The Atlantic

How Evolution Can Make Sense of the Stock Market

To help model complex and frequently erratic financial systems, some economists are turning to biology.
Source: Brendan McDermid / Reuters

On December 17, 2014, then-President Barack Obama announced that the United States would restore its international relations with Cuba. In addition to many expected diplomatic consequences, the decision had an odd effect: boosting the popularity of a small, closed-end fund that trades as CUBA.

Despite its name, CUBA’s holdings in Cuba are minor and have little value.* There was no rational financial explanation for why investors would buy up this fund—which nearly doubled in price—on this particular day.

The investments in CUBA are a reminder that the market isn’t always “efficient”: Investors don’t always make rational decisions and go with whatever gives them the greatest risk-adjusted return. Yet stock prices often relatively predictable based on rational, mathematical models. CUBAs in the stock market don’t happen all the time,

You're reading a preview, sign up to read more.

More from The Atlantic

The Atlantic6 min readSociety
Why Europe’s Far Right Is Targeting Gender Studies
A growing pattern of attacks across Europe is as much about electoral opportunity as a conflict of ideas.
The Atlantic10 min readPolitics
From Public Shame to the Courtroom
Gibson’s Bakery, a family-owned business near Oberlin College accused of racism, just won a big payout.
The Atlantic5 min readPolitics
There Is No White House Press Secretary
Trump will eventually appoint someone to replace Sarah Sanders. But the office has been functionally obliterated.