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Investors and Markets: Portfolio Choices, Asset Prices, and Investment Advice (Princeton Lectures in Finance) Paperback – July 21, 2008
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"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
From the Back Cover
"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
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Top Customer Reviews
In addition to his academic pursuits, Professor Sharpe has also been commercially successful, as a RAND economist, and as President, Chairman and/or Director of several enterprises related to investments. Of course, practitioners may know him best for his famous "reward-to-variability" ratio which we all know as the Sharpe ratio. Professor Sharpe has also made important fundamental contributions to options valuation, asset allocation implementation, and returns-based style analysis.
His pioneering books are standard text assignments for both undergraduate and graduate students of finance; these include Portfolio Theory and Capital Markets (McGraw-Hill, 1970 and 2000), Asset Allocation Tools (Scientific Press, 1987), Fundamentals of Investments (with Gordon J. Alexander and Jeffrey Bailey, Prentice-Hall, 2000), Investments (with Gordon J. Alexander and Jeffrey Bailey, Prentice-Hall, 1999).Read more ›
Mean-variance analysis has gained wide acceptance because of its simplicity and its ease of use. You only need two statistics, i.e. mean and variance (or its square root - standard deviation), as a measure of return and risk. Mean and variance can be easily calculated from readily available data with the use of simple mathematics. Even the application of mean-variance analysis to portfolio management is relatively simple to implement, because the goal is to minimize the portfolio variance given certain constraints and is a straightforward quadratic programming problem (there are now variations to this but the general idea is still the same). On the other hand, the state-preference approach is more abstract. In my opinion, once you bring in utility functions and the different kinds of utility functions, the subject matter just becomes much more difficult. Now the goal becomes maximizing utility. One tough aspect of this approach is that most interesting problems involving utility maximization do not have solutions that, loosely, can be expressed as a finite set of generally accepted functions (see my point about complexity?).Read more ›