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This book presents a compelling compilation of essays and analytical studies covering both classic and contemporary finance topics. This includes, but is not limited to, market efficiency in equity and bond markets, international parity conditions, the implications of negative interest rates, asset price bubbles, equity market contagion and the global financial crisis, active bond portfolio management, the Fama-French three-factor model, the role of financial derivatives in the global financial crisis, the impact of MIFID II on the European ETF market, the effect of FinTech on incumbent banks’ profitability, the paradox of Bitcoin, and FinTech opportunities in developing nations.
This book offers a deep dive into the intricacies of modern finance, engaging readers with thought-provoking discussions of important concepts through a series of incisive essays. It relies on the pioneering works of Nobel laureates such as William Sharpe and Robert Merton, amongst other notable figures, to illuminate critical areas in financial markets.
The book begins by exploring the ongoing debate around market efficiency. One essay scrutinizes the Efficient Market Hypothesis (EMH), a foundational theory in modern finance, which asserts that stock prices completely reflect all available information. It delves into the perspectives of Eugene Fama and Kenneth French, who questioned the perfect efficiency idea of the EMH with their ground-breaking three-factor model. Another essay addresses bond market efficiency, investigating anomalies like interest rate differentials and credit spreads that might indicate overlooked opportunities.
Modern Portfolio Theory (MPT) serves as a central theme of the book. One essay explores Markowitz’s genius, explaining how investors can build optimal portfolios by weighing risk and return. It delves into the concept of diversification and the pivotal role of the Capital Asset Pricing Model (CAPM) in assessing risk. However, the book also recognizes MPT’s limitations concerning normal distributions. A specific essay discusses the concept of fat-tailed distributions, where extreme events occur more frequently than conventional models predict. This notion, explored in Benoit Mandelb