Models for Investors in Real World Markets

DOI10.1002/9780470317099MaRDI QIDQ4791759zbMATH OpenOpenAlexFDO

Authors James R. Thompson, Edward E. Williams, M. Chapman Findlay III

Publication date 3 February 2003

Published in Wiley Series in Probability and Statistics (Search for Journal in Brave)

Full work available at URL https://doi.org/10.1002/9780470317099

zbMATH Keywords

diversificationinvestmentmanagementrisksecuritiessimugramutility theory

Mathematics Subject Classification ID

Applications of statistics to actuarial sciences and financial mathematics (62P05) Research exposition (monographs, survey articles) pertaining to game theory, economics, and finance (91-02) Utility theory (91B16) Auctions, bargaining, bidding and selling, and other market models (91B26)

Review text

This volume provides a new, antiefficient markets approach to investment theory and management. Questioning the assumption that markets clear neatly and quickly. Models of neoclassical type in light of what can go wrong with them, outlines basic institutional factors associated with how stock markets operate are considered, and then offers ways to bring about better models. Providing a stinging critique of modern financial economic theory, this book introduces a detailed procedure for analyzing securities, borrowing the concepts of Benjamin Graham and David Dodd, and building a quantitative framework for them, as well introduces basic concepts of utility theory, the cornerstone of portfolio theory. It is illustrated why diversification is an important fundamental requirement of rational investment choice. Also, the fact that options are themselves stochastic, risky entities and not magical devices for the elimination of risk are demonstrated. The authors develop a conceptualization of risk profiling based on their development of the simugram. As opposed to the Markowitz approach of maximizing growth subject to acceptable levels of volatility, the authors use the simugram, their computer intensive forecast of the time-indexed density function of the portfolio value. Percentiles, rather than expectations, form the major bases for the criterion functions and constraints utilized for portfolio management. For anyone who has ever questioned the efficient market orthodoxy, this book will be a valuable reference on market analysis and investment strategy.

Recommendations

• Risk-return analysis. Vol. I. The theory and practice of rational investing. With contributions by Kenneth A. Blay, Anthony Tessitore, Ansel Tessitore and Nilfur Usmen. With a foreword by Stephen A. Batman
• Risk-return relationship and portfolio management
• Portfolio risk analysis.
• Modern equity investing strategies
• Postmodern portfolio theory. Navigating abnormal markets and investor behavior

Cited in

(3)

• Atlas models of equity markets
• Firms' fundamentals, macroeconomic variables and quarterly stock prices in the US
• Time series factor models

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