Stock prices and expected returns

Financial markets are becoming increasingly important for investment and financing, but their fluctuations can sometimes be diffi cult to understand. Finance helps to make sense of these fluctuations in the prices of traded assets, mainly stocks, bonds and real estate. Over the last century, research has produced many models and insights that have completely changed the way investors view market prices and structure their portfolios. From Graham’s value investing developed at Columbia Uni-versity in the 1920s, to Markowitz’s optimization emphasising the bene? ts of diversi-? cation, to Swensen’s Yale model of alternative investing developed in the 1990s, we have made incredible progress in asset management. The focus of the book is on the determination of price and risk premia. The book provides a simple yet rigorous treatment of one of the most fascinating and relevant topics in finance: the relationship between asset prices and expectations of fundamentals, and its relation to the notion of market efficiency. The final chapters discuss two fashionable topics, private investment and sustainability, again with the aim of understanding their relevance for prices, risk premia and portfolios.