Strategy

Not as funny as Brad Gilbert's book, but the advice is just as solid in every aspect. I enjoy the writing style and the candidness of his advice. When I'm looking for a way to handle a certain type of opponents, I usually visit both books and find a world of excellent advice from two masters.

Read this book, it is easily worth your time.

Reviewed by Craig W. French

One might wonder, since the bulk of Robert Korajczyk's "Asset Pricing and Portfolio Performance: Models, Strategy and Performance Metrics" (London: Risk Books 1999) is available through JSTOR and at public libraries at virtually no cost, whether it is reasonable to spend two hundred dollars on such a volume. This consideration certainly crossed my mind. The correct conclusion is in the affirmative, for there are two valuable sources of alpha in this collection of nineteen of the most influential works in the financial economics literature.

First, Dr. Korajczyk's introduction provides a clear and concise survey of the twin topics of asset pricing and performance evaluation. The nineteen papers, whose reprints comprise the book, are grouped into four primary categories - section 1, asset pricing theory; section 2, tests of the models and anomalous empirical evidence; section 3, structural market imperfections; and section 4, performance evaluation. Dr. Korajczyk does a commendable job of discussing these areas of financial economics and provides a nice contextual framework for the papers he has selected.

The second source of value-added is chapter 2, which, for the first time, publishes the capital asset pricing model that Jack L. Treynor developed in 1962. This paper alone is worth many times the cost of the book. Although Treynor (1962) was circulated during the 1960s and has been cited (usually with the inaccurate date of 1961) in important seminal papers of prominent financial economists, the paper had heretofore fallen by the wayside in the history of the CAPM. Prior to publication in "Asset Pricing and Portfolio Performance", Treynor (1962) was not publicly available, and could only be found in private collections. Dr. Korajczyk has done both the academic and practitioner communities a great service by publishing Mr. Treynor's CAPM.

Section 1 includes Treynor (1962), Sharpe (1964), Merton (1973 and 1987) and Ross (1976). These works introduced the single-period discrete-time CAPM, the intertemporal CAPM, the APT and the extension of the CAPM to include asymmetric information. I would have liked, if not the paper itself (as a chapter), to see at least some discussion of the important interpretation of Fama (1968) in Dr. Korajczyk's introduction. Also, no mention of Rubinstein (1973) is made, which incorporated higher moments well before Ingersoll (1975) and Kraus and Litzenberger (1976), and also derived the CAPM without a riskless asset independently of Black (1972).

Section 2 is comprised of some of the noteworthy tests of asset pricing models and the anomalies that have been found as a result. The papers of Fama and French (1992 and 1996), Jegadeesh and Titman (1993), Daniel and Titman (1997), Brennan, Chordia and Subrahmanyam (1998) and Ferson and Harvey (1991) can be found here. While section 1 focused on early work, Section 2 avoids the original research in this vein, such as the papers by Black, Jensen and Scholes (1972) and Fama and MacBeth (1973). However, their findings are discussed in Fama and French (1992), which is reprinted as chapter 6, so the reader is not too deprived by their absence. Of course, a single volume is hardly enough to contain much of the anomaly literature, and Dr. Korajczyk chooses to focus on collections of anomalies and/or models, which necessarily excludes the earliest work. This choice offers an economical presentation of a broad scope of work in the territory.

Section 3 offers three papers that explore two market frictions, transactions costs and illiquidity. Amihud and Mendelson (1986), Brennan and Subrahmanyam (1996) and Jagannathan and Wang (1996) explore these areas. While Dr. Korajczyk discusses the earliest contribution, that of Mayers (1973), in his introduction, I wish it too had been included as a chapter in this section.

Section 4 presents five excellent studies on the topic of performance evaluation, including Grinblatt and Titman (1989), Jagannathan and Korajczyk (1986), Leland (1999), Ferson and Schadt, (1996), and Brown, Goetzmann, Ibbotson and Ross (1992). Dr. Korajczyk does an impressive job of reviewing the literature on this topic in his introduction, covering the early studies of Treynor (1965), Sharpe (1966), Treynor and Mazuy (1966), Jensen (1968), Jensen (1972), Treynor and Black (1973), as well as most of the important later studies. However, I was disappointed not to see any discussion of Carhart (1997), which really deserves to have been included as a chapter in the book.

In summary, the consolidation of these important papers into a single volume provides a convenient reference text for both students of finance and investment professionals. My few points of criticism essentially indicate a wish for more. "Asset Pricing and Portfolio Performance" is a large volume that stands tall on my bookshelf, dwarfing more manageable tomes such as Merton's "Continuous-Time Finance", Markowitz' "Portfolio Selection" and Cox and Rubinstein's "Options Markets". With its attractive cover art, it would also sit comfortably on the coffee table. Those who prefer British spelling conventions will be especially pleased with this book. Dr. Korajczyk has produced a useful and unique compendium that deserves to find its way into the library of every academic and practitioner in the investment community.

The notion that an air force is essential for defense is met with the reality of cost and foriegn dependencies in the developing world. Counter to this is the notion that ballistic missiles offer an affordable solution, compounded by a quicker reaction time than aircraft.

Carus demonstrates through review of recent events and the missile and space programs of various developing nations to show a trend to acquire ballistic missile capabilities. Through a comparative discussion of weapon capabilities and effects, he then makes a convincing arguement that the inhernet deficits of ballistic missiles over aircraft is in effect driving the same nations to develop chemical and biological weapons.

superb political science and military analysis.

Willmott's theme is that Japan should have won both battles against an out-numbered and inexperienced American navy, but did not because of woolly strategy and poor planning. At Midway Japan had two objectives: conquer the island and destroy the American fleet. These objectives should have been reversed in priority. Moreover, Japan split its superior naval forces into three isolated groups and thus permitted the Americans to meet and fight one of these groups on equal terms. The Japanese also assumed that the Americans would always do exactly what Japan wanted them to do and were unprepared for surprises.

The Americans, on their part, had superior intelligence (based on breaking Japanese codes), more durable ships and planes, and good luck. Willmott illustrates luck in his minute-by-minute examination of the mishaps of the Japanese in locating the American fleet at Midway. First, mechanical problems delayed the dispatch of a scout plane for half an hour and, next, the pilot inexplicably lingered near the American fleet for an hour before he reported the presence of carriers, an oversight that paralyzed the Japanese when they should have been attacking. As a result, American bombers scored first -- and decisive -- strikes against the Japanese carriers. But, Midway was a very near thing! 41 American torpedo bombers attacked in the first wave -- and only five came home again.

Willmott, a Brit, is opinionated and in the course of 500 pages, he makes some judgments I found questionable. For example, he seems to think it would have been a good idea for the Japanese navy to invade the Indian ocean and expel the British. That seems like a very bad idea. In my opinion, after the fall of Singapore in February 1942, Japan's overwhelming priority should have been to destroy the American aircraft carriers in the Pacific- but Japan dithered with raids on Ceylon and Australia and invasions of New Guinea. The delay proved to be fatal.

This is a good book for those whose interests go toward detailed examination of the thought processes of military planners and the battlefield decisions of leaders in charge of ships, planes, and men. Willmott probes deeply and provocatively into the calculations and miscalculations of men at war.