BOOKS
WILLIAM SHARPE: INVESTORS AND MARKETS – PORTFOLIO
CHOICES, ASSET PRICES AND INVESTMENT ADVICE
We teach the Capital Asset Pricing Model (CAPM) on CFA courses and
in business schools, but it has had a real battering in the last two decades.
The fi rst sentence of one of Bob Litterman’s papers, used in the CFA
Mark Tapley, CFA, FSIP,
Program, reads “Today, the CAPM is regarded as an elegant theory but
not particularly descriptive of reality.” In this recent book, Sharpe, as one
recommends four titles
of CAPM’s founders in the 1960s, argues against a revisionist, defeatist
view of CAPM.
which focus on material
It is an ambitious book; it sets out to explain the process of reaching
equilibrium in capital markets, how this process is affected by individual
interests and moral
risk preferences and by investors’
attempts to maximise expected
obligations, and a guide
utility. Yet it attempts to do so in
a non-mathematical way and in
to the geology supporting
just over 200 pages. Yet more
astonishingly, it does so, not from
modern fi nancial
a mean-variance but from a
state-preference framework.
thought
Sharpe points out in his
introduction that if you follow an
MBA course, or a specialist
Masters programme in fi nance,
you learn the mean-variance
approach, and I believe the same
is true for CFA candidates. By
contrast, if you take a PhD, you
are more likely to learn the
state-preference approach.
Apart from the introduction,
“Sharpe turns a critical eye on
more recent concepts. The Black-
Litterman approach gains approval;
MARK TAPLEY, CFA, ASIP
the Fama/French three factor
Career highlights:
Mark Tapley is currently chairman of
Henderson Eurotrust, has been a board
model does not.”
member at CFA UK since 2002 and is
currently the chair of the Examination and there are seven short chapters, snappily labelled Preferences, Prices,
Education Committee. During his career, Positions, Predictions, Protection and Advice. (I guess he couldn’t think
Mark has worked for JPMorgan, American of a word for advice beginning with the letter P.) It is the later chapters
Express Asset management, London &
that a CFA or ASIP will be especially interested in. Sharpe turns a
Bishopsgate Investment Management, New
critical eye on more recent concepts. The Black-Litterman approach
York Life and WestLB. He became CIO and
gains approval; the Fama/French three factor model does not.
later CEO at New York Life before it was
It may be non-mathematical, but it is still hard work. Don’t skip a
acquired by WestLB, where he became the
line, fandango, or you may lose the plot! This is a great book for a recent
group CIO.
MBA or CFA who wants to go that further mile.
52 WINTER 2008/09
52-5452-54 book reviews.indd 52book reviews.indd 52 27/11/0827/11/08 16:02:0016:02:00
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