Frontiers of Finance: Evolution and Efficient Markets
AbstractIn this review article, we explore several recent advances in the quantitative modeling of financial markets. We begin with the Efficient Markets Hypothesis and describe how this controversial idea has stimulated a number of new directions of research, some focusing on more elaborate mathematical models that are capable of rationalizing the empirical facts, others taking a completely different tack in rejecting rationality altogether. One of the most promising directions is to view financial markets from a biological perspective and, specifically, within an evolutionary framework in which markets, instruments, institutions, and investors interact and evolve dynamically according to the "law" of economic selection. Under this view, financial agents compete and adapt, but they do not necessarily do so in an optimal fashion. Evolutionary and ecological models of financial markets is truly a new frontier whose exploration has just begun. Published in Proceedings of the National Academy of Science 96(1999) 9991-9992.
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Bibliographic InfoPaper provided by Santa Fe Institute in its series Working Papers with number 99-06-039.
Date of creation: Jun 1999
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Finance; efficient markets; market evolution;
This paper has been announced in the following NEP Reports:
- NEP-ALL-1999-09-21 (All new papers)
- NEP-CMP-1999-10-04 (Computational Economics)
- NEP-FIN-1999-09-21 (Finance)
- NEP-IFN-1999-09-21 (International Finance)
- NEP-MIC-1999-09-21 (Microeconomics)
- NEP-PKE-1999-09-21 (Post Keynesian Economics)
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