Neoclassical Finance (Princeton Lectures in Finance) by Stephen A. Ross

by Stephen A. Ross

"Neoclassical Finance provides a concise and powerful account of the underlying principles of modern finance, drawing on a generation of theoretical and empirical advances in the field. Stephen Ross developed the no arbitrage principle, tying asset pricing to the simple proposition that there are no free lunches in financial markets, and jointly with John Cox he developed the related concept of risk-neutral pricing. In this book Ross makes a strong case that these concepts are the fundamental pillars of modern finance and, in particular, of market efficiency. In an efficient market prices reflect the information possessed by the market and, as a consequence, trading schemes using commonly available information to beat the market are doomed to fail." This book represents a major contribution to the ongoing debate on market efficiency, and serves as a useful primer on the fundamentals of finance for both scholars and practitioners.

Hardcover

First published October 11, 2004

About the author

Stephen A. Ross is the Franco Modigliani Professor of Financial Economics and a Professor of Finance at the MIT Sloan School of Management.

In the past he occupied the Chair of Sterling Professor of Economics and Finance at Yale University and, before that, he was Professor of Economics and Finance at the Wharton School (University of Pennsylvania).

Reviews

[Max Lybbert · Rating 3 out of 5]

This is a quick read, and it does give some insight into Ross's thinking. Additionally, although it's packed with equations, it isn't dry (e.g., the second footnote in the book discusses Ross's experience "with a group that specialized in mortgage arbitrage" that found an arbitrage opportunity that "would offer a three-year certain return of 37 percent per year. That was the good news. The bad news was that such investments are not scalable, and, in this case, we could buy only $600,000 worth of it, which, given the high-priced talent we had employed, barely covered the cost of the analysis itself").

As Ross warns in the introduction, Ross presents a specific argument in a straightforward way. This book does not serve very well as an introduction to -- or survey of -- neoclassical finance. Princeton has the first chapter available online (PDF).

[Frank Ashe · Rating 3 out of 5]

Doesn't live up to the blurbs eg "surveys and integrates modern finance".