You know those fund managers who claim they’re beating the market with skill? Richardson basically pulls back the curtain in Chapter 4 and says: most of them are just loading up on credit risk. That’s not alpha. That’s beta wearing a fancy suit.
Chapter 9 of A Random Walk Down Wall Street opens with a quote from George Stigler: “Theories that are right only 50 percent of the time are less economical than coin-flipping.” That’s a warning shot. Malkiel is about to walk us through some fancy academic models. And then he’s going to tell us they don’t quite work the way everyone hoped.
Book: Financial Markets and Institutions, 11th Edition Author: Jeff Madura Publisher: Cengage Learning, 2015 Series: Chapter 11 Review
How much is a stock actually worth? That is the central question of Chapter 11. And the honest answer is: it depends on who you ask and what model they use. Madura walks through the main valuation methods, explains how risk gets measured, and then tackles whether markets are even efficient enough for any of this to matter.