The Myth of the Rational Market

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Harper Collins, Jun 9, 2009 - Business & Economics - 416 pages
22 Reviews

Chronicling the rise and fall of the efficient market theory and the century-long making of the modern financial industry, Justin Fox's The Myth of the Rational Market is as much an intellectual whodunit as a cultural history of the perils and possibilities of risk. The book brings to life the people and ideas that forged modern finance and investing, from the formative days of Wall Street through the Great Depression and into the financial calamity of today. It's a tale that features professors who made and lost fortunes, battled fiercely over ideas, beat the house in blackjack, wrote bestselling books, and played major roles on the world stage. It's also a tale of Wall Street's evolution, the power of the market to generate wealth and wreak havoc, and free market capitalism's war with itself.

The efficient market hypothesis—long part of academic folklore but codified in the 1960s at the University of Chicago—has evolved into a powerful myth. It has been the maker and loser of fortunes, the driver of trillions of dollars, the inspiration for index funds and vast new derivatives markets, and the guidepost for thousands of careers. The theory holds that the market is always right, and that the decisions of millions of rational investors, all acting on information to outsmart one another, always provide the best judge of a stock's value. That myth is crumbling.

Celebrated journalist and columnist Fox introduces a new wave of economists and scholars who no longer teach that investors are rational or that the markets are always right. Many of them now agree with Yale professor Robert Shiller that the efficient markets theory “represents one of the most remarkable errors in the history of economic thought.” Today the theory has given way to counterintuitive hypotheses about human behavior, psychological models of decision making, and the irrationality of the markets. Investors overreact, underreact, and make irrational decisions based on imperfect data. In his landmark treatment of the history of the world's markets, Fox uncovers the new ideas that may come to drive the market in the century ahead.


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Review: The Myth of the Rational Market: Wall Street's Impossible Quest for Predictable Markets

User Review  - Goodreads

The "market" of the title is the financial market (as oppose to a market for actual goods) and the "myth" is a century of research that matured into Efficient Market Hypothesis. If that phrase is ... Read full review

Review: The Myth of the Rational Market: Wall Street's Impossible Quest for Predictable Markets

User Review  - Goodreads

Justin Fox wrote about the history of capital market theory, which has been cornerstone of modern US capitalism. In essence, the efficient market hypothesis with random walk dominated quite a long ... Read full review


IrvIng FISHer loSeS HIS BrIeFcaSe
a random Walk From Fred macaulay
Harry markoWItz BrIngS StatIStIcal
a random Walk From paul SamuelSon
modIglIanI and mIller arrIve at
gene Fama makeS tHe BeSt
Jack Bogle takeS on tHe perFormance
FIScHer Black cHooSeS to FocuS
BeatIng tHe market WItH Warren
alan greenSpan StopS a random
andreI SHleIFer moveS Beyond
mIke JenSen cHangeS HIS mInd
gene Fama and dIck tHaler knock
tHe anatomy oF a FInancIal crISIS
caSt oF cHaracterS

mIcHael JenSen getS corporatIonS
BoB SHIller poIntS out tHe moSt

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About the author (2009)

Justin Fox is editorial director of the Harvard Business Review Group, and a contributor to Time magazine and PBS's Nightly Business Report. Previously, he was a columnist at Time and an editor and writer at Fortune. He lives in Cambridge, Massachusetts, with his wife and son.

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