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Bad Markets

By Kevin

Better Be Good

I first heard about Benoit Mandelbrot a while back, I believe in JC1 when we had a guest speaker who specially came in to talk about Mathematics. I didn't remember the purpose of the entire event; it was some sort of Maths day or something, organized by the Maths Club (or some CCA with a name like that and deals with Mathematics in general). He spoke of golden ratio, Fibonacci sequence, self-similarity and therefore fractals.

It was an interesting talk that included loads of graphics, something pretty rare in our mathematics syllabus which emphasized more on calculus and probabilities than on geometry, though the former have their sort of diagrams. Nevertheless, golden ratio and self-similarity of fractals merely appeared to me as fancy stuff without much applications. Turns out that my impression is pretty wrong and as Maths had it for Physics towards the beginning of the 21th Century where advances in mathematical manipulation of space gave birth to Einstein's Theories on Relativity, Fractals could have some relevance in the complex systems that exhibits wildness. The stock market happens to be one so when I picked up The (Mis)Behavior of Markets, I expected to see these applications.

And of course it did, but as a book for the layman, it spent a substantial amount of text explaining the clues that built up to the notion that fractals could be used to model the wildness of the markets. It was written in a clear and simple manner for people to understand but don't expect to pick up any mathematical calculation tools on the way to help you predict or describe the market in any ways because you won't be given any high-level stuff to play with in this book. Besides that, Benoit goes all out to demonstrate the stupidity of those who assumes normal distribution of events in the stock market despite evidence that suggests otherwise. He will definitely succeed in convincing you that the market is not somewhere fun or great to be in. Unfortunately the study is not well-established enough to replace the tools used in Finance industry despite a general acknowledgment of the inadequacies of the current tools. Thus there's little examples of how the fractals improves our 'skills' of riding the market or gaining from it in any particular way.

During the lecture the guest speaker gave, I clearly remembered he described Benoit as an arrogant man who thought too highly of himself. Benoit's defensive tones of his discovery and findings as well as the offense he seem to have taken on his opponents in the book seem to confirm if not suggest that the guest speaker who came to my institution might be right after all. It'll be a good read for those interested in mathematical economics/finance stuff but probably not a good one for those looking to exploit the stock market and hope for extraordinary gains.