Author: Andrew W. Lo is a professor of Management at MIT Sloan School of Management. He is also the founder of Alpha Simplex Group, a quant investment fund based in Massachusetts.Book: Andrew Lo presents a new theoretical framework for finance. Drawing on psychology, evolutionary biology, neuroscience, artificial intelligence, and other fields, he argues that the Efficient Markets Hypothesis(EMH) is not wrong, just incomplete. Within this new framework, he explains how financial evolution shapes the world at the speed of thought. We (investors) are also the product of evolution, mutation, and natural selection, thus, Andrew Lo tries to complete the static nature of the EMH with this dynamic approach.
Opinion: This book is great. I do not agree with all the proposals (i.e., to some regulatory initiatives, regarding the creation of the MPT as an evolution, the consideration of certain behaviors as irrational, some explanations of the 2008 crisis etc.) however, overall, it is an enjoyable and easy read. I see the Adaptive Markets Hypothesis, compared with the EMH, much more coherent with the Austrian School. For instance, both consider the market as a process and the concept of efficiency in a dynamic manner. Apparently, those academics and other BS vendors who base all their “theories” and reasoning on the EMH fail to consider that. They do not understand markets and suffer from the so-called “Envy of physics”. I believe it would be a huge advance to adopt this new framework in universities instead of the flawed EMH.
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