication.
"Because numerous studies have consistently shown that the distribution of stock returns is not normally distributed, standard deviation as a measure of comparative risk is of questionable usefulness."
January 15, 2021
This is a book showing where CAMP and the Efficient Market Hypothesis are wrong. Unfortunately, the book is outdated as many new research shed more light on the chaos theories in the markets. Nonetheless, this can be a very good start into critical thinking about the recently dominant theories driving the markets.
July 29, 2020
For the time this book came out, it was extremely forthright in disproving institutional methods of viewing the markets. This book did an incredible job at introducing the concept of nonliterary and conveyed the paramount importance of adopting more modern systems into analyzing markets.
Although some information is outdated, this still serves as an excellent book at teaching complex aspects of the market, even in our modern world.
Although some information is outdated, this still serves as an excellent book at teaching complex aspects of the market, even in our modern world.
June 7, 2021
Very good read - one of the first to explore Alternative Theory for Finance that addresses true risk.
Displaying 1 - 4 of 4 reviews