Synopses & Reviews
In Investors and Markets, Nobel Prize-winning financial economist William Sharpe shows that investment professionals cannot make good portfolio choices unless they understand the determinants of asset prices. But until now asset-price analysis has largely been inaccessible to everyone except PhDs in financial economics. In this book, Sharpe changes that by setting out his state-of-the-art approach to asset pricing in a nonmathematical form that will be comprehensible to a broad range of investment professionals, including investment advisors, money managers, and financial analysts. Bridging the gap between the best financial theory and investment practice, Investors and Markets will help investment professionals make better portfolio choices by being smarter about asset prices.
Based on Sharpe's Princeton Lectures in Finance, Investors and Markets presents a method of analyzing asset prices that accounts for the real behavior of investors. Sharpe makes this technique accessible through a new, one-of-a-kind computer program (available for free on his Web site, at http://www.stanford.edu/~wfsharpe/apsim/index.html) that enables users to create virtual markets, setting the starting conditions and then allowing trading until equilibrium is reached and trading stops. Program users can then analyze the final portfolios and asset prices, see expected returns, and measure risk.
In addition to popularizing the most sophisticated form of asset-price analysis, Investors and Markets summarizes much of Sharpe's most important previous work and reflects a lifetime of thinking about investing by one of the leading minds in financial economics. Any serious investment professional will benefit from Sharpe's unique insights.
Review
"... the book can provide readers with insights into how financial markets behave." James Teasdale, Fund Strategy
Review
"William Sharpe has written a new book . . . which may cause a revolution -- or, at least, a coup in finance. . . .
Investors and Markets brings the subjects of portfolio choice and asset pricing together into a single, integrated view of investment science. . . . The impact of [this book], though more a coup than a revolution, deserves to occur more quickly."
--John Finneran, The Motley Fool
Review
Throughout the past 40 years, Sharpe has remained one of the most influential voices in finance for both academics and practitioners. As is true for all of Sharpe's writings, investment professionals will do well to read Investors and Markets and carefully absorb its insights. -- Ronald L. Moy, Financial Analysts Journal William F. Sharpe says his pioneering work on the Capital Asset Pricing Model is ready for a makeover. The 42-year-old model--which earned Mr. Sharpe a Nobel Memorial Prize in economics in 1990-- is being revamped because Mr. Sharpe says he found a better way for portfolio managers and business-school students to learn about how portfolios are constructed and securities are priced. . . . Mr. Sharpe's new book shows that a simulator based on the state/preference model can mimic market behavior and can be used where mean-variance analysis won't work. -- Joel Chernoff, Pensions and Investments William Sharpe has written a new book . . . which may cause a revolution -- or, at least, a coup in finance. . . . Investors and Markets brings the subjects of portfolio choice and asset pricing together into a single, integrated view of investment science. . . . The impact of [this book], though more a coup than a revolution, deserves to occur more quickly. -- John Finneran, The Motley Fool Sharpe's Investors and Markets is an impressive and thought provoking work. . . . [H]is work breaks new ground in the fields of portfolio and asset pricing theory. I highly recommend this book, particularly for planners interested in understanding the theory behind the advice that we give. -- NAPFA Advisor [Sharpe's book] has much that is good: setting out complex issues such as the capital-asset pricing model and market risk/reward theorem in readily understandable terms, showing the importance of trading. Mime preferences, risk aversion, how individual actions, perhaps irrational on occasion, can still lead to a rational outcome, estimates of the equity risk premium, and the relative value of passive and active investing. -- Andrew Milligan, The Business Economist
Review
"Throughout the past 40 years, Sharpe has remained one of the most influential voices in finance for both academics and practitioners. As is true for all of Sharpe's writings, investment professionals will do well to read
Investors and Markets and carefully absorb its insights."
--Ronald L. Moy, Financial Analysts Journal
Review
"William F. Sharpe says his pioneering work on the Capital Asset Pricing Model is ready for a makeover. The 42-year-old model--which earned Mr. Sharpe a Nobel Memorial Prize in economics in 1990-- is being revamped because Mr. Sharpe says he found a better way for portfolio managers and business-school students to learn about how portfolios are constructed and securities are priced. . . . Mr. Sharpe's new book shows that a simulator based on the state/preference model can mimic market behavior and can be used where mean-variance analysis won't work."
--Joel Chernoff, Pensions and Investments
Review
"Sharpe's
Investors and Markets is an impressive and thought provoking work. . . . [H]is work breaks new ground in the fields of portfolio and asset pricing theory. I highly recommend this book, particularly for planners interested in understanding the theory behind the advice that we give."
--NAPFA Advisor
Review
"[Sharpe's book] has much that is good: setting out complex issues such as the capital-asset pricing model and market risk/reward theorem in readily understandable terms, showing the importance of trading. Mime preferences, risk aversion, how individual actions, perhaps irrational on occasion, can still lead to a rational outcome, estimates of the equity risk premium, and the relative value of passive and active investing."
--Andrew Milligan, The Business Economist
Synopsis
When it comes to asset prices and portfolio management, MBAs are still taught traditional mean-variance analysis even though that approach has been eclipsed in the world of financial theory by a general equilibrium model, one that takes into account more aspects of the real concerns of investors. In Investors and Markets, Nobel Prize-winning finance economist William Sharpe brings together these two approaches to asset pricing and portfolio choice theory, making many major aspects of advanced financial economic theory available and understandable to MBA students and practitioners for the first time.
Based on the Princeton Lectures in Finance, sponsored by the Bendheim Center for Finance at Princeton University, the book presents complex material in simple ways. Its analysis relies heavily on APSIM, Sharpe's new, one-of-a-kind computer program for simulating the attainment of equilibrium in capital markets (available at http: //www.stanford.edu/ wfsharpe/apsim/index.html).
Covering many aspects of the determination of asset prices in capital markets and investors' asset portfolio decisions, the book uses as its underlying approach the state-preference paradigm of Kenneth Arrow and Gerard Debreu, treating mean-variance analysis as a special case. Throughout, the book emphasizes individuals' saving and investment decisions.
Anyone interested in the determination of asset prices will benefit from Sharpe's unique approach and insights.
Synopsis
"Bill Sharpe has a wonderful knack for devising simple examples to draw out a succession of important lessons about portfolio choice and equilibrium asset prices."--Richard Brealey, London Business School
"Here is one of finance's great minds offering commonsense advice for individual investors who, for the most part, wander in the wilderness of the financial markets. Sharpe develops this advice from a high level of theoretical sophistication and analysis. His concerns are profound, his arguments are powerful and innovative, his language is refreshingly lucid, and his conclusions are compelling. Like Sharpe's earlier works, this book is a major contribution to the literature of finance."--Peter L. Bernstein, author of Capital Ideas: The Improbable Origins of Modern Wall Street
"Bill Sharpe is a highly original thinker and one of the most lucid and accessible writers in the field of finance. Investors and Markets artfully combines insights about portfolio choice and asset pricing that give individual investors a framework for making better savings and investment decisions."--Burton G. Malkiel, author of A Random Walk Down Wall Street
"Sharpe has managed to integrate the key areas of optimum portfolio choice and general equilibrium theory. While mean-variance portfolio theory has been around long enough that a number of books have been written that make it accessible to any MBA student, the same cannot be said for asset pricing theory except in its most elementary form. Sharpe's book will for the first time allow me to teach some of this important theory to my MBA students."--Martin J. Gruber, New York University
Table of Contents
PREFACE vii
CHAPTER ONE: Introduction 1
CHAPTER TWO: Equilibrium 9
CHAPTER THREE: Preferences 35
CHAPTER FOUR: Prices 63
CHAPTER FIVE: Positions 111
CHAPTER SIX: Predictions 129
CHAPTER SEVEN: Protection 149
CHAPTER EIGHT: Advice 185
REFERENCES 213
INDEX 215