Introduction: It Had Been Working So Exceptionally Well EARLY DAYS 1. Irving Fisher Loses His Briefcase, and Then His Fortune The first serious try to impose reason and science upon the market comes in the early decades of the twentieth century. It doesn't work out so well. 2. A Random Walk from Fred Macaulay to Holbrook Working Statistics and mathematics begin to find their way into the economic mainstream in the 1930s, setting the stage for big changes to come. THE RISE OF THE RATIONAL MARKET 3. Harry Markowitz Brings Statistical Man to the Stock Market The modern quantitative approach to investing is assembled out of equal parts poker strategy and World War II gunnery experience. 4. A Random Walk from Paul Samuelson to Paul Samuelson The proposition that stock movements are mostly unpredictable goes from intellectual curiosity to centerpiece of an academic movement. 5. Modigliani and Miller Arrive at a Simplifying Assumption Finance, the business school version of economics, is transformed from a field of empirical research and rules of thumb to one ruled by theory. 6. Gene Fama Makes the Best Proposition in Economics At the University of Chicago's Business School in the 1960s, the argument that the market is hard to outsmart grows into a conviction that it is perfect. THE CONQUEST OF WALL STREET 7. Jack Bogle Takes on the Performance Cult (and Wins) The lesson that maybe it's not even worth trying to beat the market makes its circuitous way into the investment business. 8. Fischer Black Chooses to Focus on the Probable Finance scholars figure out some ways to measure and control risk. More important, they figure out how to get paid for doing so. 9. Michael Jensen Gets Corporations to Obey the Market The efficient market meets corporate America. Hostile takeovers and lots of talk about shareholder value ensue. THE CHALLENGE 10. Dick Thaler Gives Economic Man a Personality Human nature begins to find its way back into economics in the 1970s, and economists begin to study how markets sometimes fail. 11. Bob Shiller Points Out the Most Remarkable Error Some troublemaking young economists demonstrate that convincing evidence for financial market rationality is sadly lacking. 12. Beating the Market with Warren Buffett and Ed Thorp Just because professional investors as a group can't reliably outperform the market doesn't mean that some professional investors can't. 13. Alan Greenspan Stops a Random Plunge Down Wall Street The crash of 1987 exposes big flaws in the rational finance view of risk. But a rescue by the Federal Reserve averts a full reexamination. THE FALL 14. Andrei Shleifer Moves Beyond Rabbi Economics The efficient market's critics triumph by showing why irrational market forces can sometimes be just as pervasive as the rational ones. 15. Mike Jensen Changes His Mind about the Corporation The argument that financial markets should always set the priorities - for corporations and for society - loses its most important champion. 16. Gene Fama and Dick Thaler Knock Each Other Out Where has the debate over market rationality ended up? In something more than a draw and less than a resounding victory. Epilogue: The Anatomy of a Financial Crisis Cast of Characters Acknowledgments A Note on Sources Suggestions for Further Reading Notes
Justin Fox is the business and economics columnist for Time magazine. Previously an editor and writer at Fortune, he appears frequently on CNN and CNBC and has made exactly one appearance on 'The Daily Show' with Jon Stewart. He lives in New York with his wife and son. www.byjustinfox.com
Praise for the US edition: "In this book, Justin Fox, the economics columnist for Time magazine, provides a lucid, lively and learned account of the rise and fall of the theory." - Barrons, US "A must-read for anyone interested in the markets, our economy or government, this dense but spellbinding work brings modern finance and economics to life." - Publisher's Weekly, US "Justin Fox's new book, - is - an engaging history of what might be called the rise and fall of the efficient market hypothesis." - The New York Times, US "Fox - covers ground that ranges from the notion of market efficiency - to the panoply of models for measuring risk and pricing derivatives that came with it. This book - is impressively broad and richly researched." - Financial Times, US "With "The Myth of the Rational Market" Mr. Fox has produced a valuable and highly readable history of risk and reward." - The Wall Street Journal, US "Justin Fox's description of how the idea evolved and conquered is fascinating and entertainingly told. Mr Fox has written a worthy successor to "Capital Ideas", the late Peter Bernstein's 1990s classic on the emergence of the rational-market myth: bang up-to-date; alas, without the happy ending" - The Economist, US "...a rich history of the world's most seductive investing idea...the book chronicles the rise of rational market theory over the decades and captures the sizzle and pop of the intellectual debate..." - Bloomberg, US "Fox...weaves a fascinating historical narrative" - The Washington Post, US "Do we really need yet another book about the financial crisis? Yes, we do - because this one is different ...a must-read" - New York Times
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