Complexity, Risk, and Financial Markets by Edgar E. Petters

Complexity, Risk, and Financial Markets completes a trilogy of books on chaos and fractal analysis. Fractal analysis examines self-similarity or scale invariance, a structure that is often present in seemingly random and otherwise complex processes. Time series, for example, exhibit self-similarity if subsamples resemble compressed versions of longer samples. Pioneered by engineers, mathematicians, and natural scientists, fractal analysis is now routinely applied to financial markets. Author Edgar E. Peters is a leading practitioner and also chief investment officer at PanAgora Asset Management, a distinguished quant firm managing over $13 billion. Peters published Chaos and Order in the Capital Markets in 1991 (expanded and corrected second edition 1996), a conceptual application of fractals and chaos theory in economics and finance, followed by the more technical Fractal Market Analysis in 1994, which remains an excellent introduction to fractal methodology, though recent advances have rendered it technically obsolete in some respects. Chaos and Order in the Capital Markets includes a sophisticated and devastating critique of the efficient market hypothesis. Complexity, Risk, and Financial Markets completes Peters’s trilogy by presenting the underlying philosophical case for chaos theory, which turns out to be grounded on distinctively Austrian views of information and market process. This book should be read by Austrians interested in, or already familiar with, fractal analysis or chaos theory, a statistical methodology developed extensively by Benoit Mandelbrot.1 In addition, this book should also be read by practitioners of fractal analysis and related statistical techniques, in order to receive an introduction to the Austrian School and deepen their understanding of their methodological paradigm’s justification, implications, and limitations. Although it can be read profitably on its own, Complexity, Risk, and Financial Markets calls for some discussion of the context it occupies in the larger trilogy. In particular, this book serves as a philosophical background and introduction to Peters’s two earlier books, to which readers should go for more detailed critiques of