Big financial moments

This year's Karl Borch lecturer, Mark Rubinstein, spoke to a full auditorium about big moments in financial economics. According to the American professor, when a new idea or model sees the light of day, too few are credited.

16.09.2008 - Jens Frølich Holte (translated by Jessica Hartenberger)

Rubinstein is currently professor of finance at the University of California, Berkeley. In addition to being proclaimed Businessman of the Year in 1987 by Fortune magazine, he has a variety of other academic merits on his CV.

While earlier investment analysis was his main field of focus, he has now become interested in the history behind the most important ideas, theories, and models within the discipline of finance.

"You understand an idea better when you know how it developed to become the way it is today," said Rubinstein.

Three Eras

Historians like to divide history into eras. Rubinstein also did this, as he stressed that we have three eras in financial economics. The modern era began in 1980, and this is where we find ourselves now. The classical era occurred between 1950 and 1980.

"That which I call the antique era lasted up until 1950," smiled Rubinstein and implored that academic fields are relatively young.

Attention to several

"When a model or theory is named after a famous person, you can be sure that someone else has thought the same thing before. A new idea is only credited to a few people. The "little man" is erased from history," Rubinstein pointed out and then provided many examples.

Harry Markowitz published an article in 1952 which today still remains one of cornerstones of portfolio theory. Rubinstein discovered that Markowitz was not the first man with such ideas.

"There was an Italian man who had written about the same thing around 1940. Unfortunately he wrote in Italian. I called Markowitz, and he was very surprised. We published a translation of the Italian article and Markowitz wrote the introduction," explained Rubinstein.

Big moments

Furthermore, another big idea within financial economics, according to Rubinstein, is short sale of securities and the Miller-Modigliani theorem. The largest moment, however, is something else.

"I think it must be Markowitz's article from 1952. He was the first to quantify portfolio theory in such a way and in many ways started that which is the classical period in financial economics," said Rubinstein to Paraplyen after the lecture.

"When a model or theory is named after a famous person, you can be certain that someone else has thought of the same thing before," stressed Rubinstein.

Foto: Kristian Tindeland Marthinsen