The frameworks for deciding what to own.
11 topics · 13 curated works
No prior grounding assumed.
The Arithmetic of Active Management
William F. Sharpe · 1991
Argues from simple accounting identities alone, before any empirical evidence, that the average actively managed dollar must underperform the average…
Assumes you know the vocabulary.
Do Stock Prices Move Too Much to Be Justified by Subsequent Changes in Dividends?
Robert J. Shiller · 1981
Finds that US stock prices from 1871 to 1979 moved far more than subsequent dividend changes could justify under the standard present-value model,…
+5 more at this level
Primary sources and full treatments.
On the Impossibility of Informationally Efficient Markets
Sandford J. Grossman & Joseph E. Stiglitz · 1980
If prices fully reflected all available information, no one would have an incentive to pay for gathering it, so markets can be efficient only up to…
+5 more at this level
12 of 13 works
William F. Sharpe
Argues from simple accounting identities alone, before any empirical evidence, that the average actively managed dollar must underperform the average passively managed dollar by the amount of its extra costs, because the two together make up the whole market.
link checked 17 Sept 2026Robert J. Shiller
Finds that US stock prices from 1871 to 1979 moved far more than subsequent dividend changes could justify under the standard present-value model, evidence that prices are driven by more than rational expectations of future payouts.
link checked 17 Sept 2026Harry M. Markowitz
Recaps how treating portfolio choice as a trade-off between the mean and variance of returns, rather than picking the single security with the best expected return, gives diversification a rigorous justification for the first time.
link checked 17 Sept 2026William F. Sharpe
Presents the Capital Asset Pricing Model, in which every investor holds some combination of the risk-free asset and the same market portfolio, so an asset's expected return depends only on its covariance with the market as a whole.
link checked 17 Sept 2026Kenneth R. French
Estimates what investors as a whole pay each year to try to beat the market — through fees, trading costs and the time spent managing money actively — and finds it is large enough that the average investor would be better off in a low-cost index fund.
Robert Shiller (YaleCourses)
Treats finance as risk-management institutions rather than a set of pricing formulae, and argues from the inside that markets are neither efficient nor irrational but shaped by human psychology and the rules built around it.
link checked 17 Sept 2026Aswath Damodaran
Argues the equity risk premium should be estimated forward, from current prices and expected cash flows, rather than backward from historical average returns, and works through why the two approaches give such different numbers in practice.
Sandford J. Grossman & Joseph E. Stiglitz
If prices fully reflected all available information, no one would have an incentive to pay for gathering it, so markets can be efficient only up to the point where information's cost equals its return.
link checked 17 Sept 2026Rajnish Mehra & Edward C. Prescott
Shows that standard consumption-based asset pricing models can only reproduce the historical gap between stock and bond returns by assuming a degree of risk aversion nobody exhibits in any other economic decision, turning the equity premium from a stylised fact into an unsolved puzzle.
William F. Sharpe
Proposes inferring a fund's real asset allocation from the behaviour of its returns rather than trusting its stated mandate, by finding the mix of asset-class indices that best tracks the fund over time.
Eugene F. Fama & Kenneth R. French
Shows that adding a stock's size and book-to-market ratio to its market beta explains most of the cross-section of average stock returns that the single-factor CAPM leaves unexplained, giving investors a small number of factors to load on instead of one.
John Geanakoplos (YaleCourses)
Argues that collateral and leverage, not interest rates, drive asset prices and crises, and derives the leverage cycle from general equilibrium rather than from behavioural assumptions.
link checked 17 Sept 2026