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In a new book titled Adaptive Markets: Financial Evolution at the Speed of Thought, the writer Andrew Lo has come up with a very interesting theory on financial market behaviour. He is himself a Finance Professor from the prestigious MIT Sloan where he mainly teaches MBA students. He believes that financial markets mimic living organisms in how they behave. Traditional market hypothesis relies on an efficient analysis of the numbers available. But this business analysis is flawed mainly due to the fact that individuals under even the slightest of tremors start behaving in a more emotional approach. Most investors would rather indulge in stocks listed on index funds which afford low growth but stability. Moreover, investors do not need to research heavily for investing in these. Economists who have understood the impact of human behaviour on financial performance are few, as this field has been dominated by people from physics and mathematics background. These are people attuned to believing in rationality and efficiency. Mathematical models are also rather easier to impress as they make predictive calculations. There is a dire need for reengineering of such models as people generally are not rational about money, but emotional. The theories of evolution must thus be taken as handy to understand the real pattern of the financial markets.

Source:http://mitsloan.mit.edu/newsroom/articles/why-financial-markets-behave-like-living-organisms/?utm_source=mitsloantwitter&utm_medium=social&utm_campaign=adaptivemarkets

Uploaded Date:09 August 2018

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