Dynamics of Markets
The New Financial Economics

Second edition, now explains the history leading up to the biggest economic disaster of the 21st century.

Joseph L. McCauley (Author)

9780521429627, Cambridge University Press

Hardback, published 3 September 2009

286 pages, 19 b/w illus.
25.3 x 17.8 x 1.6 cm, 0.72 kg

'McCauley's mathematically and empirically rigorous Dynamics of Markets is one of those rare works which is challenging, not only to an intellectual orthodoxy (neoclassical economics), but also to its fledgling rival (econophysics). Neoclassical economics and finance theory receive justifiably dismissive treatments for failing empirically, but some econophysics contributions also distort empirical data - notably McCauley shows that 'fat tails' in data can be the result of applying an unjustified binning process to nonstationary data. McCauley's essential messages for the future of economics after the global financial crisis is that 'There is no statistical evidence for Adam Smith's Invisible Hand', and that the hand that does exist and must be understood is both non-stationary and far from equilibrium.' Steve Keen, University of Western Sydney

This second edition presents the advances made in finance market analysis since 2005. The book provides a careful introduction to stochastic methods along with approximate ensembles for a single, historic time series. The new edition explains the history leading up to the biggest economic disaster of the 21st century. Empirical evidence for finance market instability under deregulation is given, together with a history of the explosion of the US Dollar worldwide. A model shows how bounds set by a central bank stabilized FX in the gold standard era, illustrating the effect of regulations. The book presents economic and finance theory thoroughly and critically, including rational expectations, cointegration and arch/garch methods, and replaces several of those misconceptions by empirically based ideas. This book will be of interest to finance theorists, traders, economists, physicists and engineers, and leads the reader to the frontier of research in time series analysis.

Preface
1. Econophysics: why and what
2. Neo-classical economic theory
3. Probability and stochastic processes
4. Introduction to financial economics
5. Introduction to portfolio selection theory
6. Scaling, pair correlations, and conditional densities
7. Statistical ensembles: deducing dynamics from time series
8. Martingale option pricing
9. FX market globalization: evolution of the dollar to worldwide reserve currency
10. Macroeconomics and econometrics: regression models vs. empirically based modeling
11. Complexity
Index.

Subject Areas: Physics [PH], Economic statistics [KCHS], Econometrics [KCH], Monetary economics [KCBM]