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A Selection of Recent Books

Sergio Focardi, PhD

The Theory of Economic Qualitative Growth: A New Framework for Economic Growth Theory

Authors: Sergio Focardi – Founder of Economics and Complexity, Bargagli, Italy and Frank J. Fabozzi – Professor of Practice, Carey Business School, Johns Hopkins University, Baltimore, Maryland

Publisher: Nova Science Publishers (September 2023)

This book develops the theory of qualitative growth. This theory provides a major overhaul of economic theory. Modern economies are evolutionary complex systems subject to a process of rapid innovation that makes aggregation very difficult. Mainstream economics is based on aggregating variables. When aggregation is impossible, mainstream economics creates idealized economies without any empirical basis. Our theory of qualitative growth is based on the principles of modern empirical science where models might include terms and variables that acquire meaning through global theory and its measurement processes. That is, in modern empirical sciences, variables are ultimately defined by the process of observation. However, the observation process might include the entire theory. For example, we do not observe temperature directly but only through instruments that exploit how temperature is linked to other variables such as the elongation of a column of mercury. We develop an integrated monetary economic model where the real economy is represented by hidden abstract variables that include Quantity, Quality, and Generalized Inflation. These variables do not have a direct observation process but are in relationship with observables such as the Economic Complexity Index. In this way, we develop an economic theory able to support decision making for qualitative growth while in contrast mainstream economics would label qualitative growth as recession. The idea of qualitative growth, put forward by Capra and Henderson in 2009, is the basic notion that growth is a good and essential feature of human societies, but it must be understood as organic development of qualitative aspects of life. Qualitative growth responds to the basic need of “decoupling” growth from the use of natural resources which is now recognized as a pillar of the green transition.

Money: What It Is, How It’s Created, Who Gets It, and Why It Matters

Author: Sergio Focardi

Publisher: Routledge (April 2018)

By enabling the storage and transfer of purchasing power, money facilitates economic transactions and coordinates economic activity. But what is money? How is it generated? Distributed? How does money acquire value and that value change? How does money impact the economy, society? This book explores money as a system of “tokens” that represent the purchasing power of individual agents. It looks at how money developed from debt/credit relationships, barter and coins into a system of gold-backed currencies and bank credit and on to the present system of fiat money, bank credit, near-money and, more recently, digital currencies. The author successively examines how the money circuit has changed over the last 50 years, a period of stagnant wages, increased household borrowing and growing economic complexity, and argues for a new theory of economies as complex systems, coordinated by a banking and financial system.

Equity Valuation: Science, Art, or Craft?

Authors: Frank Fabozzi, Sergio Focardi, Caroline Jonas

Publisher: CFA Institute Research Foundation (2017)

Available at https://www.cfapubs.org/doi/pdf/10.2470/rf.v2017.n4.1

How can we determine if a stock or stock markets in general are fairly priced or overpriced? The price at which a stock is traded in the market reflects the ability of the firm to generate cashflows and the risk associated with generating the expected future cashflows. The authors point to the limits of widely used valuation techniques, the most important of these being the inability to forecast cashflows and to determine the appropriate discount rate. Another important limit is the inability to determine absolute value. Valuation techniques such as market multiples – the price-to-earnings ratio, firm value multiples or a use of multiple ratios, for example - capture only relative value, that is, the value of a firm’s stock related to the value of stocks from comparable firms, assuming that comparable firms can be identified.

The study underlines additional problems when it comes to valuing IPOs and private equity: Both are sensitive to the timing of the offer, suffer from information asymmetry, and are more subject to behavioral elements than is the case for shares of listed firms. In the case of IPOs in particular, the authors discuss how communication strategies and media hype play an important role in the IPO valuation/pricing process.

Because widely used valuation techniques cannot determine absolute value, the authors note that the techniques fail to inform if an entire market or segments of the market are overvalued leading, potentially, to the mispricing of risk and large losses for investors

Investment Management: A Science to Teach or an Art to Learn?

Authors: Frank Fabozzi, Sergio Focardi, Caroline Jonas

Publisher: CFA Institute Research Foundation (2014)

Available at: http://www.cfapubs.org/doi/sum/10.2470/rf.v2014.n3.1

Following the 2007–09 financial crisis, mainstream finance theory was criticized for failing to forecast the market crash which resulted in large losses for investors. Has our finance theory, which many consider an idealization that does not take reality into account, failed investors? Do we need to reconsider the theory and how it is taught (and practiced)? This book explores current critiques of mainstream theory and discusses implications for the curricula of finance programs as well as for practitioners. In so doing, the authors integrate a review of the literature supported by conversations with finance professors, asset managers, and other market players

Authored/Coauthored Books

Focardi, Sergio M. 2018. Money: What it is, How It’s Created, Who Gets It, and Why It Matters. London: Routledge (April).

Fallaghoul, Hassan A., Sergio M. Focardi, and Frank J. Fabozzi. 2016. Fractional Calculus and Fractional Processes with Applications to Financial Economics. John Wiley & Sons.

Fabozzi, Frank J., Sergio M. Focardi, and Svetlozar T. Rachev. 2014. Basics of Financial Econometrics. John Wiley & Sons.

Focardi, Sergio M., Frank Fabozzi, and Turan G. Bali. 2013. Mathematical Methods for Finance: Tools for Asset and Risk Management. John Wiley & Sons.

Fabozzi, Frank J., Sergio M. Focardi, and Petter N. Kolm. 2010. Quantitative Equity Investing: Techniques and Strategies. John Wiley & Sons.

Rachev, Svetlozar T., Markus Hoechstoetter, Frank J. Fabozzi, and Sergio M. Focardi. 2010. Probability and Statistics for Finance. John Wiley & Sons.

Rachev, Svetlozar T., Steffan Mittnik, Frank J. Fabozzi, Sergio Focardi, and Teo Jasic. 2007. Financial Econometrics: From Basics to Advanced Modeling Techniques. John Wiley & Sons. Translated into simplified Chinese by Dongbei University of Finance & Economics Press, China.

Fabozzi, Frank J., Peter.N. Kolm, D.A. Pachamanova, and Sergio M. Focardi. 2007. Robust Portfolio Optimization and Management. John Wiley & Sons.

Fabozzi, Frank J., Sergio Focardi, and Petter N. Kolm. 2006. Financial Modeling of the Equity Market: From CAPM to Cointegration. John Wiley & Sons. Selected by Financial Engineering News as one of the top new 10 technical books in finance in 2006.

Focardi, Sergio and Frank J. Fabozzi. 2004. The Mathematics of Financial Modeling and Asset Management. John Wiley & Sons. Selected by RiskBook.com for “Best of 2004 Book Awards” and by Financial Engineering News as one of the top 3 books in finance in 2005. Translated into Simplified Chinese by China Renmin University Press, China.

Sergio Focardi and Caroline Jonas. 1998. Risk Management: Framework, Methods and Practice John Wiley & Sons. [This book was the subject of an article in Financial Times.]

Sergio Focardi and Caroline Jonas. 1997. Modeling the Market: New Theories and Techniques. John Wiley & Sons. [This book was the subject of an article in Financial Times.

CFA Institute Research Monographs

Fabozzi, Frank J., Sergio M. Focardi, and Caroline Jonas. December 2017. Equity Valuation: Science, Art, or Craft? CFA Institute Research Foundation (December). This work has been presented in a series of conferences at CFA Societies in several European cities, including, to date, Geneva, Kiev, Milan, Paris and Zurich. Available at https://www.cfapubs.org/doi/pdf/10.2470/rf.v2017.n4.1

Fabozzi, Frank J., Sergio M. Focardi, and Caroline Jonas. 2014. Investment Management: A Science to Teach or an Art to Learn? CFA Institute Research Foundation. Available at: http://www.cfapubs.org/doi/sum/10.2470/rf.v2014.n3.1

Fabozzi, Frank J., Sergio M. Focardi, and Caroline Jonas. 2010. Investment Management After the Global Financial Crisis. CFA Institute Research Foundation. This work was presented in a series of conferences at CFA Societies in several European cities: Amsterdam, Brussels, Bucharest, Frankfurt, Geneva, Milan, Sofia, Zürich, as well as at the annual CFA conference in Edinburgh. Available at: https://www.cfapubs.org/doi/pdf/10.2470/rf.v2010.n1.1

Fabozzi, Frank J., Sergio M. Focardi, and Caroline Jonas. 2008. Challenges in Quantitative Equity Management. CFA Institute Research Foundation. [This monograph was the subject of articles in the Wall Street Journal, Barrons, and Financial Times.] Available at https://www.cfapubs.org/doi/pdf/10.2470/rf.v2008.n2

Fabozzi, Frank J., Sergio Focardi, and Petter Kolm. 2006. Trends in Quantitative Finance. CFA Institute Research Foundation. Available at: https://www.cfapubs.org/doi/pdf/10.2470/rf.v2006.n2.4148

Authored/Coauthored Chapters in Books

Focardi, Sergio and Frank J. Fabozzi. 2010. “What Can We Understand About Economics?” in Laurence Siegel and Rodney Sullivan (eds) Voices of Wisdom: Understanding the Global Financial Crisis. CFA Institute Research Foundation.

Chapters in Frank J. Fabozzi (ed.) The Handbook of Finance, Volume II: Financial Management and Asset Management. 2008. John Wiley & Sons:

Kolm, Petter N., Sergio M. Focardi, Frank J. Fabozzi, and Dessislava A. Pachamanova, “Quantitative Investment Management: Today and Tomorrow.”
Fabozzi, Frank J., Sergio M. Focardi, Petter N. Kolm, and Robert R. Johnson, “Overview of Active Common Stock Portfolio Strategies.”
Kolm, Petter N., Frank J. Fabozzi, and Sergio M. Focardi, “Quantitative Modeling of Transaction and Trading Costs.”
Kolm, Petter N., Sergio M. Focardi, and Frank J. Fabozzi, “Incorporating Trading Strategies in the Black-Litterman Framework.”

Chapters in Frank J. Fabozzi (ed.) The Handbook of Finance, Volume III: Valuation, Financial Modeling, and Quantitative Tools. 2008. John Wiley & Sons:

Rachev, Svetlozar T., Stefan Mittnik, Frank J. Fabozzi, Sergio Focardi, and Teo Jasic. “Regression Analysis.”
Engle, Robert F., Sergio M. Focardi, and Frank J. Fabozzi. “ARCH/GARCH Models in Applied Financial Econometrics.”

Cincotti, S., S.M. Focardi, L. Ponta, M. Raberto, and G. Scalas. 2005. “The waiting-time distribution of trading activity in a double auction artificial financial market.” In Economics and Heterogeneous Interacting Agents, A. Namatame, T. Kaizouji, Y. Aruka (Eds), Berlin: Springer-Verlag.

Raberto, M., S. Cincotti, C. Dose, S.M. Focardi, and M. Marchesi. 2005. “Price formation in an artificial market: limit order book versus matching of supply and demand.” In Nonlinear Dynamics and Heterogeneous Interacting Agents, T. Lux, S. Reitz, E. Samanidou (Eds), Berlin: Springer-Verlag.

M. Marchesi, S. Cincotti, S.M. Focardi, M. Raberto. 2003. “The Genoa artificial stock market: microstructure and simulations.” in Heterogeneous Agents, Interactions and Economic Performance, R. Cowan and N. Jonard (Eds), pp. 277-289. Berlin: Springer-Verlag.

Focardi, Sergio, Michele Marchesi, and Giancarlo Succi. 2001. “A Stochastic Model of Software Maintenance and Its Implications on Extreme Programming Processes,” in G. Succi and M. Marchesi (Eds.), Extreme Programming Examined. New York: Addison Wesley.

Focardi, Sergio and Michele Marchesi. 1999, updated 2000. “Self-Organization in Global Stochastic Models of Production and Inventory Dynamics," in D. Delli Gatti, M. Gallegati and A.P. Kirman (Eds), Essays on Heterogeneity in Economics. Berlin: Springer-Verlag.

Focardi, Sergio. “The Changing Framework and Methods of Investment Management” in Frank Fabozzi, Handbook of Portfolio Management. John Wiley & Sons. pp. 31-56.