Efficient-market Books

Before reading any classical texts from Watts & Zimmerman and Beaver, I think any junior accounting doctoral sdudents should read this book!
Excellent introductory book for anyone who wants to do capital market research in the future!

Strongly recommend!

Professor Scott explains financial accounting theory drawn from recent research. He provides a clear, easy-to-use framewaork for students to 1) place this theory in a financial accounting context,2) explain and analyze the theory intuitvely and 3) reveal the theory's relevance in understanding the practice of accounting. Similar good textbooks in this field includes Positive Accouning Theory by Watts & Zimmerman, Financial Reporting: A Accounting Revolution by Beaver and An Introduction to Aplied Professional Research for Accountants by Ziebart.

I have not seen the book yet, but have received solicitation to buy it which included this helpful info.

"The idea for this book began on the day Harry, Denise and Michael knocked on my front door. It was a quiet Sunday afternoon, and when I opened the door, two young men and a young woman asked if they could come and talk to me about Krishna. Both the men had shaved heads, except for a small ponytail at the back. They wore bright saffron robes, simple bead necklaces and sandals. One wore a loose-fitting white shirt-blouse lined with intricate brown-and-blue patterning. Both carried tubular drums encased in woven baskets and ribbons and slung around their necks with broad sashes. The men had two white lines painted on their faces, beginning at the bridge on the nose and running up into their scalps. They told me that this was a sign of tilaka, a symbol of the dedication of their bodies to Krishna. All in all they might have looked downright menacing if they had not been smiling. The woman had blue eyes and wore a pale sari, a light shawl and sandals. Her hair was long. She carried finger symbols and a shoulder pouch stuffed with books and pamphlets. Only later on did I learn that their names were Harry, Denise and Michael. They introduced themselves as Bhargava dasa, Krishna Kumari, and Caityaguru dasa. They were all members of the International Society for Krishna Consciousness, better known as the Hare Krishna movement, and I asked them to come in."
-Harvey Cox

Haugen's New Finance offers a value-biased review of modern investment management research. The book leaves the reader with a tangible if not implementable example of a value-oriented quantitative investment strategy.

This book and John Cochrane's "asset pricing" complement each other very well. Bossaerts discuss extremely important and overlooked issues in asset pricing theory and empirics in a very compelling way.
As a practitioner with an advanced degree, i found it a valuable read, and recomend "the paradox" to any serious finance practitioner or graduate student.

Let me end quoting the book (p.84):

"Asset pricing theory is both elegant and logically compelling. It is a nice piece of applied mathematics. But this is not suficient to conclude that it has scientic merit. To establish the latter, its predictions need to be verified in a variety of contexts."

Couldn't agree more.

Book came fast and was brand new - free 2 day shipping and the book has a lot of great information for healthcare organizations - The cases are fantastic and provide great real life situations.

I used this text for a class in health care management. I was impressed by the readability of the text, the incredible amount of information it contained, and the great balance of theory with practical approaches. Many books about management are a bit short in the area of practical tools. This one gives you tools to work with. I used the outline of this book to do a strategic analysis of an organization with which I work. The only significant weakness of the book is the uneven quality of the case studies. These were contributed by outside authors. Some of these are terrific, others are not well written and not so helpful. Hope this gets corrected in the new edition.

I would highly recommend this book. It is easy to read, methodical in approach and provides a balance of relevant theory and application. A useful resource for any healthcare organization expanding its services within existin country or beyond.
Thanks extended to the authors...I look forward to other additions!!!

This is an outstanding book. While naturally oriented to strategic management of health care it is also a comprehensive framework to strategic management in general. The book's layout is that of a university textbook but it is also written in an enjoyable style. I read this book as a practitioner and not a formal student and found it extremely readable and helpful. The authors present both conceptual and practical tools for strategic management.

I was fortunate enough to be a student of Linda Swaynes @ UNC Charlotte. We were the first class to use this book. Not only was Ms. Swayne excellent at what she taught but the book was a tool that explained the theories in nice detail. I continue to use the book as a resource. I am currently a hospital CEO.

ESP. Buen libro, facil de leer. Con un recorrido interesante sobre historia y teoría económica.

He begins the book placing everyone into two camps. Either, 1) laissez faire adherents who have to believe in the Efficient Market Hypothesis (EMH) or 2) Keynesians/Minsky-ites (government interventionists) who don't believe in the EMH. Now, I really wondered if this dichotomy is so easy to state. I consider myself a laissez faire person who also believes in behavioral finance (a form of denial of EMH). He goes on to say that 2) is the right camp, and tells you he will let you know later in the book why.

He does describe central banking nicely for the layperson. He writes clearly what could "go wrong" if central bankers choose bad policy.
And on p. 171 he basically admits that the Fed should take a lot of the blame for the 2008 crisis. In the next paragraph he then states that the blame for the current crisis comes from the academic community for their clinging to the EMH. Isn't he trying to have it both ways?

The lessons from the 2008 financial crisis are that human beings made a lot of bad judgments. And these human beings were making bad judgments in their roles as lenders, borrowers, central bankers, investors, legislators, regulators, and consumers. Everyone was too optimistic. This over-optimism is mostly a product of a belief that the economy can be stabilized by human beings. I came out believing exactly the opposite at the end of the book that he was trying to argue.

To me the problem is that laissez faire has not been tried and found wanting, it is that it has not been tried.

Short with big print. I like the big print. Defends applying an asymmetrical market concept to credit and financial markets. A gallant effort that I took very seriously. I think his position has merit. He provides sufficient evidence for it.

The book starts out dry. Don't let that deter you. It cranks up beginning around his story about the history of money. I had hoped for a more robust conclusion. Still, one of the best books I have read.

There's a lot to like in this book. George Cooper (GC) provides one of the most lucid and concise descriptions of the role of central banking you're ever likely to encounter. He carefully distinguishes among the philosophies of different central bankers, such as between the Federal Reserve and the European Central Bank. His critique of the Efficient Market Hypothesis (or "fallacy", as he prefers to call it) is trenchant and clear, as is his analysis of why the "fundamentals" of a stock aren't fundamental. He highlights the heterodox theories of Mandelbrot and Minsky, which are closer to the truth than the orthodox ones Ben Bernanke used to teach at Princeton. And he writes with a wry sense of humor, including a nice one-liner about boom-bust cycles that I'm surprised other reviewers haven't mentioned: "The invisible hand is playing racquetball" (@105).

That said, this book won't give you the whole story in understanding the current financial crisis. For one thing, GC never mentions credit default swaps or other derivatives, which in the aggregate dwarf the "real" economy. Even when GC describes why balance sheets are misleading, he doesn't mention any off-balance sheet instruments, of which derivatives are one category.

For another, GC tends to be overly accepting of microeconomics, and even of the diligence of lenders. For example, he says, in a kind of defense of bond ratings analysts, "When ratings analysts are assessing the quality of a loan, ... or the mortgage broker is assessing the safety of a mortgage, they evaluate each loan against the prevailing market prices for the loan's corresponding assets. In this procedure the tacit assumption is that the asset in question can be sold to repay the loan. At the micro level this is always a reasonable assumption" (@115). GC's point is that there is a "fallacy of composition" in reasoning from the micro scale to the macro -- the macro-level reality is not simply the sum all the micro transactions. OK. But why is the assumption he mentions *always* reasonable at the micro level? And why doesn't GC mention that in the current financial crisis, ratings agencies, mortgage brokers et al. did NOT follow the careful procedures he describes? (to say nothing of explaining *why* they didn't). The recent books by George Soros, Charles Morris and especially the fantastic "Structured Finance and Collateralized Debt Obligations" (2nd. ed. 2008) by Janet Tavakoli will tell you much more about this aspect of the story.

GC rightly points out that many economists' arguments operate on the principle of "proof by assertion" (@6), but he doesn't entirely avoid this trap himself. For example, GC's simplified descriptions of the history of finance are mostly based on "toy model" analogies, such as bakers and farmers selling their wares in a town square (Chapter 3). This picture isn't entirely historically accurate; e.g., when he asserts that central banking was necessary for the development of venture capital "in the truest sense of the word," whatever that means (@55), he overlooks the venture investments of the Medici during the medieval period, as well as many forms of Islamic financial transactions. None of those investment structures relied on central banks. This gave me the feeling that other aspects of his explanation might be a bit too pat, as well, especially when he says that some particular institution or practice led to or enabled another.

As he shifts his argument to a more constructive point of view, GC invokes an ingenious analogy (Chapter 6) to 19th-Century physicist James Clerk Maxwell's mathematical theory of mechanical "governors" (gizmos that kept machines from spinning out of control; Maxwell's original paper is reproduced as an appendix). Ingenious, but problematic. Most of standard neoclassical economic theory is based on ingenious analogies to physics, too (see especially P. Mirowski's 1989 book, "More Heat Than Light"). Some of those analogies, such as to "equilibrium" in supply and demand for consumer goods, sound at first blush as plausible as GC's analogy to Maxwell: ask any mainstream economist. But that plausibility doesn't mean that any of the theories are right -- and indeed, in the neoclassical case, the theory is wrong. GC doesn't use any empirical data stronger than anecdotal evidence to show that his Maxwell analogy is apt to the real world. Nor does he provide evidence that the policy recommendations he deduces from that analogy are feasible.

GC's failure to enagage with the derivatives issue is pertinent in this context too. One of GC's main constructive ideas is that central bankers should "prick" asset price bubbles as soon as they can identify that they've begun. (BTW, GC uses the word "asset" not as you might have learned if you took an accounting class, but in the finance pro's narrow sense of referring to stocks, bonds and other financial instruments.) If this sends the economy into small cycles of good times and tougher times, so be it -- in GC's view, that's better than the long ride up and crashing ride down we've experienced so often under Greenspan and his successor. However, GC says *the* key macroeconomic variable for identifying bubbles is the rate of credit creation (@125). Many derivatives contracts, like the ones that made trouble for A.I.G. in autumn 2008, are a form of credit creation -- just like bets placed with a bookie, any form of gambling creates debts. But derivatives are notoriously non-transparent: it's hard to know how many of these contracts are out there at any time. In that case, the visible data (mainly loans, bonds, etc.) might understate the amount of credit in the economy and also understate the rate of credit creation. So how's a central banker supposed to know the right time to prick? Since GC doesn't show how this approach has worked in the past, it's a matter of faith as to whether it might in the future.

This is a clear, witty book from which you can learn a lot. And some of GC's recommendations aren't so controversial, such as his suggestion for using a different form of statistical analysis (e.g., à la Mandelbrot) for looking at financial markets. But ultimately, the book is stronger when criticizing current practice than when proposing new policy.

This book is well written. It is very well organised and structured, engaging, easy to read, clear and interesting.

According to the author, one can hold one of 3 views:
1) one can think that the markets are efficient (auto-equilibrating) and believe the central banks are required (mainstream thinking). According to the author, this is logically untenable because if the markets are efficient, then logically one would not need a central bank to correct desequilibria as they would not occur.
2) one can think that the markets are efficient and therefore no central banks are required (Friedman). According ot the author this is more logical but empirically false as reality shows that markets are inefficient and severe crisis do occur on such a regular basis as to invalidate the theory of automatic auto-regulation of the markets
3) one can think that the markets are inefficient and that we needed an interventionist central bank. This is the point of the author. In one chapter, the author recommend a strategy of "monetary regulation" copied from Maxwell's "governors" in physics: this is required precisely because (again according to the author) markets are as inherently instable as the Eurofighter plane is (the plane though is this way by willful design for manoeuvrability purpose and the instability is corrected electronically by a "governor").

There can be little argument against discarding 1).

So the difficult part is deciding on between 2) and 3).

Let's say we go along with the author and choose 3). Then we are facing with a nightmarish situation. You would need to have always a very competent (actually a genius) economist to direct the "governor" of the central bank. Although it needed not be perfect (and the author make it seem almost easy to design), most people can express doubt about this and the actual result. And then consider what happens when one day a president names his loyal (but incomptetent) friend (of course, this could never happen in the real world!) at the helm of the central bank and this friend is seated on the cockpit to pilot the "inherently unstable" eurofighter/economy! You guess it... we might not enjoy a soft landing but a terminal crash! Scary prospect. No wonder there is a market for gold, even nowadays.

Let's now consider option 2). Like another reviewer I was stunned when the author discarded the option by merely writting (p. 55):

"It soon became apparent through repeated waves of financial crisis, that this new credit generation system was highly unstable. However it was equally apparent that this new system was also leading to dramatic economic expansion, wealth generation and improving living standards. Going backward to a world before depository banks and credit creation was not an option. The process of credit creation had opened up a whole new channel for economic growth and prosperity. Venture capital in the truest sense of the word was now possible. Equally the new banking system permitted channels by which risk could be pooled and shared; larger ventures became feasible."

Wow! We are to take this at face value! Lots of details follow as to why the instability occurs but zero further explanation why the credit generation system is required and is the actual cause of the prosperity. It is supposedly "self-evident". This is like my mathematical teacher would say: the weak point in an argument is always the line where someone writes the disputed "obviously formula xyz applies in all case" and then spend all the rest of the article explaining, at great length, the obvious. In this case, the author spend virtually the entire book trashing the efficient market hypothesis, and zero line defending the most contentious point!

Indeed, there is a growing number of very knowledgeable economist who do believe that the central bank is not necessary and that fractional reserve banking not only is the no 1 source of instability of the system, but should be abandonned.

Now let's respond to the author point by point:

1) "venture capital in the truest sense of the word was now possible". Hummm. It ALWAYS had been possible. People have always pooled their money and give it to an adventurer going to India or America; people have always pooled their money to give to the inventor to create a new machine. You don't need a fractional reserve bank AT ALL to do this.
MOREOVER, without a fractional rerve banking system, you remove the main instability: if the endeavor/project fails, only the venture capitalist lose and they had themselves accepted the risk, no surprise. In a fractional reserve system, either the bank disappear (about 9,000 failed in the 30's in the USA...) destroying hard-earned savings of people who never thought their money was used for risky endeavor, or, the central bank is used to save the bank (2008 situation) and its risk-takers (or plain gambling as it now the case with derivatives the extent of which I doubt not even 0.1% of the population is aware of) at the expense of the entire unwitting population.

2) "the new banking system permitted channels by which risk could be pooled and shared": this is almost the dictionary definition of an insurance company! You don't need any fractional banking system for this! Again, with an insurance company in a world of fractional banking system it only worsens: they are rendered more instable and can only be resuscitated by a central bank otherwise the entire economy will collapse (think AIG). In a non-fractional banking reserve system, only the insurance company collapse - it is isolated from the rest of the economy penalising only its imprudent shareholders and customers.

Fractional reserve banking leads to instability and require a central bank. I think everybody agrees on this.
THE controversial point is: can the author show us why we NEED the (inherently unstable) fractional reserve banking? Why?

I am quite open to contrary viewpoint and could even change my mind about the subject.

Indeed I'd be delighted (and without a doubt, many others would also be) to purchase and read a book from the author titled "Why we need a fractional reserve banking system and its ensuing economic instability that can then only be rendered rendered stable by a eurofighter style "governor" piloted by a agile central bank".

It would especially be a delight reading that new book because I do enjoy the author's clear and well organised writing style. And I would love to write a review of that new book on Amazon!


I'll be patiently waiting...

This set of 2 books merely contains reprints of journal articles. A very good review is: Stephen F LeRoy, The Review of Financial Studies, Fall 1998, vol 11, no 3, pp 675-678. This review is also available on the web.

`On Efficiency of Competitive Stock Markets where Traders have Diverse Information, Journal of Finance,XXXI (2), May,Sanford J Grossman `On the Impossibility of Informationally Efficient Markets`. American Economic Review, 70 (3), June, etc.

`On Efficiency of Competitive Stock Markets where /traders have Diverse Information, Journal of Finance,XXXI (2), May, Sanford J Grossman, `On the Impossibility of Informationally Efficient Markets`, American Economic Review, 70 (3) June,`Proof that Properly Anticipated Prices Fluctuate Randomly`, Industrial Management Review,6, `Stock Prices: Random vs. Systematic Changes`, Industrial Management Review,3,

Although some parts of the book are not as detailed as I would like, it is well written. The author seems to have a fairly extensive knowledge of the theory and practice of discrete choice. He discusses several of the do's and don'ts in designing choice experiments, as well as a method that allows for individual level utility estimates. However, it would help the reader to have some prior knowledge of discrete choice analysis before reading the book.

Although some parts of the book are not as detailed as I would like, it is well written. The author seems to have a fairly extensive knowledge of the theory and practice of discrete choice. He discusses several of the do's and don'ts in designing choice experiments, as well as a method that allows for individual level utility estimates. However, it would help the reader to have some prior knowledge of discrete choice analysis before reading the book.

Dr. Hakim's book constitutes his dissertation for the Ph.D. degree in Finance at Claremont University. It is one of the few published studies about the efficiency of the Mexican Stock Exchange. He concludes that the market is efficient in the "weak" form. To support his conclusions he carefully compiled a series of stock prices for the main mexican stocks and applied to them some "negotiating rules". First, he encounters evidence which supports the idea of inefficiency; but, after taking in account"transaction costs" he supports the efficiency of the market. This conclusion goes against evidence presented elesewhere by other researchers of the mexican market, such as, Castañeda, Mejia, and others.