Investors and Markets

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

William F. Sharpe, winner of the 1990 Nobel Prize in economics, is STANCO 25 Emeritus Professor of Finance at Stanford University's Graduate School of Business. He is the author or coauthor of six books, including "Portfolio Theory and Capital Markets, Asset Allocation Tools", and "Fundamentals of Investments".

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