If you were to read only one book about finance, it would have to be “A Random Walk Down Wall Street: The Time-Tested Strategy for Successful Investing” by Burton G. Malkiel. Malkiel’s book (now in its 12th edition) provides a compelling argument in favor of efficient markets theory and investing in (passively managed) index funds.
The efficient market theory implies that stock prices follow a random walk. These ideas were originally conceived by Professors Paul Samuelson (MIT) and Eugene Fama (Chicago) in the 1960s and subsequently popularized by John Bogle (founder of Vanguard), Professor Malkiel (Princeton), and others. In Finance 4366, we rely extensively on the notion that prices of speculative assets (e.g., stocks, bonds, commodities, foreign exchange, etc.) follow random walks as we consider the technical details associated with pricing and hedging risk using financial derivatives.