Investors and Markets: Portfolio Choices, Asset Prices, and Investment Advice

By William F. Sharpe | Go to book overview

INDEX
Page numbers followed by f indicate figures.
absolute risk aversion, 51, 56
active investors, 130–31, 146, 194
adverse selection, 209
advice, personal investment, 210–12
advisors: asset allocation policies, 206–8; asset values monitored by, 201–2, 207–8; bets made by, 200, 201; division of labor with investors, 188–89, 189f; goals of, 189; need for, 188; roles of, 185, 189. See also forecasting
agreement, on predictions, 15, 18, 74
alpha values: definition of, 100–101; historic, 107, 108, 109f American Stock Exchange: exchange-traded funds, 166; structured products, 149
APSIM (Asset Pricing and Portfolio Choice Simulator), 3–4, 24, 93
APT. See arbitrage pricing theory
arbitrage, 84
arbitrage pricing theory (APT), 195–96
Arrow, Kenneth J., 2, 4
asset allocation policies, 206–8. See also distributions
asset class factor models, 194
asset pricing: definition of, 1; formulas, 83–88; Law of One Price, 84–88, 90; optimization analyses, 86; relationship to portfolio choice, 1. See also prices
balanced funds, 207–8
bankruptcy laws, 111, 112, 121, 122
basic pricing equation (BPE), 89–90
benchmark portfolios, 194, 195
betas: kernel, 92; market, 93; of Market Risk/ Reward Theorem, 98–99; power, 99–100
betting: in financial markets, 129, 200, 208; Galton's story of, 131–32, 132f; by investors, 200–201, 208; reasons for, 129
biased predictions, 142, 146 Black, Fischer, 202
Blythe, Philip W., 169
bonds: municipal, 118–19; world, 191–92; zero coupon, 152, 153
BPE. See basic pricing equation
call options, 153, 154
capital: forms, 117–18, 119–20; human, 118, 119–20, 122–23
Capital Asset Pricing Model (CAPM): original, 2, 4, 13, 14, 96–98; portfolio choice predictions in equilibrium, 13; Sharpe ratios, 101–2
Capital Market Line (CML), 102–3, 103f
capital markets. See markets
CAPM. See Capital Asset Pricing Model
capped index return, 150
Case 1: Mario, Hue, and the Fish, 15–33; bids and offers, 43–44; consumption, 25–26, 25f; equilibrium, 24–33; equilibrium portfolios, 24–26, 24f; expected returns, 30–31, 31f; gains through trade, 26–27; marginal utility curves, 41–42; market making, 22, 23f; optimized state prices, 86, 86f, 87, 87f; portfolio returns, 28–29, 29f, 30f; portfolios table, 17, 17f; preferences table, 18–19, 18f; probabilities table, 18, 18f; risk premia, 31–32, 32f; securities table, 16–17, 16f; security prices, 27–28, 28f; security returns, 28, 29f; state prices, 85, 85f, 88, 89f; trading, 19–24; utility functions, 36–37, 37f, 38f
Case 2: Mario, Hue, and Their Rich Siblings, 45–48; equilibrium, 46–48; equilibrium portfolios, 46–48, 47f; inputs, 46, 46f; portfolio returns, 46, 47f
Case 3: Quentin and His Rich Sister Querida, 50f, 50–51, 51f, 52f
Case 4: David and Danielle, 54f, 54–56, 55f, 56f
Case 5: Kevin and Warren, 58–59, 59f, 60f

-215-

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Investors and Markets: Portfolio Choices, Asset Prices, and Investment Advice
Table of contents

Table of contents

  • Title Page iii
  • Contents v
  • Preface vii
  • One - Introduction 1
  • Two - Equilibrium 9
  • Three - Preferences 35
  • Four - Prices 63
  • Five - Positions 111
  • Six - Predictions 129
  • Seven - Protection 149
  • Eight - Advice 185
  • References 213
  • Index 215
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