The Misbehavior of Markets: A Fractal View of Financial Turbulence annotated edition Edition

by Benoit Mandelbrot (Author), Richard L. Hudson (Author)

149 customer reviews

ISBN-13: 978-0465043576

ISBN-10: 0465043577

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Mathematical superstar and inventor of fractal geometry, Benoit Mandelbrot, has spent the past forty years studying the underlying mathematics of space and natural patterns. What many of his followers don't realize is that he has also been watching patterns of market change. In The (Mis)Behavior of Markets, Mandelbrot joins with science journalist and former Wall Street Journal editor Richard L. Hudson to reveal what a fractal view of the world of finance looks like. The result is a revolutionary reevaluation of the standard tools and models of modern financial theory. Markets, we learn, are far riskier than we have wanted to believe. 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 ability to simplify the complex has made Mandelbrot one of the century's most influential mathematicians. With The (Mis)Behavior of Markets, he puts the tools of higher mathematics into the hands of every person involved with markets, from financial analysts to economists to 401(k) holders. Markets will never be seen as "safe bets" again.

The Misbehavior of Markets: A Fractal View of Financial Turbulence

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Editorial Reviews

Review

Nassim Nicholas Taleb
“The deepest and most realistic finance book ever published.”

About the Author

Benoit B. Mandelbrot is Sterling Professor of Mathematical Sciences at Yale University and a Fellow Emeritus at IBM's Thomas J. Watson Laboratory. He is the inventor of fractal geometry, whose most famous example, the Mandelbrot Set, has been replicated on millions of posters, T-shirts, and record albums. He was a leading figure in James Gleick's Chaos and has received the Wolf Prize in Physics, the Japan Prize in science and technology, and awards from the U.S. National Academy of Sciences, the IEEE, and numerous universities in the U.S. and abroad. His books include Fractals: Form, Chance and Dimension, which was later expanded into the classic The Fractal Geometry of Nature, which has sold more than 200,000 copies. This is his first book for lay readers on finance, a subject he has studied since the 1960s. He lives in Scarsdale, New York. Richard L. Hudson was the managing editor of the Wall Street Journal's European edition for six years, and a Journal reporter and editor for twenty-five years. He is a 1978 graduate of Harvard University and a 1991 Knight Fellow of MIT. He lives in Brussels, Belgium.

Paperback: 368 pages
Publisher: Basic Books; annotated edition edition (March 7, 2006)
Language: English
ISBN-10: 0465043577
ISBN-13: 978-0465043576
Product Dimensions: 6.1 x 0.8 x 9.2 inches
Shipping Weight: 1.4 pounds (View shipping rates and policies)
Average Customer Review: 149 customer reviews
Amazon Best Sellers Rank: #40,946 in Books (See Top 100 in Books)
- #3 in Books > Science & Math > Mathematics > Pure Mathematics > Fractals
- #57 in Books > Business & Money > Education & Reference > Statistics
- #73 in Books > Business & Money > Finance > Corporate Finance

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Top customer reviews

Educating Read!

ByBrendan Chongon March 14, 2017

Format: PaperbackVerified Purchase

Great book (albeit incomplete if you're looking for definitive answers) that discusses the shortcomings of risk assessments for financial products and portfolios. As others have said, the author has posed several questions regarding the validity of financial practitioners' existing tools in corporate finance (valuation), options, and portfolio theory. One answer: multifractal theory; which the author posits could be the foundation for the next class of financial economists (best case).

My key takeaway from this book is that market participants' tools underassess risk and thus market participants should be wary of becoming model-dependent.

Additionally, supporting research and proofs are in the appendix or on the book's designated website for the more curious readers.

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A bit long for the level of detail, but a strong theory nonetheless

ByAshish Singalon December 8, 2011

Format: PaperbackVerified Purchase

The one downside about this book (and I find other books like this) is that it ends up being long for the level of detail contained. An 15 page essay could probably capture the most salient points of the book quite easily. Regardless, I'm partial to the book because I find it a relatively rational and clearheaded approach to markets. Many theorists these days who have seen the efficient market theory fail pounce on the opportunity and hail their theory as the new lens through which markets should be studied -- Soros, Lo, Talib, and the list goes on. Mandelbrot is no different, but he identifies the shortcomings of his theory in a much more palatable fashion than I've seen from some other authors, easing you into his ideas. He plainly says that his theory is a new mathematical approach to securities prices, and not a mechanism by which to make money (at least not yet). His application of fractals from nature to securities prices does make intuitive sense. His work in other fields shed light on what you may find in the book: "Clouds are not spheres, mountains are not cones, coastlines are not circles, and bark is not smooth, nor does lightning travel in a straight line" -- neither do security prices follow smooth curves. He leaves the math out of this book, but certainly embarks on a fresh approach without sounding like he's found the Holy Grail.

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therefore any strategy based on these parameters is no better than a guess

ByR. Lundbergon May 30, 2015

Format: Kindle EditionVerified Purchase

The only flaw in this analysis: You can get any H and alpha you want by your choice of endpoints, therefore any strategy based on these parameters is no better than a guess. I have not been able to find any explicit demonstration of this but it is known. It is extremely valuable to know that the probability of ruin is much higher than the financial industry would have you believe. Nassim Taleb, Mandelbrot's student has several books on this theme. He took advantage of the fat tails by getting rich buying out of the money options.

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An opportunity for continued thinking

ByJ. Scott Shipmanon October 6, 2010

Format: PaperbackVerified Purchase

Benoit Mandelbrot's The (Mis) Behavior of Markets is a splendid read and very informative. As many reviewers have noted, Mandelbrot invented fractal geometry. He has also been on the cutting edge (some would say fringe, but he's thinking and questioning) in multiple disciplines, as his curiosity seem to know no bounds. 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. His view is based on his assertion of reality; namely that the world of finance is turbulent (as indeed, the world is turbulent), and linear tools relying on reliability and rational man will never tell the full story.

Mandelbrot, to his credit, warns the reader early on that his is not an investment guide. He simply offers his ideas, and admits that some don't offer as much insight currently as he wishes. He is, however, optimistic that his philosophies and his alternative (edge-type) thinking will prevail in some form.

Truly wish I read this before b-school, as he explains why I scratched my head through a good portion because the theories didn't look "right." As a couple of other reviewers have noted, the first part of the book is best, and sort of stumbles to find itself in the second half. All that said, this is a valuable contribution and highly recommended.

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a Rich, Accessible compendium of thought

ByBeaumont Vanceon October 23, 2007

Format: PaperbackVerified Purchase

I am a risk manager. The challenges that Mandelbrot has undertaken both politically, socially and intellectually are breathtaking and highly relevant. I am routinely found plodding through dense math texts, trying to remember my greek alphabet and often hoplessly lost in teh terminology. Mandelbrot does a great service to us all when he keeps the language understandable for the laity and eschews the complex formulas. You can tell that he does not need to sound overly smart because he is overly smart.

This book toes together so much history and so many concepts in such an elegant style that it is very hard to oversell the work. I have a hard time imagining a field in which this knowledge is not applicable in some way. And anyone who has even a baseline sense of curiosity will find the interweaving of the many great stories compelling.

I would imagine that some math majors will find that the information is somewhat basic, but only if they are exposed to a lox on non linear problems in a complexity theory or econophysics field. For everyone else, this is a masterpiece, an entertaining, accessible masterpiece.

Oh, and for any of you who like Nassim Taleb's work, this is absolutely essential reading. I also suggest diving into network and sync theories which fill in the gaps left by Mandelbrot. Much good work has been done since he wrote this. "Linked" and "sync" are especially good and accessible.