RECOMMENDED READING For a basic but excellent description of Mean Variance Optimisation (MVO) Rutherford, R.K.

, Managing a Portfolio of Mutual Funds, McGraw-Hill, NY, 1998. Also good is Gibson, Roger C. Asset Allocation, McGraw-Hill, 1990. For a thorough introduction see Taggard, R.A., Quantitative Analysis for Investment Management, Prentice Hall, NJ, 1996. For an authoritative analysis of MVO see: Elton, E.J. and Gruber, M.J., Modern Portfolio Theory, John Wiley & Sons, 1995. MVOs algorithms tend to over-fit statistically estimated data. For a good discussion see, Michaud, Richard O., Efficient Asset Management, Harvard Business School Press, Boston, 1998. In a mathematical vein, see Vince, Ralph, Portfolio Management Formulas, John Wiley and Sons, 1990. On Modern Portfolio Theory (MPT) For a collection of the classic papers on the subject of MPT see, Berstein, P., and Fabozzi, F.J., Streetwise, Princeton University Press, 1998. Also see Sharpe, W.F. Portfolio Theory and Asset Prices, McGraw-Hill, 1970, and Investments, Prentice-Hall, 1985. Also see Swensen, David, Pioneering Portfolio Management, The Free Press, NY, 2000. The crucial assumption behind MVO and MPTindeed, behind the past 50 years of portfolio management researchis the Random Walk hypothesis. For a timeless and witty book on the subject see Malkiel, Burton, A Random Walk Down Wall Street, W.W. Norton & Company, NY, 1975. For a masterpiece on the subject of Risk see Bernstein, Peter, Against the GodsThe Remarkable Story of Risk, John Wiley & Sons, NY, 1996. A good textbook is Mason Robert D (et al) Statistical Techniques in Business and Economics, Irwin McGraw-Hill, 1967. (A readable introduction to statistics is Phillips, John L., How to Think About Statistics, W.H. Freeman & Co., NY, 1996.) Also see, Warwick, B., Searching for Alpha, John Wiley & Sons, 2000 Also see, Cornell, Bradford, The Equity Risk Premium, John Wiley and Sons, NY, 1999 Also necessary is, Fabozzi, F, Fixed Income Mathematics, McGraw-Hill, NY,1993. Also see, Smith, C, et al, Managing Financial Risk, Harper & Row, NY, 1990. Barr Rosemberg, developed several models that are widely used. BARRA uses multifactor models that include macroeconomic and industry factors. They currently have up to 12 factors in their Single Country Equity Risk Model. In the US, for instance, they have four variations of equity risk models which use the following factors: volatility, size, momentum, growth, liquidity, value, earning variations, leverage, foreign sensitivity, labour intensity, yield, capitalisation. Their website is www.barra.com. Stephen Ross developed the Arbitrage Pricing Theory (APT), which is certainly a different approach to the one taken by Markowitz and Sharpe. See Jorion, Phillipe, Value at Risk: The New Benchmark for Controlling Risk, McGraw Hill, 1997. And, Mei, J, New methods for the Arbitrage Pricing Theory, World Scientific, Singapore, 1994.

C R I T E R I U M C A P I T A L M A N A G E M E N T L t d.
Spain: C/ Vegafria 7, 8Izd. 28035 Madrid - Telf : (34 91) 386 57 86 Fax : (34 91) 373 65 58 U.S.A: 777 Brickell Ave. Suite 1201. Miami 33131 Florida - Telf: (305) 358 88 44 Fax: (305) 358 88 64 Registered office : PO Box 3174, Lake Building-Second Floor , Wickhams Cay, Road Town, Tortola , British Virgin Islands

For Market-Neutral Investing Nicholas, Joseph G, Market-Neutral Investing, Bloomberg Press, Princeton, USA, 2000. The book is a well-organised and capable description of the alternative investments sector. Highly recommended. Other good general sources are Lederman, J. and Klein, R.A., Market Neutral, Irwin, Chicago, 1996, and by the same authors, Global Asset Allocation, John Wiley & Sons, NY, 1994 and Hedge Funds, McGraw-Hill, 1995. Also see, Boucher, Mark, The Hedge Fund Edge, John Wiley & Sons, 1999. And, Moore, K.M., Risk Arbitrage, John Wiley & Sons, NY, 1999, pp 53-73. For convertible instruments, a user-friendly introduction is published by Value Line. For a more technical approach, see Nelken, Izzy (editor), Handbook of Hybrid Instruments, John Wiley & Sons, Chichester, UK, 2000. Also see, Wong, A., Fixed-Income Arbitrage, John Wiley & Sons, NY, 1993 For the use of options, a full discussion will be found in Natemberg, S, Option Volatility & Pricing, McGraw-Hill, New York, 1994. On the use of Mutual Funds, the work of John Bogle is highly recommended. See Bogle, John C., Common Sense on Mutual Funds, John Wiley & Sons, NY, 1999 and Bogle on Mutual Funds, Richard D Irving, 1994. The Field of Behavioural Finance has made great progress in rebutting the random walk hypothesis. Many professional traders and money managers, myself included, use the tools of MPT knowing full well that the underlying theory is flawed. For many in academia and for most of us who manage money in the markets, the findings of behavioural finance have proven that MPTs key assumptions do not always hold valid. For a comprehensive general introduction see, Thaler, R, (editor), Advances in Behavioral Finance, Russell Sage Foundation, NY, 1993. By the same author see The Winners Curse, Princeton University Press, NJ, 1992. Also see, Kahneman, Tversky, et al, Judgement under uncertainty: Heuristics and Biases, Cambridge University Press, UK, 1982. (In this field, Kahneman and Tversky have done groundbreaking work. Look under Prospect Theory.) Extremely important work has also been done by Yales Robert L Schiller. See, for instance his Market Volatility, MIT Press, 1992. More accessible is Irrational Exhuberance, Princeton University Press, NJ, 2000. Also see, Smithers A. and Wright S., Valuing Wall Street, McGraw-Hill, NY, 2000. For a comprehensive general critique of Modern Portfolio Theory Peters, Edgar E. Chaos and Order in the Capital Markets, John Wiley & Sons, 1991, pp 3-42. By the same author see Chaos and Order in the Capital Markets, John Wiley & Sons, 1991, and Fractal Market Analysis, 1994. For an introduction to non-linear pricing see May, Christopher T., Nonlinear Pricing, John Wiley and Sons, NY, 1999. Interesting, but extremely hard-going is Urbach, R., Footprints of Chaos in the Markets, Financial Times-Prentice Hall, London, 2000. A riveting introduction to the field of complexity is Waldrop, M,M., Complexity, Touchstone, NY, 1992. Also see Coveney P. and Highfield R., Frontiers of Complexity, Fawcett Columbine, 1995 The Santa Fe Institutes series of Studies in The Sciences of Complexity (Proceeding Volumes) are a useful place to continue any investigation into this area. Volume V deals with The Economy as an Evolving Complex System. Volume XIV is The Double Action Market. For the History, the Stories, the Lore and the Nonsense of Wall Street my personal favourite is a witty and classic masterpiece called The Money Game, by Adam Smith. (George Goodman). Other key works by George J. W. Goodman are; Paper Money; Super Money, and The Roaring 80s. An eye-opener into the twisted roads of mass-psychology is, Le Bon, Gustave, The Crowd, Cherokee Publishing, Atlanta, Ga., 1982. (A translation of La Psychologie des Foules.) In a similar vein, Mackay, Charles, Extraordinary Popular Delusions and the Madness of Crowds, Farrar, Straus, NY, 1932.
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Good descriptions of mass-psychology in action are Brooks, J., The Go-Go Years, John Wiley and Sons, NY, 1973. Also see Dreman, David, Psychology and the Stock Market and Contrarian Investment Strategy. An account of a speculator in action is Lefevre, Edwin, Reminiscences of a Stock Operator, Traders Press, 1985. Also see, Soros, George, The Alchemy of Finance, Simon and Schuster, NY, 1987. Also see Lowenstein, Roger, When Genius Failed, Random House, NY, 2000. And Dumbar, N, Inventing Money, John Wiley & Sons, UK, 2000. Also see Gleeson, Janet, Millionaire, Simon and Schuster, NY, 1999. An accurate if tedious general history of Wall Street is Geisst, Charles R., Wall Street, Oxford University Press, UK, 1997. More entertaining is Smith, Mark B., Toward Rational Exuberance, Farrar, Straus, NY, 2001. Much data can be found in Siegel, Jeremy J., Stocks for the Long Run, McGraw-Hill, NY, 1998 For the crash of 1929 see, Galbraith, J. K., The Great Crash of 1929, Penguin, 1961. And Brooks, J, Once in Golconda, John Wiley and Sons. For a comprehensive analysis of the economic consequences see Kindleberger, Charles, The World in Depression, University of California Press, Berkeley,1986 On Money? See Ritter L., and Silbers excellent Money, Basic Books, NY, 1981 Also good is Kaufman, Henry, On Money and Markets, McGraw-Hill, NY, 2000. On the Fed? See Greider William, Secrets of the Temple, Simon and Schuster, NY, 1987. Also see, Mayer, Martin, The FED, The Free press, NY, 2001. On Interest Rates? For a description of the price of money from Sumer to modern times see Homer, Sidney, A History of Interest Rates, Rutgers University Press, 1996. For one (and only one) book on Economics see Heilbroner, Robert, The Worldly Philosophers, Touchstone, NY, 1992. On Fundamental and Technical Analysis I only include a few of my favourites, as otherwise the list would be too large. The bible of fundamental analysis is still Graham, Benjamin, and Dodd, D., Security Analysis, ( I use the 1940 edition). Also by Graham, easier to use, and with a foreword by Warren Buffet, is The Intelligent Investor, Harper & Row, NY, 1973. Also excellent is Bellemore, Douglas, Investments, Simmons-Boardman, NY, 1964. The bible of chart patterns, and a definitive description of the need to use volume analysis in any technical pattern is Edwards, R. and Magee, J., Technical Analysis of Stock Trends, John Magee Publishers, Boston, 1966. For an evaluation of technical indicators see Colby, R. and Meyers, A., The Encyclopaedia of Technical Market Indicators, Dow-Jones Irving, 1988. A good description of the influence of news on price/volume activity is Granville, J., New Strategy of daily Stock market Timing for Maximum Profit. Prentice Hall, NY, 1976. Most of the work of Martin Pring, Ned Davis, L Belveal, and E. Haddady is excellent.