Investments, Sixth Edition, is intended primarily as a textbook for courses in investment analysis. Our guiding principle has been to present the material in a framework that is organized by a central core of consistent fundamental principles. We make every attempt to strip away unnecessary mathematical and technical detail, and we have concentrated on providing the intuition that may guide students and practitioners as they confront new ideas and challenges in their professional lives.



This text will introduce you to major issues currently of concern to all investors. It can give you the skills to conduct a sophisticated assessment of current issues and debates covered by both the popular media as well as more-specialized finance journals. Whether you plan to become an investment professional, or simply a sophisticated individual investor, you will find these skills essential.



Our primary goal is to present material of practical value, but all three of us are active researchers in the science of financial economics and find virtually all of the material in this book to be of great intellectual interest. Fortunately, we think, there is no contradiction in the field of investments between the pursuit of truth and the pursuit of money. Quite the opposite. The capital asset pricing model, the arbitrage pricing model, the efficient markets hypothesis, the option-pricing model, and the other centerpieces of modern financial research are as much intellectually satisfying subjects of scientific inquiry as they are of immense practical importance for the sophisticated investor.



Table of Contents



Part I. Introduction

Chapter 1 The Investment Environment

Chapter 2 Financial Instruments

Chapter 3 How Securities are Traded

Chapter 4 Mutual Funds and Other Investment Companies

Part II. Portfolio Theory

Chapter 5 History of Interest Rates and Risk Premiums

Chapter 6 Risk and Risk Aversion

Chapter 7 Capital Allocation Between the Risky Asset and the Risk-Free Asset

Chapter 8 Optimal Risky Portfolios



Part III. Equilibrium in Capital Markets

Chapter 9 The Capital Asset Pricing Model

Chapter 10 Index Models

Chapter 11 Arbitrage Pricing Theory and Multifactor Models of Risk and Return

Chapter 12 Market Efficiency and Behavioral Finance

Chapter 13 Empirical Evidence on Security Returns



Part IV. Fixed-Income Securities

Chapter 14 Bond Prices and Yields

Chapter 15 The Term Structure of Interest Rates

Chapter 16 Managing Bond Portfolios



Part V. Security Analysis

Chapter 17 Macroeconomic and Industry Analysis

Chapter 18 Equity Valuation Models

Chapter 19 Financial Statement Analysis



Part VI. Options, Futures, and Other Derivatives

Chapter 20 Options Markets: Introduction

Chapter 21 Option Valuation

Chapter 22 Futures Markets

Chapter 23 Futures and Swaps: A Closer Look



Part VII. Active Portfolio Management

Chapter 24 Portfolio Performance Evaluation

Chapter 25 International Diversification

Chapter 26 The Process of Portfolio Management

Chapter 27 The Theory of Active Portfolio Management



Appendix A. Quantitative Review

Appendix B. References to CFA Question

Appendix C. Glossary