Mandelbrot, the author of this book, is a mathematician. Travels in the New Third World. Mandelbrot does a good job of describing the inadequacies of the efficient market hypothesis and CAPM and other sacrosanct theories in finance, and he offers for our consideration an alternative view. But not only is this approach flawed by its reliance on the bell curve, it is also flawed in other ways. If someone discovers a sound model of stock prices over time, then it would be by mathematic definition a multifractal model i. I found this summary quite interesting, a valuable lesson history.

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Skin in the Game. The models and systems that modern finance uses to calculate risk are unrealistic and fail.

J Scott Shipman’s review of The Misbehavior of Markets: A Fractal View of Financial Turbulence

Specifically, they will want a replacement method, which Mandelbrot only hints at. Whereas before, whenever I went for a walk and looked up into the sky I would just see chaotic assemblies of clouds and leaf growth, now I am seeing some of the haunting images The the misbehavior of markets a fractal view of financial turbulence for it garnering a 5 star rating is not due to it’s literary merit.

The antidote to poor science is reminding ourselves of the scientific method: Chapter notes in an appendix present the mathematical formulas behind his descriptions, along with further clear, simple explanations.

See 1 question about The Mis Behavior of Markets…. Mandelbrot, the author of this book, is a mathematician. The ideas seem to move and jump, seeming more like an interesting collection of Mandelbrot’s works and thoughts rather than a coherent rigorous argument. He claims that fractals, especially ones that accounting for trading time that stretch or compress can model price movements in a more accurate way.


We use cookies to give you the best possible experience. As others have said, the author has posed several questions regarding the validity of financial practitioners’ existing tools in corporate finance valuationoptions, and portfolio theory.

Mandelbrot shows that many of these parameters are worse than useless; they are so wrong, they are dangerous and can lead to world-wide financial ruin. Financiao keep this review incredibly straightforward, “modern” financial theory EMH, CAPM, Black Scholes is built on extensions and patchwork of academic work that is based on faulty assumptions. After the crisis ofI wondered why one could not envisage occurred to them.

Despite him sounding slightly egocentric in this book, as many reviewers charge, he’s actually being incredibly modest: This book has three characters in it: Bachelier, Sharpe, Black-Scholes, and standard portfolio theory. In The Misbehavior of Markets he turns his attention to the application of fractal concepts to markets.

Collectively, their generation provided an in-built brake on the wildest form of speculation, an insurance policy against financial excess and consequent catastrophe. Withoutabox Submit to Film Festivals. View all 5 comments. But there were no actionable takeaways for better investing or trading beyond a strengthened awareness that it is all too easy to underestimate risk.

The Misbehavior of Markets : Richard L. Hudson :

Chance is important in finance. It’s part biographical and turhulence enjoyable for its coverage of such things as the colonial-era engineer working out the maths of Nile River flows in order to reliably size dams. If so, the correlation vanishes, in spite of the strong dependence. And they then took risks, this time with their own money, based on these false economic engineering ideas.


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My mathematical models can generate charts that—purely by the operation of random processes—appear to trend and cycle. If you are a seller for this product, would you like to suggest updates through seller support?

A fundamental problem is the Black-Scholes assumption of constant volatility—in essence, that the world does not change. A thrilling book, that I could not put down, until I read it cover to cover. From the gyrations of IBM’s stock price and the Dow, to cotton trading, and the dollar-Euro exchange rate–Mandelbrot shows that the world of finance can be understood in more accurate, and volatile, terms than the tired theories of yesteryear.

The (Mis)Behavior of Markets

vifw Read more Read less. It might help to know where he’s going during part I and part II. To use the river dam analogy, our current investment dams are not sufficient to weather the actual storms that will and have hit.