Adaptive markets

Adaptive Markets – Andrew W. Lo

This book introduces the Adaptive Markets Hypothesis (AMH), which blends traditional efficient market theory with insights from evolutionary biology and behavioral finance. Lo argues that markets function like living ecosystems—changing as participants adapt to new environments. Investment strategies, risk–return relationships, and market efficiency all shift depending on competition, innovation, and human behavior. Crises, bubbles, and irrational decisions are seen as natural market adaptations rather than anomalies. The key takeaway: successful investing requires flexibility, awareness of context, and constant adaptation rather than fixed rules.