Reviews the book "Strategies and Rational Decisions in the Securities Options Market," by Burton G. Malkiel and Richard E. Quandt.

Most of the work in portfolio theory in the past decade has been based on the principle of utility maximization where either the investor's utility function is assumed to be a second degree polynomial with a positive first derivative and a negative second derivative, or the probability functions are assumed to be normal. If at least one of these conditions holds, it can be shown that choosing among risky assets on the basis of their mean and variance only is consistent with the von Neumann-Morgenstern utility maximization model.' Thus, given the above assumptions, the incorporation of higher moments of a distribution and the adoption of alternative approaches to portfolio selection have largely been ignored in favor of the more familiar mean-variance approaches.

Part 1 The reaction of stock prices to new information technical analysis and random walks fundamental analysis and publicly available information can professional investors beat the market. Part 2 Valuation analyzing common stocks the behaviour of earnings. Part 3 Choosing a common stock portfolio the principles of portfolio selection how stocks move together measuring risk passive and active portfolios risk and return measuring investment performance.