The Misbehavior of Markets
by: Benoit Mandelbrot, Richard L. Hudson
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Product Description:
From the inventor of fractal geometry, a revolutionary new theory that overturns our understanding of how markets work.
Benoit B. Mandelbrot, one of the century's most influential mathematicians, is world-famous for making mathematical sense of a fact everybody knows but that geometers from Euclid on down had never assimilated: Clouds are not round, mountains are not cones, coastlines are not smooth. To these classic lines we can now add another example: Markets are not the safe bet your broker may claim. In his first book for a general audience, Mandelbrot, with co-author Richard L. Hudson, shows how the dominant way of thinking about the behavior of markets--a set of mathematical assumptions a century old and still learned by every MBA and financier in the world--simply does not work.
As he did for the physical world in his classic The Fractal Geometry of Nature, Mandelbrot here uses fractal geometry to propose a new, more accurate way of describing market behavior. The complex gyrations of IBM's stock price and the dollar-euro exchange rate can now be reduced to straightforward formulae that yield a far better model of how risky they are. With his fractal tools, Mandelbrot has gotten to the bottom of how financial markets really work, and in doing so, he describes the volatile, dangerous (and strangely beautiful) properties that financial experts have never before accounted for. The result is no less than the foundation for a new science of finance.
From the inventor of fractal geometry, a revolutionary new theory that overturns our understanding of how markets work.
Benoit B. Mandelbrot, one of the century's most influential mathematicians, is world-famous for making mathematical sense of a fact everybody knows but that geometers from Euclid on down had never assimilated: Clouds are not round, mountains are not cones, coastlines are not smooth. To these classic lines we can now add another example: Markets are not the safe bet your broker may claim. In his first book for a general audience, Mandelbrot, with co-author Richard L. Hudson, shows how the dominant way of thinking about the behavior of markets--a set of mathematical assumptions a century old and still learned by every MBA and financier in the world--simply does not work.
As he did for the physical world in his classic The Fractal Geometry of Nature, Mandelbrot here uses fractal geometry to propose a new, more accurate way of describing market behavior. The complex gyrations of IBM's stock price and the dollar-euro exchange rate can now be reduced to straightforward formulae that yield a far better model of how risky they are. With his fractal tools, Mandelbrot has gotten to the bottom of how financial markets really work, and in doing so, he describes the volatile, dangerous (and strangely beautiful) properties that financial experts have never before accounted for. The result is no less than the foundation for a new science of finance.
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Customer Reviews
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Rating: 
- What we've been doing wrong and what to look for from now on.
How tall can you expect your children to grow and how rich can you expect them to become? To a parent these are obviously different questions but a statistician will answer both the same way, using a model called the normal (or Gaussian) distribution. It turns out the Gaussian is a good predictor of human height. True it breaks down at extreme values, but it correctly predicts that a very small number of people will be taller than say eight feet tall.
On the other hand the Gaussian ... Read More
Rating: - Excellent book
It is a must for everyone looking for understanding of what is happening now in our world
Rating: - Radical new take on modern finance
This book should be recommended reading for all the eager beaver finance MBA's learn concepts like CAPM, Markowitz theory and risk capital budgeting. Mandelbrot's thesis challenges these very pillars of finance and highlights the hidden dangerous implications of the simplifying assumptions that these theories make. Modern finance does not account for the highly non-stationary nature of market stochastics that result in large fluctuations in market return. Additionally he blows a big hole in the risk ... Read More
Rating: 
- I,me,mine and myself
In his characteristically obnoxious style, Mandelbrot spends the first half of the book explaining why he disagrees with the Efficient Market Hypothesis: That is 150 pages to say that market returns are not normally distributed, but show "fat tails". One thing is clear from the book: he was the original, misunderstood maverick that authored or co-authored (or somehow was related to the author) of every single paper and theory that proved that returns are not normally distributed. Hell, telling from the ... Read More
Rating: - Limited Value
Mandelbrot describes some problems with financial models that are designed to provide approximations of things that can't be perfectly modeled. He pretends that pointing out the dangers of relying too much on imperfect approximations shows some brilliant insight. But mostly he's just translating ideas that are understood by many experts into language that can be understood by laymen who are unlikely to get much value out of studying those ideas.
His list of "ten heresies" is arrogantly misnamed. Sure, ... Read More
- What we've been doing wrong and what to look for from now on.How tall can you expect your children to grow and how rich can you expect them to become? To a parent these are obviously different questions but a statistician will answer both the same way, using a model called the normal (or Gaussian) distribution. It turns out the Gaussian is a good predictor of human height. True it breaks down at extreme values, but it correctly predicts that a very small number of people will be taller than say eight feet tall.
On the other hand the Gaussian ... Read More
- Excellent bookIt is a must for everyone looking for understanding of what is happening now in our world
- Radical new take on modern finance This book should be recommended reading for all the eager beaver finance MBA's learn concepts like CAPM, Markowitz theory and risk capital budgeting. Mandelbrot's thesis challenges these very pillars of finance and highlights the hidden dangerous implications of the simplifying assumptions that these theories make. Modern finance does not account for the highly non-stationary nature of market stochastics that result in large fluctuations in market return. Additionally he blows a big hole in the risk ... Read More
- I,me,mine and myselfIn his characteristically obnoxious style, Mandelbrot spends the first half of the book explaining why he disagrees with the Efficient Market Hypothesis: That is 150 pages to say that market returns are not normally distributed, but show "fat tails". One thing is clear from the book: he was the original, misunderstood maverick that authored or co-authored (or somehow was related to the author) of every single paper and theory that proved that returns are not normally distributed. Hell, telling from the ... Read More
- Limited Value Mandelbrot describes some problems with financial models that are designed to provide approximations of things that can't be perfectly modeled. He pretends that pointing out the dangers of relying too much on imperfect approximations shows some brilliant insight. But mostly he's just translating ideas that are understood by many experts into language that can be understood by laymen who are unlikely to get much value out of studying those ideas.
His list of "ten heresies" is arrogantly misnamed. Sure, ... Read More
