The Variation of Certain Speculative Prices in The Journal of Business, Vol. XXXVI, October 1963, No. 4, pp. 394-419 WITH The Variation of Some Other Speculative Prices in The Journal of Business, Vol. 40, October 1967, No. 4 pp. 393-413 WITH Correction of an Error in ‘The Variation of Certain Speculative Prices’ in The Journal of Business, Vol. 45, No. 4, October 1972 pp. 542-543. Chicago: University of Chicago Press
THREE FIRST EDITIONS IN ORIGINAL WRAPS OF EACH OF MANDELBROT’S SEMINAL PAPERS ON THE MARKETS — the 1963 paper itself, the 1967 followup, and the 1972 correction — all housed in a quarter calf clamshell case. Though best known for his development of fractal geometry, prior to that, Benoit Mandelbrot applied his prodigious skills to economics, finding that prices in financial markets did not follow a Gaussian distribution but rather Lévy stable distributions having theoretically infinite variance.
Put another way, Mandelbrot believes that “Wild price swings, business failures, windfall trading profits – these are key phenomena. In all their drama and power, they should matter most to bankers, regulators and investors.” And Mandelbrot showed them to be much more common than they would be if market movements followed a standard bell curve. The 20th century saw 48 days in which the Dow Jones Industrial Average swung more than 7 per cent. ‘Normal’ statistical modelling predicts such swings should happen once every 300,000 years (Caldwell, Mandelbrot Tips, The Financial Times, Oct, 2010).
Prior to the 2008 crash, Mandelbrot was not the only analyst to warn that the financial system was headed for a reckoning, but few of those who saw it coming zeroes in on the flaw in the markets that set it all in motion – models that understated risk.
When Mandelbrot began to study markets, he noted that they ‘scaled’. In studying the long history and distribution of cotton prices, he formed the opinion that, essentially, “all charts look alike” – an opinion shared by many physicists. (Mandelbrot, Oct. 1963). “High quality global journalism requires investment. Please share this article with others using the link below, do not cut & paste the article.
Without legends, Mandelbrot believed that one cannot “tell whether you are looking at a century’s worth of data or a day’s. If anything, scalability was more pronounced in money than in science. All such charts were hard to read, because of the way chance creates ‘spurious patterns and pseudo-cycles’ (Caldwell).
With the first, 1963 paper, Mandelbrot published research showing that “contrary to the general assumption that these price movements were normally distributed, they instead followed a Pareto-Lévy distribution. While on the surface these two distributions don’t appear to be terribly different, (many small movements, and a few large ones), the implications are significantly different, most notably the Pareto-Lévy distribution has an infinite variance.
“This implies that rather than extreme market moves being so unlikely that they make little contribution to the overall evolution, they instead come to have a very significant contribution. In a normally distributed market, crashes and booms are vanishingly rare, in a Pareto-Lévy one crashes occur and are a significant component of the final outcome” (Edney, Misbehavior of Markets).
"Benoit Mandelbrot has been an incorrigibly original mind, and economists have been blessed by his insights. On the scroll of great non-economists who have advanced economics by quantum leaps, next to John von Neumann we read the name of Benoit Mandelbrot" (Paul Samuelson, Gaussian Self-Affinity). Item #740
CONDITION & DETAILS: Three entire issues in original wraps and housed in a custom quarter leather clamshell box, gilt-lettered at the spine and on the front board. The issues range in condition from very good + to near fine. The clamshell case is pristine. The October 1963 issue has minor scuffing and soiling to the wrappers. The October 1967 issue has ex-libris stamps on the front wrap and lightly at the margin of each page. The October 1972 issue has very slight scuffing at the edges and is otherwise near fine.