Frontiers of finance: Evolution and efficient markets

In this review article, we explore several recent advances in the quantitative modeling of financial markets. We begin with the Efficient Markets Hypothesis and describe how this controversial idea has stimulated a number of new directions of research, some focusing on more elaborate mathematical models that are capable of rationalizing the empirical facts, others taking a completely different tack in rejecting rationality altogether. One of the most promising directions is to view financial markets from a biological perspective and, specifically, within an evolutionary framework in which markets, instruments, institutions, and investors interact and evolve dynamically according to the “law” of economic selection. Under this view, financial agents compete and adapt, but they do not necessarily do so in an optimal fashion. Evolutionary and ecological models of financial markets is truly a new frontier whose exploration has just begun.

A test of alternative models of diversification in tropical rainforests: Ecological gradients vs. rainforest refugia

Comparison of mitochondrial and morphological divergence in eight populations of a widespread leaf-litter skink is used to determine the relative importance of geographic isolation and natural selection in generating phenotypic diversity in the Wet Tropics Rainforest region of Australia. The populations occur in two geographically isolated regions, and within each region, in two different habitats (closed rainforest and tall open forest) that span a well characterized ecological gradient. Morphological differences among ancient geographic isolates (separated for several million years, judging by their mitochondrial DNA sequence divergence) were slight, but morphological and life history differences among habitats were large and occurred despite moderate to high levels of mitochondrial gene flow. A field experiment identified avian predation as one potential agent of natural selection. These results indicate that natural selection operating across ecological gradients can be more important than geographic isolation in similar habitats in generating phenotypic diversity. In addition, our results indicate that selection is sufficiently strong to overcome the homogenizing effects of gene flow, a necessary first step toward speciation in continuously distributed populations. Because ecological gradients may be a source of evolutionary novelty, and perhaps new species, their conservation warrants greater attention. This is particularly true in tropical regions, where most reserves do not include ecological gradients and transitional habitats.