Chaos and Order in the Capital Markets: A New View of Cycles, Prices, and Market Volatility
$26.18
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| Format |
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| Pages |
292 |
| Published Date |
1996 |
Chaos and Order in the Capital Markets was the very first book to explore and popularize chaos theory as it applies to finance. It has since become the industry standard, and is regarded as the definitive source to which analysts, investors, and traders turn for a comprehensive overview of chaos theory. Now, this invaluable reference – touted by BusinessWeek as “the bible of market chaologists” – has been updated and revised to bring you the latest developments in the field.
Author’s Note:
TChaos and Order in the Capital Markets is a conceptual introduction to fractals and chaos theory as applied to investments and, to a lesser degree, economics. In recent years, research in the capital markets has been producing more questions than it has been answering; the need for a new paradigm, or a new way of looking at things, has become more and more apparent. The existing view, based on efficient market assumptions, has a distinguished history going back some 40 years, but it has not, for some time, significantly increased understanding of how markets work. This book attempts a shift away from the concept of efficient markets and toward a more general view of the forces underlying the capital market system. In this new paradigm, the existing paradigm still exists as a special case. Therefore, this shift is an evolution in capital market research and, I believe, a logical next step.
The book is not meant as a textbook. It is intended to communicate the concepts behind fractals and chaos theory, as they apply to the capital markets and economics. I have supplied no proofs of the theorems. Those interested in such full mathematical treatments are referred to the bibliography, where an abundance of mathematical and scientific texts and papers is offered. The book is addressed to investment professionals and interested academics, and assumes a firm grounding in capital market theory, elementary statistics, and elementary calculus. Anyone with a MBA should have little trouble understanding the text, and those with undergraduate degrees in business or economics should also benefit. The informal style is meant to provoke thought and present new ideas. Formal proofs are available elsewhere.
Contents:
- Introduction: Life Can Be So Complicated
- Random Walks and Efficient Markets
- The Failure of the Linear Paradigm
- Markets and Chaos: Chance and Necessity
- Introduction to Fractals
- The Fractal Dimension
- Fractal Time Series-Biased Random Walks
- R/S Analysis of the Capital Markets
- Fractal Statistics
- Fractals and Chaos
- Introduction to Nonlinear Dynamic Systems
- Dynamic Analysis of Time Series
- Dynamic Analysis of the Capital Markets
- The Coherent Market Hypothesis
- Fractional Truth: Fuzzy Logic and Behavioral Finance
- Applying Chaos and Nonlinear Methods
- What Lies Ahead: Toward a More General Approach
Chaos and Order in the Capital Markets: A New View of Cycles, Prices, and Market Volatility By Edgar E. Peters pdf
9 reviews for Chaos and Order in the Capital Markets: A New View of Cycles, Prices, and Market Volatility
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Jaxton Kramer (verified owner) –
Very good book, gave me an idea of the use that can be made of chaos theory in economics. Mainly, it made it clear to me how useless it is to want to gacer predictions aboutthe value of shares, which is not so about the risk of an investment.
You can definitely delve into the subject, but as a first approach it is ideal.
Mario Richardson (verified owner) –
I have a university maths degree and found the book very obvious and drawn out for the first few chapters. In spite of this I looked forward to what was going to be explained later. Suddenly from a very simple and easy to understand explanation on the EMH he starts to use mathematics in his equations that I had a lot of difficulty following. There was very little or no explanation of how these equations were arrived at and a lot of mathematics and statisics is assumed. This book does not apply the theory in ny meaningful way to the markets let alone the capital markets in my opinion. I found that I took very little away from this book and would not recommend it to anyone who has basic mathematics like myself or is looking for some deeper insight into the markets. I would hate to have Mr Peters as a teacher based on his book.
Karson Fitzpatrick (verified owner) –
If you’re looking for a purely conceptual introduction to how chaos theory can be applied to financial markets, this book is as good a source as any. Peters’s discussion of R/S statistics and the graphical examples drawn from the markets are clear and intuitive (Ch. 7-8). The key point demonstrating long-term memory effects in the market is well made.
However he spends an inordinate amount of time attacking the foundations of the efficient market hypothesis (EMH) to the point of being boring, yet the argument boils down to “it has errors when compared to reality”. Duh, so does every other theory, including fractal. The real issue is “for the error in theory A, how bad are the results X, and is theory B much better at it?” If you’re not going to do that, don’t spend 40 pages (Ch. 1-4) on it. This is misleading to those not familiar with EMH, and boring to those who are.
Don’t look to this book for good math. In my edition (1991), careless and erroneous notations abound. Also, the equations are written in BASIC notation which is notoriously hard to visualize, but this is probably the fault of the editor/publisher. Peters makes frequent and unannounced jumps between the apparent rigor of math and loose conjectures. The math is distracting to a qualitative reader, and the conjectures irritating to the quantitative one. Better to cater to one audience, and do it well.
Still, I would recommend this book as a good conceptual introduction to the subject. But if you’re planning to go deeper, use the equations in this book at your own perils. Go to the source.
Allison Warner (verified owner) –
This book receives 4 stars because it has made a serious attempt to apply non-linear models to financial markets. However, financial markets are incredibly difficult to model and a constant moving target. Since 2008, and after the colossal sums of money continue to be printed to rig ALL markets to provide illicit gains for the banks and their chief (the Fed), most attempts to model markets and use quant model will likely prove futile or short-lived.
Jaylah Lambert (verified owner) –
I read this book, the 1991 version, years ago. Around 1980 my own attempts to crack share prices statistically convinced me that all share prices behaved like a Gaussian random walk meaning that all speculation was comparable with playing roulette and I am not one of those guys who usually wins when gambling. This view was strengthened when the option pricing model came up, meaning that even the real pro’s in the field assume that share prices are nothing but a random walk. This book has opened my eyes to the fact that there is much more to randomness than just the Gaussian curve. Share prices are not fully random. Impressive is the demonstration that an RS analysis on the real data is different when applying the same RS analysis on scrambled data. So there is information hidden in these time series, somewhere. Since then I have picked up the subject of cracking time series again with great pleasure. I think this book is exceptionally well written and without it I doubt if I would have been able to follow Mandelbrot’s book “scaling and fractals in finance” that I bought later. The book is about understanding a subject, not about learning a simple formula to apply on a time series.
Sebastian Alfaro (verified owner) –
Most probably there are two types of people who won’t like this book. First, if you are a research scientist with a lot of experience in the field, you’ll probably find the material a bit too “easy” (you know, people who write “it’s easy like a senior undergrad math texbook” in their reviews). Certainly, you can learn a lot of the same stuff from original papers. On the other hand, learning from research papers is not the most efficient way (I have an M.S.(astrophysics)/B.S.(physics), and still get headaches reading them), and this book provides a great overview. Now I read the original papers from the link above with much better understanding. The second category who won’t enjoy the book is dyed-in-the-wool “practitioners” in search of a magic formula. I don’t think this book can be directly applied to creating a trading system. On the other hand, it will help you understand the markets better, which won’t hurt your financial success. While the knowledge that S&P 500 has a fractal dimension of 1.26 won’t give you too much edge, understanding that there is a strong statistical evidence for trending in the markets (e.g. Hurst exponent substantially > 0.5) can be an extra reason for the head of your trading firm yelling at you when you refused to cut your losses or to hold on to your winners. But, again, the book is mostly useful in the same sense as the philosophy class you took in college: it gives you a fresh perspective and lets you look at the world from a different angle.
In short, if you are interested in the markets and are not totally averse to science, you’ll like this book a lot. It’s the first book in finance which I found hard to put down. The text is written on an introductory level, explaining all new concepts. There are a lot of graphs and numerical results related to the market, and the author’s thoughts and observations are most fascinating.
Grayson Beasley (verified owner) –
clear, readable
Yasmin Oliver (verified owner) –
Great at explaining the math behind chaos theory and how it pertains to the market, but could have provided the reader with how to use these insights to get an edge in the market. That part was lacking and I was left unsatisfied, after loving the first half of the book.
Hanna Franklin (verified owner) –
Although a bit sparse in some areas, one must realize that this is not a textbook. To that end, this is a truly insightful book, delivering a great deal of information on a topic that is mostly overlooked, yet extremely important to the subject matter. I wish the author/publisher would release a newer version, including some of the more updated topics in the field. However, overall this is an excellent guide and wonderful introduction to the subject matter!