"Adaptive Markets Hypothesis"

The Adaptive Markets Hypothesis (AMH) suggests that financial markets are shaped by the evolving behaviors of investors, similar to how species adapt to their environment. Unlike the traditional idea that markets are always efficient and perfectly rational, AMH recognizes that investors’ strategies and market conditions change over time based on past experiences, new information, and shifting risks. This makes markets sometimes predictable and other times unpredictable. Essentially, markets are dynamic systems, influenced by human behavior that adapts much like living organisms, leading to periods of stability and volatility.