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Adaptive Markets

Adaptive Markets

By Andrew W. Lo

Financial Evolution at the Speed of Thought. Princeton, 2019.

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17 mins read

14 Key insights

A brief summary of Adaptive Markets

An insightful account of why the prevailing understanding of financial markets needs to be revised, and how a new evolutionary theory—the Adaptive Markets Hypothesis—can better explain the often-unpredictable nature of economic events worldwide.

Key insights in Adaptive Markets

1
What do you get from this book? A new understanding of financial systems and what they say about human behavior
2
The dominant efficient markets hypothesis is based on specific assumptions about human behavior and rationality
3
The adaptive markets theory uses an evolutionary perspective to illuminate how markets and investors actually behave
4
Our ingrained evolutionary responses to fear lead to loss aversion and irrational decision making
5
The human brain also reacts in intense ways to the pleasure of making money, causing risky behavior
6
Financial selection is at work in markets and investor strategies; hedge funds are a perfect example
7
Markets have entered an unprecedented era of volatility, and investors should respond by adapting and practicing active risk management
8
The financial system is like an ecosystem—it’s vulnerable to disruptions, like the 2008 financial crisis
9
Humans have the evolutionary advantage of being able to learn quickly and plan for the future
10
In order to face the challenges confronting the financial industry, we need impartial oversight and dynamic regulation
11
An adaptive markets perspective could feed into improvements beyond just the financial system
12
Summary of the key insights
13
Selected critiques in brief
14
Final word

Who should read Adaptive Markets

Entrepreneurs • investors • MBA students • finance professionals • executives and business leaders • anyone interested in the free market

About the author of Adaptive Markets

Award-winning professor of finance Andrew Lo is best known for his research on the evolution of global economic systems. Lo studied at Yale University and has a Ph.D. in economics from Harvard University, and is praised as an expert in the field. He was also named one of the most influential people in the world by TIME in 2012.

author avatar

Andrew W. Lo

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