About this title: "Fortune" editor Justin Fox captures the battle of ideas raging among the world's most prominent economists and investment gurus in a book that weaves compelling financial history and an essential investing text.
Note: This is a general synopsis. Each listing is described below.
Binding: Hardback
Publisher: COLLINS
Date Published: 2009
ISBN-13:9780060598990ISBN:0060598999
Description: New. "Fortune" editor Justin Fox captures the battle of ideas raging among the world's most prominent economists and investment gurus in a book that weaves compelling financial history and an essential investing text. read more
"Fox takes an axe to the UChicago Rational Market theories. He does a thorough job of chronicling the history of the theory, its application, and the disaster that unfolded in its application."
"The Myth of the Rational Market is a very detailed history of the Rational Market Hypothesis and other major economic theories and movements. I found it ironic that the author points out multiple times that many (if not all) in the field of economics pay little to no attention to new ideas brought about in book form (instead of through a journal article of an economic journal) yet that is the medium he chooses to present his arguments in. I enjoyed the book but must admit there were so many names mentioned early on that I found myself re-reading sections. In the more recent times discussed towards the end of the book many of the errors made are highlighted in a "Monday-morning-quarterback" form that shows the ignorance of those in the market and the results of their decisions."
"In the short-term, at least, financial markets are not always efficient. Investors are slow to react to new information, and then they tend to overreact, sending prices wildly off-course. The history of finance is littered with examples of extended periods of irrationality. Recent instances include the late 90's Dot-Com Bubble and, of course, the Subprime Mortgage Crisis and subsequent world economic meltdown.
The Efficient Market Hypothesis, which states that asset prices respond instantly and correctly to new information, fails to hold up to scientific scrutiny when we look at real-world financial markets, a fact that should be painfully obvious to every investor. But clearly there is some truth to the EMH. History suggests that it's hard to make money from financial inefficiencies, to do this reliably year after year, and the average investor will probably find the most success by investing in index funds.
Fox presents the four-decades-long history of the EMH, and while there are more thorough treatments of this history elsewhere (e.g. Peter Bernstein's Capital Ideas), Fox updates his account with recent debate and academic research. And unlike the standards-bearers of economic history, Fox isn't afraid to name names, calling out the egregious errors in Fama's hypothesis and Alan Greenspan's economic policies; he reflects on the institutionalized short-sightedness of the Chicago School of Economics.
Is it really any surprise that real-world financial markets fail to conform to a series of mathematical equations? It shouldn't be, but no doubt, right now economists are hard at work on yet another set of equations. There are worse ideas. Another group, technical analysts, base their investment decisions on the visual patterns they find in charts of historical stock prices (support, resistance, and other such nonsense). When you consider the chartists, by comparison, mathematical models sound quite brilliant."
"This is a very well-written history of the rise of mathematical modeling in the study of finance and economics. The "Rational Market" to me is just overly simplistic mathematical models. Trying to approximate what happens in the real world where decisions are often made based on emotions or hunches would be much more complex and messy than assuming that everyone always acts rationally. I think one of the most important parts of the book is towards the end where Fox goes through some examples of how risk can be greatly increased when all of the big players in a market start using the same or similar formulas for estimating risk. But even more important is the illustration of all the ways that a rational, efficient market breaks down when large parts of it are influenced by people and organizations that are risking (or not risking) other people's money for compensation that is not linked to the long-term consequences of their actions."
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