The (Mis)Behavior of Markets: A Summary
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document in English
finance
summaries
published 03/08/2007
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level : General public
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Summary
Do markets really follow a random walk as modern financial theory suggests? Are we likely to experience a market crash as deadly as the likes of the Great Depression? What is the nature of volatility and how should it impact the way we model financial markets? Although definitive answers to these questions have yet to be formulated, Benoit Mandelbrot’s work, The (Mis)Behavior of Markets, sheds light onto them through a non-quantitative approach.
There are currently widespread misconceptions about markets, investors, and their behavior, and we will begin by addressing these false assumptions.
There are currently widespread misconceptions about markets, investors, and their behavior, and we will begin by addressing these false assumptions.
Table of Contents
- Do markets really follow a random walk as modern financial theory suggests?
- There are currently widespread misconceptions about markets, investors, and their behavior
- Having discussed the investor, it is necessary to point out certain 'shaky' assumptions relating to market behavior, particularly price movement
- Rule 1: Markets are risky
- The scaling effect is present in every level of business operations
- Today's models falsely assume the financial system is a 'linear, continuous, rational machine.?
- Although we have trillions of pieces of data from P/E ratios, to historical prices, to EBITDA, the 'toolkit' that we use to measure risk is 'surprisingly bare.
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