Adaptive Markets and the New World Order

In the Adaptive Markets Hypothesis (AMH) intelligent but fallible investors learn from and adapt to changing economic environments. This implies that markets are not always efficient, but are usually competitive and adaptive, varying in their degree of efficiency as the environment and investor population change over time. The AMH has several implications including the possibility of negative risk premia, alpha converging to beta, and the importance of macro factors and risk budgeting in asset-allocation policies.

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