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| Book Cover Source: Goodreads |
Ever wondered about Wall Street and how the market functions? Was the market behaving the same way few decades back? What is the history which led to the current beliefs of the market?...Then the book which we are reviewing today might be an answer to all your questions. So lets begin with the review of The Myth Of Rational Market: A History Of Risk, Reward And Delusion On Wall Street written by Justin Fox.
Lets start with the synopsis of the book:
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Chronicling the rise and fall of the efficient market theory and the century-long making of the modern financial industry, Justin Fox's "The Myth Of The Rational Market" is as much an intellectual whodunit as a cultural history of the perils and possibilities of risk. The book brings to life the people and ideas that forged modern finance and investing, from the formative days of Wall Street through the Great Depression and into the financial calamity of today. It's a tale that features professors who made and lost fortunes, battled fiercely over ideas, beat the house in blackjack, wrote bestselling books, and played major roles on the world stage. It's also a tale of Wall Street's evolution, the power of the market to generate wealth and wreak havoc, and free market capitalism's war with itself.The efficient market hypothesis--long part of academic folklore but codified in the 1960's at the University of Chicago--has evolved into a powerful myth. It has been the maker and loser of fortunes, the driver of trillions of dollars, the inspiration for index funds and vast new derivatives markets, and the guidepost for thousands of careers. The theory holds that the market is always right, and that the decisions of millions of rational investors, all acting on information to outsmarts one another, always provide the best judge of a stock's value. That myth is crumbling.
Celebrated journalist and columnist Fox introduces a new wave of economists and scholars who no longer teach that investors are rational or that the markets are always right. Many of them now agrees with Yale professor Robert Shiller that the efficient market theory "represents one of the most remarkable errors in the history of economic thought." Today the theory has given way to counter-intuitive hypotheses about human behavior, psychological models of decision making, and the irrationality of the markets. Investors overreact, under-react, and make irrational decisions based on imperfect data. In his landmark treatment of the history of the world's markets, Fox uncovers the new ideas that may come to drive the market in the century ahead.
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My sole purpose of reading this book was to know more about the money making machine, i.e The Wall Street and I must say this book didn't disappoint me in that aspect. This book is a carefully crafted document about the rise and the fall of the Efficient Market Hypothesis (EFH), since its beginning till the end. Even if you don't know about this Efficient Market Hypothesis, this book will surely foster your curiosity into the same.
This book is all about the people who were greatly responsible for developing the market and their views on the rational market. This book lists down series of event in a chronological fashion which happened in span of more than a century. Yes, you read it right, the century back history of the Wall Street and that too in just around 300 pages. Of all the financial books which I have read, I feel this book lists down all the events in a nice concise manner. This book is aimed at a normal person who is not aware about the market and aims to give her/him, the exposure to the ideas of the scholars of the market.
I am quite sure, you must have seen financial people working with fancy charts and big numbers and might worry that this book might contains such fancy chart which you might not be accustomed to, so let me tell you that this book doesn't contain any of those, but yes there is something which might bother you. I will come to this point in a while.
Justin Fox being a TIME magazine business journalist and Editorial Editor of Harvard Business Review Group, has written a pretty comprehensive history about the rational market hypothesis and how Financial Engineers viewed market in those days.This book highlights the rational market approach of the early Finance Engineers and their thirst to predict the market and stocks value on any given day. This book will definitely make you more interested in the financial market.
This book is a treat to read if you know few things about finance and market behavior. However, if you are a person who is completely unaware of the financial concepts and basic ideology, then you might find it difficult to understand the book completely and even might take more time than your regular book. This book does mentions few concepts which you will understand quickly if you have a little understanding of the financial concepts. Yes, this book indeed have explained those concepts, but knowing few basic things will surely cut down your reading time..
So to sum up, I really enjoyed reading this book and I will highly recommend this book to someone who wants to know about the history of the Efficient Market Hypothesis. I would have love if this book has toned down the financial concepts slightly to make it more easily understandable to the general audience, but no complaints from my side. To rate this, I will give this book 3.5 stars out of 5. Here are the links to the Amazon from where you buy the book.
Amazon India: Myth Of The Rational Market by Justin Fox
Amazon US: Myth Of The Rational Market by Justin Fox
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So until next time, this is me Sushant signing off. You guys have a great day.
CIAO.
