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Investments cover

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Investments

Zvi Bodie; Alex Kane; Alan J. Marcus; Nicholas Racculia

A graduate-level investments text built on the premise that security markets are nearly efficient, so that investors should expect few obvious bargains and should focus on asset allocation, diversification, and disciplined analysis. It covers portfolio theory, equilibrium pricing, fixed income, equity valuation, derivatives, and portfolio management, and the authors align the material with the CFA curriculum.

Prerequisites: Introductory finance and statistics are expected; familiarity with calculus and regression is helpful for the asset-pricing and empirical chapters.

Difficulty Level
Advanced
Academic Level
Graduate
investmentsportfolio theoryasset pricingfinancial marketssecurity analysisTextbook

01 / Reading Guide

Reading Guide

Citation

Bodie, Z., Kane, A., Marcus, A. J., & Racculia, N. (2026). Investments (2026 release). McGraw Hill.

Chapter Summary

The publisher describes the book as a graduate (MBA) text designed primarily for investment analysis courses. It has 28 chapters in seven parts, ending with a reference to CFA problems. The authors build the book around two themes: security markets are nearly efficient, so competitive markets offer participants no "free lunches"; and the risk-return trade-off, with attention to asset allocation and an in-depth look at futures, options and derivatives. Alignment with the CFA Institute's curriculum is stated as a design goal. The parts follow the usual route from markets and instruments to portfolio theory, pricing models, bonds, security analysis, derivatives and portfolio management.

Part I, Chapters 1–4: The Investment Environment; Asset Classes and Financial Instruments; How Securities Are Traded; Mutual Funds and Other Investment Companies

The introductory part describes the setting investors work in: the instruments available, how trading is organized, and pooled vehicles such as mutual funds.

Part II, Chapters 5–8: Risk, Return, and the Historical Record; Capital Allocation to Risky Assets; Efficient Diversification; Index Models

The portfolio theory core. It moves from historical risk and return, to the choice between a risky portfolio and a safe asset, to diversification across many securities, and to index models as a simplification for estimating inputs.

Part III, Chapters 9–13: The Capital Asset Pricing Model; Arbitrage Pricing Theory and Multifactor Models of Risk and Return; The Efficient Market Hypothesis; Behavioral Finance and Technical Analysis; Empirical Evidence on Security Returns

Equilibrium pricing and its tests. Two chapters give single-factor and multifactor models of expected return; the next two contrast the efficient market hypothesis with behavioral finance and technical analysis; the last reviews empirical evidence on returns.

Part IV, Chapters 14–16: Bond Prices and Yields; The Term Structure of Interest Rates; Managing Bond Portfolios

Fixed income: pricing and yields, the term structure, and the management of bond portfolios.

Part V, Chapters 17–19: Macroeconomic and Industry Analysis; Equity Valuation Models; Financial Statement Analysis

Security analysis from the top down, through macroeconomic and industry conditions, to valuation models for stocks and the reading of financial statements.

Part VI, Chapters 20–23: Options Markets: Introduction; Option Valuation; Futures Markets; Futures, Swaps, and Risk Management

Derivatives: how option markets work, how options are valued, and futures and swaps with their use in managing risk.

Part VII, Chapters 24–28: Portfolio Performance Evaluation; International Diversification; Alternative Assets; The Theory of Active Portfolio Management; Investment Policy and the Framework of the CFA Institute

Applied portfolio management: performance evaluation, international diversification, alternative assets, the theory behind active management, and a closing chapter on investment policy in the CFA Institute's framework.

Key Concepts

Part I: Introduction

  • Asset classes and instruments: the securities from which portfolios are built.
  • Investment companies: pooled vehicles including mutual funds.

Parts II–III: Portfolio Theory and Equilibrium

  • Capital allocation: the division of a portfolio between risky assets and a safe asset.
  • Efficient diversification: reducing risk by combining securities.
  • Index models: a way of simplifying estimation of risk and return.
  • CAPM and APT: single-factor and multifactor models of expected return.
  • Efficient market hypothesis: the premise that prices reflect available information, set against behavioral finance.

Parts IV–VI: Bonds, Valuation and Derivatives

  • Term structure of interest rates and bond portfolio management.
  • Equity valuation models and financial statement analysis.
  • Options, futures and swaps: valuation and risk-management uses.

Part VII: Applied Portfolio Management

  • Performance evaluation, international diversification, alternative assets, and active management theory.

Critical Analysis

Strengths

  • Stated organizing ideas. The publisher names two themes, near-efficiency of markets and the risk-return trade-off, and the contents echo them: three chapters on the efficient market hypothesis, behavioral finance and empirical evidence sit beside the portfolio theory chapters.
  • Comprehensive range in one text. Seven parts cover instruments, portfolio theory, pricing models, bonds, security analysis, derivatives and portfolio management, so a single book can support a full investments course.
  • Link to professional practice. The text is aligned with the CFA Institute's curriculum, and the closing chapter and the CFA problem references connect the material to that framework.
  • Derivatives given real space. Four chapters in Part VI, plus the promise of an in-depth treatment of futures, options and derivatives.

Limitations

  • Length and selection. Twenty-eight chapters exceed what most courses cover; instructors and readers must choose.
  • Quantitative content. The book is aimed at graduate readers, and chapters such as index models, multifactor models and option valuation are quantitative by nature, so some comfort with statistics and basic calculus will help.
  • Breadth over specialization. Bonds and derivatives each occupy a few chapters; readers needing detailed treatment of fixed income or derivatives pricing should consult specialized texts.

Where It Fits in the Course

Bodie, Kane and Marcus is the main graduate-level survey in the investments and financial markets list. Malkiel's A Random Walk Down Wall Street is an accessible general-audience account of how markets price securities and is a good preparation for the efficient-markets material. Jordan, Miller and Dolvin's Fundamentals of Investments is an introductory text that stresses practical decisions, and Mishkin and Eakins's Financial Markets and Institutions covers the institutions and markets in which investing occurs; either can come first.

For depth beyond Parts IV and VI, specialist books continue where this one stops: the fixed income books by Tuckman and by Veronesi, Sundaresan's Fixed Income Markets and Their Derivatives, and the derivatives texts by Hunt et al. and by Bingham et al.

How to Use This Book

The book suits MBA and master's students, and advanced undergraduates with introductory finance and statistics.

  • Core: Part II (Chapters 5–8) and Chapters 9 and 11, the portfolio-theory and market-efficiency backbone.
  • Next: Part IV for bonds and Chapters 18–19 for equity valuation and statement analysis.
  • Derivatives: Chapters 20–23, after bonds and the basic portfolio theory.
  • Optional: Part I for readers new to markets, and Part VII according to the course; Chapter 28 for CFA-oriented readers.
  • Work the CFA-referenced problems as a check on the end-of-chapter material.