THE NEW PALGRAVE: FINANCE A Book Review

The New Palgrave: Finance (W.W. Norton, New York, 1989) reprints a selection of entries from the The New Palgrave, A Dictionary of Economics, edited by John Eatwell, Murray Milgate, and Peter Newman. This is one of several such volumes serving readers in different areas of economics. For this volume, the editors have chosen 30 essays and added a general preface for the series as well as a special preface. Combined with brief biographies of the contributors, the volume takes up about 280 pages of interesting reading. I will make some generally negative comments about the representativeness of the entires and add a few disconnected remarks on points that I found noteworthy or amusing. Without reading the general preface, researchers in the field of finance might be puzzled by the selection of entries. There is a tremendous amount of overlap and little in the way of empirical information. For example, the Capital Asset Pricing Model of Sharpe (19641, Lintner (196.51, and Mossin (1965) is derived in no less than five entries, with no specific econometric results beyond references to the empirical literature. There are four reasonably complete discussions of backwardation in futures markets (again, no test results), and numerous summaries of the Modigliani-Miller (1958,1961) propositions on the irrelevance, under suitable conditions, of corporate financial policy. The Black-Scholes (1973) option pricing formula is also a favorite. At least the repetition centers mainly on important results. The volume’s unusual orientation turns out to be by design. As the editors point out, The New Palgrave is concerned chiefly with theory. As far as the degree of overlap, they state (p. viii): ‘For a controversial topic, a set of more or less synonymous headwords, matched by a broad diversity of contributors, was designed to produce enough diversity of opinion to help form the reader’s own synthesis.. . ’ In other words, the intention was to provide diversity through the selection of contributors rather than topics. Personally, I did not find the topics in this volume particularly controversial, and the editors apparent goal of generating some interesting differences of opinion