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The Conventional Past, Behavioral Present, and Algorithmic Future of Risk and Finance

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  • Philip Z. MAYMIN

    (University of Bridgeport Trefz School of Management)

Abstract

Modern finance is a relatively young field, only a few decades old, and already it has gone through two phase transitions and is perhaps poised to undergo a third. The first transition starting from the 1950s brought modern portfolio theory into the mainstream with econometric and optimization based approaches to portfolio construction and risk management. The second transition starting from the 1990s shifted those conventional approaches based on rational investors into a focus on the actual psychological factors driving investor behavior along with the important concept of limits to arbitrage. The third transition happening now aims to take an algorithmic approach to finance, looking to explore how and why investor heuristics evolve and predominate, how automated processes can respond to unpredictable events, and what the effects will be on the markets as ever-faster computers trained on ever-larger data sets become the predominant and nearly real-time traders.

Suggested Citation

  • Philip Z. MAYMIN, 2018. "The Conventional Past, Behavioral Present, and Algorithmic Future of Risk and Finance," Finante - provocarile viitorului (Finance - Challenges of the Future), University of Craiova, Faculty of Economics and Business Administration, vol. 1(20), pages 74-84, November.
    • Handle: RePEc:aio:fpvfcf:v:1:y:2018:i:20:p:74-84
    as

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    File URL: http://www.financejournal.ro/fisiere/revista/127825184507_Maymin%20en.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    behavioral; algorithmic; risk; finance.;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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