This book draws upon a wide range of American and British research material to present a concise analysis of the fundamental character of stock price changes. The viewpoint is that of the statistician, but the book assumes no statistical knowledge on the part of its readers and should appeal especially to the professional investor and finance student. Care is taken at each stage to consider the implications of the findings for methods of investment management.
The book takes the form of three self-contained sections. It opens with a description of the random walk hypothesis of stock price movement and an analysis of the evidence and its implications. The author proceeds to discuss the nature of risk and its relationship to expected return. The section concludes with an examination of the co-movement between stocks.
The second part demonstrates the link between the price behavior of a stock and changes in investor expectations for the company's earnings. This leads to an analysis of the behavior of company earnings.
The final section is concerned with the implications of previous findings for portfolio construction. It discusses the way in which an investor's actions should be influenced by his willingness to accept risk and the effect on risk of diversification.
The assumptions behind the measure of risk adopted throughout the book are treated in a special appendix.
The evidence on any topic is clearly illustrated by graphs and tables in the text.
