0
Cancel

    The Myth of the Rational Market: A History of Risk, Reward, and Delusion on Wall Street

    4.0 28

    by Justin Fox

    View All Available Formats & Editions >

    Paperback

    $15.38
    $15.38
     $16.99 | Save 9%

    Temporarily Out of Stock Online

    Customer Reviews

    • ISBN-13: 9780060599034
    • Publisher: HarperCollins Publishers
    • Publication date: 02/08/2011
    • Pages: 390
    • Sales rank: 377,340
    • Product dimensions: 7.84(w) x 5.26(h) x 1.02(d)

    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.

    Table of Contents

    Introduction: It Had Been Working So Exceptionally Well xi

    Early Days

    1 Irving Fisher Loses His Briefcase, and Then His Fortune 3

    The first serious try to impose reason and science upon the market comes in the early decades of the twentieth century. It doesn't work out so well.

    2 A Random Walk from Fred Macaulay to Holbrook Working 26

    Statistics and mathematics begin to find their way into the economic mainstream in the 1930s, setting the stage for big changes to come.

    The Rise, of the Rational Market

    3 Harry Markowitz Brings Statistical Man to the Stock Market 47

    The modern quantitative approach to investing is assembled out of equal parts poker strategy and World War II gunnery experience.

    4 A Random Walk from Paul Samuelson to Paul Samuelson 60

    The proposition that stock movements are mostly unpredictable goes from intellectual curiosity to centerpiece of an academic movement.

    5 Modigliani and Miller Arrive at A Simplifying Assumption 75

    Finance, the business school version of economics, is transformed from a field of empirical research and rules of thumb to one ruled by theory.

    6 Gene Fama Makes the Best Proposition in Economics 89

    At the University of Chicago's Business School in the 1960s, the argument that the market is hard to outsmart grows into a conviction that it is perfect.

    The Conquest of Wall Street

    7 Jack Bogle Takes on the Performance Cult (And Wins) 111

    The lesson that maybe it's not even worth trying to beat the market makes its circuitous way into the investment business.

    8 Fischer Black Chooses to Focus on the Probable 132

    Finance scholars figure out some ways to measure and control risk. More important, they figure out how to get paid for doing so.

    9 Michael Jensen Gets Corporations to Obey the Market 153

    The efficient market meets corporate America. Hostile takeovers and lots of talk about shareholder value ensue.

    The Challenge

    10 Dick Thaler Gives Economic Man A Personality 175

    Human nature begins to find its way back into economics in the 1970s, and economists begin to study how markets sometimes fail.

    11 Bob Shiller Points Out the Most Remarkable Error 191

    Some troublemaking young economists demonstrate that convincing evidence for financial market rationality is sadly lacking.

    12 Beating the Market with Warren Buffett and Ed Thorp 211

    Just because professional investors as a group can't reliably outperform the market doesn't mean that some professional investors can't.

    13 Alan Greenspan Stops A Random Plunge Down Wall Street 227

    The crash of 1987 exposes big flaws in the rational finance view of risk. But a rescue by the Federal Reserve averts a full reexamination.

    The Fall

    14 Andrei Shleifer Moves Beyond Rabbi Economics 247

    The efficient market's critics triumph by showing why irrational market forces can sometimes be just as pervasive as the rational ones.

    15 Mike Jensen Changes His Mind About the Corporation 265

    The argument that financial markets should always set the priorities-for corporations and for society-loses its most important champion.

    16 Gene Fama and Dick Thaler Knock Each Other Out 287

    Where has the debate over market rationality ended up? In something more than a draw and less than a resounding victory.

    Epilogue: The Anatomy of A Financial Crisis 309

    Afterword 323

    Cast of Characters 329

    Acknowledgments 337

    A Note on Sources 339

    Notes 341

    Index 379

    What People are Saying About This

    Nassim Nicholas Taleb

    “Justin Fox is a truly insightful fellow who can see things with his own eyes—a rare, very rare attribute.”

    Paul Krugman

    “Do we really need yet another book about the financial crisis? Yes, we do — because this one is different. Fox’s book is not an idle exercise in intellectual history, which makes it a must-read for anyone who wants to understand the mess we’re in.”

    Peter Bernstein

    “This wise and witty book is must reading for anyone who wonders what makes financial markets tick. Even those who have wrestled with this question for years will be glad to have read Fox’s compelling history.”

    Roger Lowenstein

    “A fascinating historical narrative.”

    Cory Doctorow

    “A thoughtful, often fascinating, always illuminating history of the idea of market rationality.”

    Dan Neil

    “A tough, tasty steak of a book.”

    Barry Ritholz

    “Good wonky fun.”

    Eligible for FREE SHIPPING details

    .

    “Do we really need yet another book about the financial crisis? Yes, we do—because this one is different….A must-read for anyone who wants to understand the mess we’re in.”
    —Paul Krugman, New York Times Book Review

     

    “Fox makes business history thrilling.”
    —St. Louis Post-Dispatch

     

    A lively history of ideas, The Myth of the Rational Market by former Time Magazine economics columnist Justin Fox, describes with insight and wit the rise and fall of the world’s most influential investing idea: the efficient markets theory. Both a New York Times bestseller and Notable Book of the Year—longlisted for the Financial Times Business Book of the Year Award and named one of Library Journal Best Business Books of the Year—The Myth of the Rational Market carries readers from the earliest days of Wall Street to the current financial crisis, debunking the long-held myth that the stock market is always right in the process while intelligently exploring the replacement theory of behavioral economics.

    Read More

    Customers Who Bought This Item Also Bought

    Recently Viewed 

    Related Subjects

    History
    Business
    Awards
    Education
    Reference
    United States History
    Business - General & Miscellaneous
    Economics
    Professional Finance & Investing
    General Reference
    20th Century United States History - General & Miscellaneous
    Economic Theory & Schools of Thought
    Securities
    20th Century American History - Economic Aspects - General & Miscellaneous
    Economic Theory - General & Miscellaneous
    Finance - General & Miscellaneous
    History of Economics
    Reference - General & Miscellaneous
    Securities - General & Miscellaneous
    Stocks - Investments
    Soils->Scotland->Girvan region
    New York Times Notable Nonfiction of 2009
    History
    Business
    Awards
    Education
    Reference
    United States History
    Business - General & Miscellaneous
    Economics
    Professional Finance & Investing
    General Reference
    20th Century United States History - General & Miscellaneous
    Economic Theory & Schools of Thought
    Paul Krugman
    Do we really need yet another book about the financial crisis? Yes, we do — because this one is different. Fox’s book is not an idle exercise in intellectual history, which makes it a must-read for anyone who wants to understand the mess we’re in.
    Nassim Nicholas Taleb
    Justin Fox is a truly insightful fellow who can see things with his own eyes—a rare, very rare attribute.
    Roger Lowenstein
    A fascinating historical narrative.
    Peter Bernstein
    This wise and witty book is must reading for anyone who wonders what makes financial markets tick. Even those who have wrestled with this question for years will be glad to have read Fox’s compelling history.
    Barry Ritholz
    Good wonky fun.
    Dan Neil
    A tough, tasty steak of a book.
    Cory Doctorow
    A thoughtful, often fascinating, always illuminating history of the idea of market rationality.
    St. Louis Post-Dispatch
    Fox makes business history thrilling.
    Barron's
    A lucid, lively and learned account.
    American Scientist
    Superbly accurate and readable... Clearly the result of many years of research and reading,... it is a model of what the popularization of social science can be, but too rarely is, and it will continue to be read when the current crisis is many years behind us.
    Financial Times
    Impressively broad and richly researched.
    Bloomberg
    ...a rich history of the world’s most seductive investing idea...the book chronicles the rise of rational market theory over the decades and captures the sizzle and pop of the intellectual debate ...
    The Economist
    An intellectual tour-de-force...
    Publishers Weekly
    At the core of the current financial crisis has been the widely held assumption that markets behave rationally. Fox, Time magazine editor-at-large, isn't the first to bring scrutiny-or censure-to the conceit, but his analysis is singularly compelling, and the rare business history that reads like a thriller. Fox leads us on a chronological journey of modern economic theory, featuring the cast of scholars who constructed the 20th- and 21st-century financial landscape, from Irving Fisher to such post-WWII figures as Milton Friedman, Harry Markowitz, Franco Modigliani and Merton Miller, Jack Treynor and William Sharpe. Fox offers a behind-the-scenes glimpse at academia's finest, complete with amusing anecdotes about the players and their theories, and illustrates how our economic behaviors and markets have been shaped by a gradually refined theory holding that the stock market prices are both random and perfectly rational. A must-read for anyone interested in the markets, our economy or government, this dense but spellbinding work brings modern finance and economics to life. (July)Copyright © Reed Business Information, a division of Reed Elsevier Inc. All rights reserved.
    Library Journal
    Fox, a Time editor at large and economics columnist, here takes readers through the history of academic research on financial markets since the late 19th century. He focuses on the development of the Efficient Market Theory and its fall from dominance, which resulted largely from the rise of behavioral finance. The Efficient Market Theory uses mathematical models to show that investors act on information as it becomes available, making pricing so efficient that an investor would be unable to beat the market without insider information. Fox argues convincingly that this theory has been eclipsed by behavioral finance, which studies investors' psychology to show that markets are not as rational as the Efficient Market Theory presents. The style here is journalistic, with personal stories that make the book entertaining, but ultimately this is a history of academic thought-complete with endnotes-and is best suited for students of finance or people interested in financial theory.
    —Robbie Allen

    Read More

    Sign In Create an Account
    Search Engine Error - Endeca File Not Found