New book: Sharpe's 'Investors and Markets'

William F. Sharpe, Emeritus Professor of Finance at Stanford and Nobel Prize winner has written a new book, and it looks to be an important one.

Investors and Markets: Portfolio Choices, Asset Prices and Investment Advice is published this month by Princeton University Press. The book is based on his May 2004 Princeton Lectures in Finance. Sharpe revamps his pioneering work on the capital asset pricing model (CAPM). He writes in the preface to the book:

..to determine the best investment portfolio for an individual, one needs more than asset prices. To use the standard economic jargon, individuals should maximize expected utility, not just portfolio value. To do so efficiently requires an understanding of the ways in which asset prices reflect investors' diverse situations and views of the future. I thus deal here with both asset pricing and portfolio choice. And, as will be seen, I treat them more as one subject than as two.

Mark Thoma's post Sharpe Rethinks CAPM has more details...

..the book eschews mean-variance analysis - the mathematically complex formula that relates rewards to risks of securities or portfolios - in favor of a "state preference" approach that relies on an easy-to-understand simulation. That approach is based on a model closer to that used in financial engineering than in the ivory tower.

"I think of it as 'beyond mean-variance,'" Mr. Sharpe said in an interview. Whether that approach will work in the real world is unknown. Mr. Sharpe says he is just starting work on applying it to asset allocation. If the approach proves successful, it could result in a shift away from the traditional mean-variance optimizer used in establishing asset mixes and managing securities portfolios.

Chapter 1 of the book is available online here (or here), and you can find chapter 2 here. The original Princeton lectures are also available here ('prince1', 'prince2' and 'prince3'). For a good introduction, see his recent PowerPoint presentation given at the Institute for Quantitative Research in Finance on Equilibrium Simulation

Sharpe has also posted his Asset Pricing and Portfolio Choice Simulator (APSIM), along with codes, documentation, and cases from the book, on his website.

Comments

[salam shyamsunder singh]

Sir,
Pliz, would you send this book investors and markets, by william Sharpe free of cost in my address. i'm a student of MA economics, & i'm pursueing to study about the stock markets and the principle of investment in the stock markets. I don't have that much amount to buy this book,, but i've very much desire to read this,.. pliz do the needful by helping me.
i'm looking your early reply.

Yours truely
Salam Shyamsunder Singh
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[FI]

Interesting point. Seeing clearly in the investment universe is always a challenge—a helpful resource that delves into behavioral investing and how investors make decisions is the recent book 20/20 Money, http://money.fisherinvestments.com/. This firm is a client of mine and I always find their materials interesting to read.

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