Book of the week

Capital Indeas Evolving

Author: Peter L. Bernstein


Capital Indeas Evolving
Since 1952, portfolio theory has evolved to form what we called modern portfolio theory. MPT includes various theories like efficient market hypothesis and capital asset pricing model just to name a few.

Capital Indeas Evolving not only describes these ideas, but also shows how they are implemented in day to day business.

The author, Peter L. Bernstein was an American financial historian and economist.

In the first part of Capital Ideas Evolving, Mr. Bernstein presents the history of modern portfolio theory and its latest development. People like Markowitz, Scholes, Modigliani, Merton, Sharpe and others are presented.

The second part relates the success of various institutional investors like:

» Barclays Global Investors with the development of index investing.

» The Yale Endowment Fund with its emphasis on alternative investments.

» Goldman Sachs and the development of quantitative investing.

The last part of the book is dedicated to the current evolution of the Investment industry: The separation of beta and alpha when managing money and the search for portable alpha strategies.

As a critic, the author omits significant contributors to modern portfolio theory, Nassim Taleb’s work on black swans and randomness and Benoit Mandelbrot’s criticisms against Gaussian distribution.

Regarding the difficulty, this book is not such an easy read as it deals with efficient market hypothesis, capital asset pricing model and portable alpha strategies.

That being said, chapters are based on interviews of leading theorists and practitioners. In addition, gossips along the book make it’s reading enjoyable.

Despite some shortcoming, Capital ideas Evolving is a must read for every student in Finance. It will help you to understand how the current investment strategies came about.

Buy Capital Indeas Evolving by Peter L. Bernstein

Aug 22, 2012