ملاحظات
مقدمة
(1)
House of Representatives Committee on Oversight and Government
Reform, The Financial Crisis and the Role of Federal
Regulators, 110th Cong., 2d sess.,
preliminary transcript, 37. Downloaded at
http://oversight.house.gov/story.asp?ID=2256.
(2)
International Swaps and Derivatives Association
Market Survey results, available at
www.isda.org.
(3)
Alan Greenspan, “Financial Derivatives,” speech to the Futures
Industry Association, Boca Raton, Florida, March 19,
1999.
(4)
Alan Greenspan, testimony to House of Representatives
Committee on Governmenr Oversight and Reform, Oct. 23, 2008, available at
http://oversight.house.gov/story.asp?ID=2256.
(5)
Economist Bob Shiller cites this as the earliest clear
statement of the efficient market hypothesis that he has been able to find.
Robert J. Shiller, Irrational Exuberance
(New York: Broadway Books, 2001), 172.
(6)
Raymond de Roover, “The Concept of the Just Price: Theory and
Economic Policy,” Journal of Economic
History (Dec. 1958): 418–34.
(7)
George Rutledge Gibson, The Stock
Exchanges of London, Paris, and New York: A Comparison (New
York: G. P. Putnam’s Sons, 1889), 6-7 (manias and panics), 121 (bucket
shops).
الأيام الأولى
الفصل الأول: إرفينج فيشر يفقد حقيبته ثم ثروته
(1)
Edward Scharff, Worldly Power: The
Making of the Wall Street Journal (New York: Plume,
1987), 2.
(2)
Robert Loring Allen, Irving Fisher:
A Biography (Cambridge, Mass., and Oxford: Blackwell,
1993), 95. The preceding story about the theft is taken from Allen’s
book and Irving Norton Fisher, My Father Irving
Fisher (New York: Comet Press Books, 1956). These two
books are the source of all Fisher biographical information in this
book, except as otherwise noted.
(3)
Henri Poincaré, The Value of
Science: Essential Writings of Henri Poincaré (New York:
The Modern Library, 2001), 402.
(4)
Louis Bachelier, “Theory of Speculation,” in The Random Character of Stock Prices,
trans. A. James Boness, ed. Paul Cootner (Cambridge, Mass.: MIT Press, 1969),
28.
(5)
Bachelier, “Theory of Speculation,”
17.
(6)
Poincaré, Value of
Science, 419.
(7)
Bachelier, “Theory of Speculation,”
25-26.
(8)
This and all other biographical information on Bachelier is
from Jean-Michel Courtault et al., “Louis Bachelier on the Centenary of
Théorie de la Spéculation,”Mathematical
Finance (July 2000): 341–53. Poincaré’s report on
Bachelier’s thesis, translated by Selime Baftiri-Balazoski and Ulrich
Haussman, is also included in the article.
(9)
Richard Hofstadter, Social
Darwinism in American Thought, rev. ed. (Boston: Beacon
Press, 1955), 51–53.
(10)
William Graham Sumner, What the
Social Classes Owe to Each Other (Caldwell, Idaho: The
Caxton Printers, 1989), 107.
(11)
Adam Smith, Wealth of
Nations, book 4, chap. 2, par. 4, 2.9 (Indianapolis:
Liberty Fund, 1981). It’s not clear Smith himself saw it that way,
although many subsequent economists did. The actual quote from the
Wealth of Nations
is:
As every individual … endeavours as much as he can
both to employ his capital in the support of domestic industry,
and so to direct that industry that its produce may be of the
greatest value; every individual necessarily labours to render
the annual revenue of the society as great as he can. He
generally, indeed, neither intends to promote the public
interest, nor knows how much he is promoting it. By preferring
the support of domestic to that of foreign industry, he intends
only his own security; and by directing that industry in such a
manner as its produce may be of the greatest value, he intends
only his own gain, and he is in this, as in many other cases,
led by an invisible hand to promote an end which was no part of
his intention.
(12)
William Stanley Jevons, “The Progress of the Mathematical
Theory of Political Economy, with an Explanation of the Principles of
the Theory,” Transactions of the Manchester
Statistical Society, sess. 1874-75, 15. Along with
Jevons, a self-taught jack-of-several-trades teaching economics at the
University of Manchester, the other leaders of the “marginal utility
revolution,” as it came to be known, were Carl Menger of the University
of Vienna and Léon Walras, a Frenchman teaching at Switzerland’s
University of Lausanne. There were antecedents in 1850s Germany and even
1730s Switzerland, but they weren’t rediscovered until
later.
(13)
Harris E. Starr, William Graham
Sumner (New York: Henry Holt, 1925),
522.
(14)
Irving Fisher, Mathematical
Investigations in the Theory of Value and Price (New
Haven: Yale University Press, 1925). Reprinted in Reprints of Economic
Classics, Mathematical Investigations in the
Theory of Value and Price and Appreciation and Interest (New York: Augustus M. Kelly,
1961), 44.
(15)
William J. Barber, “Irving Fisher (1867–1947):
Career Highlights and
Formative Influences,” in The Economics of
Irving Fisher: Reviewing the Scientific Work of a Great
Economist, ed. Hans-E. Loef and Hans G. Monissen
(Cheltenham, UK: Edward Elgar, 1999), 4.
(16)
These are wholesale prices paid on the Chicago Board of
Trade, courtesy of the National Bureau of Economic Research’s historical
database (www.nber.org/database/macrohistory/contents/).
(17)
Irving Fisher, Appreciation and
Interest, Publications of the American Economic
Association (New York: Macmillan, 1896; New York: Augustus M. Kelly,
1961). Citation to Augustus M. Kelly edition, 37.
(18)
Quoted in Bruno Ingrao and Giorgio Israel, The Invisible Hand: Economic Equilibrium in the
History of Science (Cambridge, Mass.: MIT Press, 1990),
159.
(19)
William Goetzmann, “Fibonacci and the Financial Revolution”
(working paper no. 03–28, Yale International Center for Finance, Oct.
2003).
(20)
The indicators included new building, crops, clearings,
iron production, money, failures, and “idle cars.” Roger W. Babson,
Bonds and Stocks: The Elements of Successful
Investing (Wellesley Hills, Mass.: Babson Statistical
Organization, 1912), chart, 48-49.
(21)
Roger W. Babson, Actions and
Reactions: An Autobiography of
Roger W. Babson (New York: Harper & Brothers,
1935), 147.
(22)
William Peter Hamilton, The Stock
Market Barometer, (New York: John Wiley & Sons,
1998), 27.
(23)
This is detailed in Irving Fisher, assisted by
Harry G. Brown, The Purchasing Power of Money: Its Determination and
Relation to Credit, Interest and Crises (New York:
Macmillan, 1911), 332–37. In the book Fisher says William Stanley Jevons
and Alfred Marshall had both broached this idea in the
past.
(24)
An example: In early 2007, Microsoft had a market cap
almost five times that of fellow Dow Jones Industrial United
Technologies. But because its stock price was in the twenties while
United Technologies’ was in the sixties, it had less than half the
impact on the movements of the average.
(25)
“Stock Price Index Numbers,” Standard Daily Trade Service 30 (Oct. 25, 1923):
222. (The piece doesn’t mention Fisher by name, but its
reference to “various well known economists and statisticians” had to be
aimed mainly at him.)
(26)
I have not found this suggestion in Fisher’s own work, but
it appears in a newspaper summary of his ideas, and I find it hard to
believe that the reporter came up with it on his
own. “Novel Suggestion to Curb the High Cost of Living,”
New York Times, Jan. 7, 1912,
SM4.
(27)
Fisher, My Father,
x.
(28)
Letter to Irving Norton Fisher, June 17, 1925. Cited in
Barber, “Irving Fisher,” 14.
(29)
Irving Fisher, Edwin Walter Kemmerer, Harry G. Brown,
Walter E. Clark, J. Pease Norton, Montgomery Rollins, G. Lynn Sumner,
How to Invest When Prices Are
Rising (Scranton,
Pa.: G. Lynn Sumner &
Company, 1912).
(30)
Edgar Lawrence Smith, Common Stocks
as Long-Term Investments (New York: The Macmillan
Company, 1924), 29.
(31)
It was called Investment Managers Company, and later became
Irving Investors Management Company, affiliated with the Irving Trust.
After the publication of the book he also became a regular on the
convention speaking circuit. “In these travels,” he told his Harvard
classmates in 1930, “I have shot no big game nor been intrigued by any
Geisha girls, but I have run across
some strange fishes.” Harvard Class
of 1905, Twenty-Fifth Anniversary
Report (Norwood, Mass.: Plimpton Press, 1930),
589-90.
(32)
Irving Fisher, “Will Stocks Stay Up in 1929?” New York Herald Tribune, Dec. 30, 1928,
Sunday Magazine, section 12, 1-2, 28-29.
(33)
John Burr Williams, Ph.D., Fifty
Years of Investment Analysis: A Retrospective
(Charlottesville, Va.: Financial Analysts Research Foundation, 1979),
6.
(34)
“Babson Predicts ‘Crash’ in Stocks,” New York Times, Sept. 6, 1929,
12.
(35)
“Fisher Sees Stocks Permanently High,” New York Times, Oct. 16, 1929,
8.
(36)
Irving Fisher, The Stock Market
Crash and After (New York: Macmillan, 1930),
14-15.
(37)
Irving Fisher, “Statistics in the Service of Economics,”
reprint of speech delivered Dec. 29, 1932, Journal of the American Statistical Association (March
1933): 10.
الفصل الثاني: السير العشوائي من فريد ماكولاي إلى هولبروك وركينج
(1)
“He was a cool 300 pounds and always smelled deliciously of
tobacco and alcohol. He was bawdy, fun-loving and fascinating.” Peter L.
Bernstein, e-mail message to the author.
(2)
Journal of the American Statistical
Association (June 1925): 248-49; the specifics of how
Macaulay put together his chart come from Benjamin Graham and David L.
Dodd, Security Analysis (New York:
McGraw-Hill, 1934), 608n.
(3)
Geoffrey Poitras, “Frederick R. Macaulay, Frank M.
Redington and the Emergence of Modern Fixed Income Analysis,” in
Geoffrey Poitras and Frederick Jovanovic, eds., Pioneers of Financial Economics, vol. 2 (London: Edward
Elgar, 2007), 60–82.
(4)
Investor Allen Bernstein hired Macaulay as his partner, not
so much to make investment decisions as to reassure investors with his
academic credentials and his non-Jewish surname. Peter L. Bernstein,
e-mail message to the author.
(5)
Willford I. King, “Technical Methods of Forecasting Stock
Prices,” Journal of the American Statistical
Association (Sept. 1934): 323–25.
(6)
Frederick R. Macaulay, Some
Theoretical Problems Suggested by
the Movements of Interest Rates, Bond Yields and Stock Prices in the
United States Since 1856 (New York: National Bureau of
Economic Research, 1938), 11-12.
(7)
“It is only after a long course of uniform experiments in
any kind, that we attain a firm reliance and security with regard to a
particular event. Now where is that process of reasoning, which, from
one instance, draws a conclusion, so different from that which it infers
from a hundred instances, that are nowise different from that single
one? This question I pose as much for the sake of information, as with
an intention of raising difficulties. I cannot find, I cannot imagine
any such reasoning. But I keep my mind still open to instruction; if any
one will vouchsafe to bestow it on me.” David Hume, The Philosophical Works of David Hume, vol.
4, sec. 4, An Enquiry Concerning Human Understanding” (Aalen, Germany:
Scientia Verlag, 1964), 30.
(8)
Thorstein Veblen, “Fisher’s Capital
and Income,” Political Science
Quarterly (March 1908): 112.
(9)
Lucy Sprague Mitchell, Two Lives:
The Story of Wesley Clair Mitchell and Myself (New York:
Simon & Schuster, 1953), 241.
(10)
Solomon Fabricant, Toward a Firmer
Basis of Economic Policy: The Founding of the National Bureau of
Economic Research
(Cambridge, Mass.: National Bureau of Economic Research,
1984).
(11)
Bruce Caldwell, Hayek’s Challenge:
An Intellectual Biography of F. A. Hayek (Chicago:
University of Chicago Press, 2004), 150-51.
(12)
Peter Bernstein, quoted in Poitras, Pioneers of Financial Economics,
207.
(13)
Eli Ginzberg, “Wesley Clair Mitchell,” History of Political Economy 29 (1997):
3. Reprinted in Wesley Clair Mitchell, The Backward Art of Spending Money (New Brunswick, N.J.:
Transaction Publishers, 1999), ix–xxxv.
(14)
Thorstein Veblen, The Engineers and
the Price System (New York: Viking,
1921).
(15)
John Maynard Keynes, The General
Theory of Employment, Interest,
and Money (San Diego: Harcourt Brace Jovanovich, 1953),
156.
(16)
“I feel no shame at being found still owning a share when
the bottom of the market comes,” Keynes wrote to a director of the
National Mutual Life Assurance Society, of which Keynes was chairman,
during a bear market in 1938. “I do not think it is the business, far
less the duty, of an institutional or any other serious investor to be
constantly considering whether he should cut and run on a falling
market, or to feel himself open to blame if shares depreciate on his
hands … An investor is aiming, or should be aiming primarily at
long-period results, and should be solely judged by these.” The Collected Writings of John Maynard Keynes: Vol.
XII, ed. Donald Maggridge (Cambridge, UK: Cambridge
University Press, 1983), 38.
(17)
The most important work of this genre was probably
Value and Capital: An Inquiry into Some
Fundamental Principles of Economic Theory, published in
1939 by John Hicks of the London School of
Economics.
(18)
“Succumbing to Keynesianism,” Challenge (Jan.-Feb. 1985): 6. Also in The Collected Scientific Papers of Paul A.
Samuelson, vol. 5, ed.
Kathryn Crowley (Cambridge, Mass.: MIT Press,
1986).
(19)
Macaulay’s Who’s Who
entry shows him leaving Montreal’s prestigious McGill University just
before graduation and then finishing up, years later, at Colorado
College in Colorado Springs. There’s no proof that TB was involved, but
why else would he have done a thing like that?
(20)
“Close of a Busy Life,” Chicago
Tribune, Dec. 21, 1889.
(21)
This was Robert Rhea, who described his acquaintance with
Cowles in his newsletter Dow Theory
Comment, mailing no. 9, Jan. 18, 1933. “He is a Dow
theory skeptic,” wrote Rhea, “and for years he has devoted his time to
the task of attempting to assemble business statistics of past years
into a forecasting device, an effort which will bear no fruit if the Dow
theory is sound.”
(22)
Murray Teigh Bloom, Rogues to
Riches: The Trouble With Wall Street (New York: G. P.
Putnam’s Sons, 1971), 27.
(23)
The full text of Theory of
Interest is available online at the Library of Economics
and Liberty, www.econlib.org.
(24)
According to various Cowles Commission reports, attendees
at the summer conferences, which ran from 1935 through 1940, included
economists Ragnar Frisch, Trygve Haavelmo, Nicholas Kaldor, Oskar Lange,
Wassily Leontief, Abba Lerner, Paul Samuelson, and Joseph Schumpeter;
statistician-geneticist R. A. Fischer; statistical quality control
pioneer Walter Shewhart; statisticians Corrado Gini (of “Gini
coefficient” fame), Harold Hotelling, and Jacob Wolfowitz (who fathered
a famous son named Paul); and mathematicians Karl Menger and Abraham
Wald.
(25)
Alfred Cowles III, “Can Stock Market Forecasters Forecast?”
Econometrica (July 1933):
324.
(26)
New York Times, Jan. 1,
1933, 7.
(27)
Alfred Cowles III, Herbert E. Jones, “Some A Posteriori
Probabilities in Stock Market Action,” Econometrica (July 1937): 280–94. Holbrook Working was
later to point out that even this meager result was misleadingly
positive because of flaws in Cowles’s and Jones’s statistical
technique.
(28)
Alfred Cowles III and Associates, Common Stock Indexes, 2d ed., (Bloomington, Ind.:
Principia Press Inc., 1939).
(29)
Irving Fisher, in “Our Unstable Dollar and the So-Called
Business Cycle,” Journal of the American
Statistical Association (June 1925): 199, approvingly
cites Holbrook Working, “Prices and the Quantity of Circulating Medium,
1890–1921,” Quarterly Journal of
Economics (Feb. 1923): 228–56.
(30)
Adam Smith, Wealth of
Nations, book 4, chap. 5, part B, (Indianapolis: Liberty
Fund, 1981), 527.
(31)
Henry Crosby Emery, Speculation on
the Stock and Produce Exchanges of the United States (New
York: Columbia University, 1896).
(32)
Holbrook Working, “Financial Results of the Speculative
Holding of Wheat,” Wheat Studies of the Food
Research Institute (July 1931):
405–37.
(33)
Holbrook Working, “Cycles in Wheat Prices,” Wheat Studies of the Food Research
Institute (Nov. 1931): 2.
(34)
Karl Pearson and Lord Rayleigh, “The Problem of the Random
Walk,” Nature (July 27, Aug. 3, Aug.
10, 1905).
(35)
The name has often been rendered in English as the
Conjuncture Institute, but this seems an overly literal translation.
Kondratiev is also sometimes spelled Kondratieff. His 1926 monograph
Long Cycles and Economic
Conjuncture can be found in The
Works of Nikolai Kondratiev, vol. 1, (London: Pickering
& Chatto, 1998).
(36)
G. Udny Yule, “Why Do We Sometimes Get
Nonsense-Correlations Between Time-Series?—A Study in Sampling and the
Nature of Time-Series,” Journal of the Royal
Statistical Society (Jan. 1926):
1–64.
(37)
Eugen Slutzky [sic], “The Summation of Random
Causes as the Source of Cyclic Processes,” Econometrica (April 1937):
105.
(38)
Cowles Commission for Research in Economics, Abstracts of Papers
Presented at the Research Conference on Economics and
Statistics, Colorado Springs, 1936,
99.
(39)
Holbrook Working, “A Theory of Anticipatory Prices,”
American Economic Review (May
1958): 190.
(40)
Holbrook Working, “The Investigation of Economic
Expectations,” American Economic
Review (May 1949): 158–60.
(41)
Claude S. Brinegar, A Statistical
Analysis of Speculative Price Behavior (Stanford: Food
Research Institute, 1970). (Supplement to vol. 9, Food Research Institute
Studies.)
صعود نجم السوق العقلانية
الفصل الثالث: هاري ماركويتز يأتي بالإحصائي إلى سوق الأسهم
(1)
W. Allen Wallis, “The Statistical Research Group,
1942–1945,” Journal of the American Statistical
Association (June 1980): 322-23.
(2)
A. D. Roy, “Safety First and the Holding of Assets,”
Econometrica (July 1952): 431–49.
Some have also seen hints of Markowitz’s portfolio selection ideas in
two earlier papers authored by Marschak: H. Makower, J. Marschak,
“Assets, Prices and Monetary Theory,” Economica (Aug. 1938): 261–88; and Jacob Marschak,
“Money and the Theory of Assets,” Econometrica (Oct. 1938): 311–25. But Markowitz said
Marschak never even told him about the papers, which mention portfolio
selection in passing as part of a larger model of economic
behavior.
(3)
Oskar Morgenstern, “Perfect Foresight and
Economic Equilibrium,”
The Selected Economic Writings of Oskar Morgenstern (New York: New York University Press, 1976),
172-73.
(4)
Morgenstern’s chief mathematical mentor was Karl Menger,
son of economist Carl, the great founder of the Austrian school and
distruster of economic equations. During Irving Fisher’s European tour
of 1893-94, the elder Menger had told him that “later—say thirty years
from now—the mathematical method will come in for the ‘finishment’ of
the science.” And it sort of did. William J. Barber, “Irving Fisher
(1867–1947): Career Highlights and Formative Influences,” in Hans-E.
Loef and Hans G. Monissen, The Economics of
Irving Fisher: Reviewing the Scientific Work of a Great
Economist (Cheltenham, UK, Northampton, Mass.: Edward
Elgar, 1999), 6.
(5)
E. Roy Weintraub, “On the Existence of Competitive
Equilibrium: 1930–1954,” Journal of Economic
Literature (March 1983): 13.
(6)
It was left to others, such as John Nash of A Beautiful Mind fame, to develop a
multiplayer theory of games better suited to modeling economic
interactions.
(7)
John von Neumann and Oskar Morgenstern, Theory of Games and Economic Behavior,
65th Anniversary Edition (Princeton:
Princeton University Press, 2004), 177-78.
(8)
Daniel Bernoulli, “Exposition of a New Theory on the
Measurement of Risk,” Econometrica
(Jan. 1954): 23–36.
(9)
The story is Herbert Simon’s:
In the early 1950s, when I was on a faculty
recruiting trip from Pittsburgh, I had dinner with Marschak one
evening in the Quadrangle Club at the University of Chicago. The
conversation turned to the selection of faculty. As he had
assembled a spectacular group of stars in the Cowles Commission,
I asked him what qualities he looked for in selecting staff.
“Oh,” said he, “I pick people with good eyes.” I stared at him.
Good eyes—what could he mean? I told him he was joking, but he
insisted: He looked at their eyes. And then I began thinking of
the clear dark Armenian eyes of Arrow, the cool blue Frisian
eyes of Koopmans, and the sharp black Roman eyes of Modigliani.
It was certainly true that they all had remarkable
eyes.
(10)
Jacob Marschak, “Neumann’s and Morgenstern’s Approach to
Static Economics,” Journal of Political
Economy (April 1946): 109.
(11)
Milton Friedman and Rose Friedman, Two Lucky People: Memoirs (Chicago: University of
Chicago Press, 1998), 146.
(12)
Linear programming was independently developed by several
others, including Leonid Kantorovich, who shared the 1975 Nobel Prize in
Economics with Koopmans, and George Dantzig, who was Harry Markowitz’s
boss at Rand.
(13)
Who the broker was and what exactly he was doing there
remains a great (and at this point probably unsolvable) mystery of
financial history. Markowitz himself has no idea. Marschak’s son Thomas says his father
was not a big stock
market player, but he did have a few investments. So it is possible the
broker was waiting to see him. It’s also possible the broker was waiting
to see someone else at Cowles, or just making cold calls. In any case,
the broker was there, and he and Markowitz got to
talking.
(14)
Schumpeter worried that Williams’s right-wing political
views might get him into trouble with other members of the dissertation
committee if he wrote about a more general economic topic. John Burr
Williams, Fifty Years of Investment Analysis: A
Retrospective (Charlottesville, Va.: Financial Analysts
Research Foundation, 1979), 5–19.
(15)
John Burr Williams, The Theory of
Investment Value (Burlington, Vt.: Fraser Publishing Co.,
1997, exact copy of 1938 Harvard University Press version),
6.
(16)
Harry M. Markowitz, “Efficient Portfolios, Sparse Matrices,
and Entities: A Retrospective,” Operations
Research (Jan.-Feb. 2002): 154.
(17)
Friedman and Friedman, Two Lucky
People, 216.
(18)
Leonard J. Savage, The Foundations
of Statistics (New York: Dover Publications, 1972),
16.
(19)
This can be found at the beginning of Chapter 15 of Twain’s
The Tragedy of Pudd’nhead Wilson and the
Comedy Those Extraordinary Twins. At the start of Chapter
13 is Twain’s most famous piece of investing advice: “October. This is
one of the peculiarly dangerous months to speculate in stocks in. The
others are July, January, September, April, November, May, March, June,
December, August, and February.”
(20)
William Shakespeare, The
Merchant of Venice, act 1, scene
1.
(21)
Harry M. Markowitz, “The Early History of Portfolio Theory:
1600–1960,” Financial Analysts
Journal (July/August 1999):
5–16.
(22)
Gerald M. Loeb, The Battle for
Investment Survival (New York: John Wiley & Sons,
1996), 42.
(23)
Harry Markowitz, interview with the author. Discussion of
semi-variance is in Harry M. Markowitz, Portfolio Selection: Efficient Diversification of
Investments, Cowles Foundation Monograph 16 (New Haven:
Yale University Press, 1970), 188–201.
(24)
The grad student was Henry Latane, and his paper was later
published as “Criteria for Choice Among Risky Ventures,” Journal of Political Economy (April 1959):
144–55. The chapter in Markowitz’s book is titled “Return in the Long
Run.” And the whole saga is laid out in vastly more detail in William
Poundstone, Fortune’s Formula (New
York: Hill and Wang, 2005), esp. 192–97.
(25)
As recalled by Mark Rubinstein.
الفصل الرابع: مسيرة عشوائية من بول سامويلسون إلى بول سامويلسون
(1)
Jürg Niehans, A History of Economic
Theory: Classic Contributions 1720–1980 (Baltimore: Johns
Hopkins University Press, 1990).
(2)
Paul A. Samuelson, Economics: An Introductory Analysis (New York:
McGraw-Hill, 1948), 570, 573.
(3)
Michael Szenberg, Aron Gottesman, and Lall Ramrattan,
Paul Samuelson: On Being an
Economist (New York: Jorge Pinto Books, 2005),
85.
(4)
The student, Richard Kruizenga, was chiefly interested in
describing the securities and sketching their history. Samuelson wanted
more. Recalled Kruizenga, “He had the ability to see what the real issue
was, from an economist’s standpoint: How do you value these
things?”
(5)
Peter Bernstein’s account in Capital Ideas (New York: Free Press, 1992) has Samuelson
learning about the paper from Hendrik Houthakker. Samuelson didn’t
remember precisely when I interviewed him in 2004, but his and
Houthakker’s accounts both seemed to point toward Samuelson first
encountering the article in the Quarterly
Journal of Economics office.
(6)
M. G. Kendall, “The Analysis of Economic Time-Series—Part
I: Prices,” Journal of the Royal Statistical
Society, Series A (General) 116, no. 1 (1953): 11–34 (the
economists’ responses are found on pp. 25–34).
(7)
M. F. M. Osborne, The Stock
Market and Finance
from a Physicist’s
Viewpoint, (Minneapolis: Crossgar Press, 1995),
12.
(8)
Osborne, Stock Market and
Finance, 12.
(9)
Harry V. Roberts, “Stock-Market Patterns and Financial
Analysis: Methodological Suggestions,” Journal
of Finance (March 1959): 1–10.
(10)
This is Arnold Moore’s recollection.
(11)
James Gleick, Chaos: Making a New
Science (New York: Viking, 1987). Both Houthakker and
Mandelbrot confirm this account, although Houthakker would like the
world to know that, contrary to an assertion in Gleick’s book, he is
younger than Mandelbrot.
(12)
Holbrook Working, “Note on the Correlation of First
Differences of Averages in a Random Chain,” Econometrica (Oct. 1960): 916–18.
(13)
C. W. J. Granger and O. Morgenstern, “Spectral Analysis of
New York Stock Market Prices,” Kyklos
16 (1963): 1–25.
(14)
“A Random Walk in Wall Street,” Fortune, Feb. 1963, 204.
(15)
Paul A. Samuelson, “Paul Cootner’s Reconciliation of
Economic Law With Chance,” in Financial
Economics: Essays in Honor of Paul Cootner, William F.
Sharpe and Cathryn M. Cootner, eds. (Englewood Cliffs, N.J.:
Prentice-Hall, 1982), 105.
(16)
Adam Smith [George A. W. Goodman], The Money Game (New York: Random House, 1967),
156.
(17)
This story was related by Bill Sharpe, who heard Cootner
tell it repeatedly. Repeated attempts to confirm it independently met
with failure but, hey, it’s a good story.
(18)
Hendrik S. Houthakker, “Systematic and Random
Elements in Short-Term Price Movements,” American Economic Review (May 1961):
164.
(19)
Robert E. Weintraub, “On Speculative Prices and Random
Walks: A Denial,” Journal of Finance
(March 1963): 59–66.
(20)
Paul A. Samuelson, “Proof That Properly Anticipated
Prices Fluctuate Randomly,” Industrial
Management Review (Spring 1965):
41–49.
الفصل الخامس: مودلياني وميلر يتوصلان إلى افتراض تبسيطي
(1)
Milton Friedman and L. J. Savage, “The Utility Analysis of
Choices Involving Risk,” Journal of Political
Economy (Aug. 1948): 279–304.
(2)
I am thinking in particular of the introduction to Paul
Samuelson’s 1947 book, Foundations of Economic
Analysis (Cambridge, Mass., and London: Harvard
University Press, 1983), cited in chapter 4, and of Tjalling Koopmans’s
August 1947 screed, which is mentioned in the next
note.
(3)
Tjalling Koopmans, “Measurement Without Theory,” Review of Economics and Statistics (Aug.
1947): 167. It was a review of
Arthur F. Burns and Wesley C. Mitchell, Measuring Business Cycles (New York: National Bureau of
Economic Research, 1946).
(4)
Milton Friedman, “Wesley C. Mitchell as Economic Theorist,”
Journal of Political Economy
(Dec. 1950): 465–93.
(5)
Thorstein Veblen, “Why Is Economics Not an Evolutionary
Science,” Quarterly Journal of
Economics (July 1898). Reprinted in Veblen, The Place of Science in Modern Civilisation and Other
Essays (New York: B. W. Huebsch, 1919),
73.
(6)
Milton Friedman, “The Methodology of Positive
Economics,” Essays in Positive
Economics (Chicago and London: University of
Chicago Press, 1953), 15.
(7)
Herbert A. Simon, “A Behavioral Model of Rational Choice,”
Quarterly Journal of Economics
(Feb. 1955): 99–118.
(8)
Allais’s 1950s papers were in French, so my source on this
was Maurice Allais, “An Outline of My Main Contributions to Risk and
Utility Theory,” Models and Experiments in Risk
and Rationality, Bertrand Munier and Mark J. Machina,
eds. (Dordrecht: Kluwer Academic Publishers,
1994).
(9)
Arrow had studied with Harold Hotelling at Columbia and
participated in an informal mathematical economics seminar that Jacob
Marschak led during his New York years, then spent World War II trying
to forecast the weather for the Army Air Corps. Debreu was a French
mathematician who first encountered economic equilibrium theory in the
1940s and was immediately hooked.
(10)
The economist was Frank William Taussig, the leading
American disciple of Alfred Marshall and his supply-demand charts. The
story of the Business School’s founding is recounted in Jeffrey L.
Cruikshank, A Delicate Experiment: The Harvard
Business School, 1908–1945 (Boston: Harvard Business
School Press, 1987), 34.
(11)
John Burr Williams, Fifty Years of
Investment Analysis: A Retrospective (Charlottesville,
Va., Financial Analysts Research Foundation, 1979),
23.
(12)
Peter Tanous, Investment
Gurus (New York: New York Institute of Finance,
1997), 215.
(13)
A. D. Martin Jr., “Life Outside 500 Largest,” Alumni Bulletin 5 (Aug. 1957). Quoted in
Robert E. Gleeson and Steven Schlossman, “The Many Faces of the New
Look: The University of Virginia, Carnegie Tech, and the Reform of
American Management Education in the Postwar Era, Part II,” Selections: The Magazine of the Graduate Management
Admission Council (Spring 1992):
1–24.
(14)
Arjo Klamer, Conversations with
Economists: New Classical Opponents and Their Opponents Speak Out on
the Current Controversy in Macroeconomics (Totowa, N.J.:
Rowman & Allanheld Publishers, 1984), 125.
(15)
Alfred P. Sloan Jr., My Years with
General Motors (New York: Doubleday, 1990),
141.
(16)
Franco Modigliani, Merton H. Miller, “The Cost of Capital,
Corporation Finance and the Theory of Investment,” American Economic Review (June 1958):
280-81.
(17)
Merton H. Miller and Franco Modigliani, “Dividend Policy,
Growth, and the Valuation of Shares,” Journal of
Business (Oct. 1961): 428.
(18)
Benjamin Graham and David L. Dodd, Security Analysis (New York: McGraw Hill, 1934),
23.
(19)
As recounted by my former Fortune colleague Shawn Tully, a Chicago
MBA.
(20)
Tanous, Investment
Gurus, 216.
(21)
Matthew 25:14–30. To give credit where it is due, I
wouldn’t have understood the parable if I hadn’t had it explained to me
in a sermon by the Rev. John A. Mennell at St. Michael’s Church in New York.
(22)
Gerd Gigerenzer, Zeno Swijtink, Theodore Porter, Lorraine
Daston, John Beatty, Lorenz Krüger, The Empire
of Chance: How Probability Changed Science and Everyday
Life (Cambridge: Cambridge University Press, 1989),
3-4.
(23)
A crucial intermediate step between Markowitz and Treynor
was James Tobin, “Liquidity Preference as Behavior Towards Risk,”
Review of Economic Studies 25,
no. 1 (1958): 65–86.
(24)
Jack L. Treynor, “Towards a Theory of Market Value of Risky
Assets,” in Asset Pricing and Portfolio
Performance; Models, Strategy and Performance Metrics,
Robert A. Korajczk, ed. (London: Risk Books,
1999).
(25)
William F. Sharpe, “A Simplified Model for Portfolio
Analysis,” Management Science (Jan.
1963): 281.
(26)
William F. Sharpe, “Capital Asset Prices: A Theory of
Market Equilibrium Under Conditions of Risk,” Journal of Finance (Sept. 1964):
425–42.
(27)
John Lintner, “The Valuation of Risk Assets and the
Selection of Risky Investments in Stock Portfolios and Capital Budgets,”
Review of Economics and
Statistics (Feb. 1965): 13–37. Interpretation and
background can be found in Perry Mehrling, Fischer Black and the Revolutionary Idea of Finance
(Hoboken, N.J.: John Wiley & Sons, 2005).
(28)
Jan Mossin, “Equilibrium in a Capital Asset Market,”
Econometrica (Oct. 1966):
768–83.
الفصل السادس: جين فاما يقدم أفضل افتراض في علم الاقتصاد
(1)
Saul Bellow, Humboldt’s
Gift (New York: Penguin, 1996),
173.
(2)
Melvin W. Reder, “Chicago Economics: Permanence and
Change,” Journal of Economic
Literature (March 1982): 1–38.
(3)
Lionel Trilling, The Liberal
Imagination (New York, Viking,
1950): 5.
(4)
George J. Stigler, Memoirs of an
Unregulated Economist (New York: Basic Books, 1988),
146.
(5)
F. A. Hayek, “The Use of Knowledge in Society,” American Economic
Review (Sept. 1945): 519, 522. Acolytes of Hayek’s Vienna
teacher Ludwig von Mises would have me point out that von Mises made
pretty much the same arguments two decades earlier. But they didn’t
happen to appear in English in a publication read by virtually every
American economist.
(6)
Milton Friedman and Rose Friedman, Two Lucky People: Memoirs (Chicago: University of
Chicago Press, 1998), 159.
(7)
Friedman, Essays in Positive
Economics (Chicago and London: University of Chicago
Press, 1953), 176.
(8)
Armen A. Alchian, “Uncertainty, Evolution, and Economic
Theory,” Journal of Political Economy
(June 1950): 211–21.
(9)
Arjo Klamer, Conversations with
Economists: New Classical Opponents and Their Opponents Speak Out on
the Current Controversy in Macroeconomics (Totowa, N.J.:
Rowman & Allanheld Publishers, 1984), 120.
(10)
Robert E. Lucas Jr., “Autobiography,” from Les Prix Nobel. The Nobel Prizes 1995, Tore
Frängsmyr, ed. (Stockholm: Nobel Foundation, 1996). Also available at
http://nobelprize.org.
(11)
William Niskanen, interview with the
author.
(12)
Joel M. Stern with Irwin Ross, Against the Grain: How to Succeed in Business by Peddling
Heresy (New York: John Wiley & Sons, 2003),
17.
(13)
Eugene F. Fama, “The Behavior of Stock Market
Prices,” Journal of Business
(Jan. 1965): 39.
(14)
Eugene F. Fama, “Random Walks in Stock Prices,” Financial Analysts Journal (Sept.-Oct.
1965, repr. Jan.-Feb. 1995): 76.
(15)
Julian Lewis Watkins, The 100
Greatest Advertisements: Who Wrote Them and What They
Did, 2d rev. ed. (New York: Dover Publications, 1959),
164-65.
(16)
This and other biographical information on Engel comes from
David Bird, “Louis Engel Jr., Ex-Merrill Partner, Dies,” New York Times, Nov. 8, 1982,
D15.
(17)
This tale of CRSP’s founding is derived almost entirely
from an interview with James Lorie.
(18)
“Study Shows ‘Random’ Stock Investment from ’26 to ’60 Had
3-to-1 Chance of Profit,” Wall Street
Journal, May 25, 1965, 10.
(19)
“It’s easier to win than lose,” Business Week, May 29, 1965,
122.
(20)
Arnold Moore, interview with the author. Moore finished his
dissertation in 1962, and it was published as “Some Characteristics of
Changes in Common Stock Prices,” in The Random
Character of Stock Prices, Paul Cootner, ed. (Cambridge,
Mass.: MIT Press, 1964), 139–61.
(21)
Robert A. Levy, “Random Walks: Reality or Myth,” Financial Analysts Journal (Nov.-Dec.
1967): 69–77.
(22)
Michael C. Jensen, “Random Walks: Reality or Myth—Comment,”
Financial Analysts Journal (Nov.-Dec.
1967): 84.
(23)
Jensen, “Random Walks,” 81.
(24)
Eugene F. Fama, Lawrence Fisher, Michael C. Jensen, Richard
Roll, “The Adjustment of Stock Prices to New Information,” International Economic Review (Feb. 1969):
1–21. It took the paper years to get to print because Fama was set on
publishing it somewhere other than the Chicago Business School’s
Journal of Business, where all
his previous papers had ended up, and it was a struggle to find another
journal willing to take it. (At least, that’s how Jensen remembers
it.)
(25)
Ray Ball and Philip Brown, “An Empirical Evaluation of
Accounting Income Numbers,” Journal of
Accounting Research (Autumn 1968):
159–78.
(26)
“Review and Outlook,” Wall Street
Journal, May 19, 1899, 1.
(27)
Committee on Interstate and Foreign Commerce,
A Study of Mutual Funds, Prepared for the
Securities and Exchange Commission by the Wharton School of Finance
and Commerce, 87th Cong., 2d
sess., H. Rep. 2274.
(28)
Michael C. Jensen, “Risk, the Pricing of Capital
Assets, and the Evaluation of Investment Portfolios,” Journal of Business (April 1969):
169.
(29)
Eugene F. Fama, “Efficient Capital Markets: A
Review of Theory and Empirical Work,” Journal of Finance (May 1970):
383.
(30)
To be more specific, in “The Capital Asset Pricing Model:
Some Empirical Tests,” published in Michael C. Jensen, ed., Studies in the Theory of Capital Markets
(New York: Praeger, 1972), Black, Jensen, and Scholes found that
low-beta stocks had higher returns than predicted by the original CAPM,
but that the relationship between beta and returns seemed to fit an
asset-pricing model in which borrowing limits and costs were taken into
account. Meanwhile, Fama and James D. MacBeth, in “Risk, Return, and
Equilibrium: Empirical Tests,” Journal of
Political Economy (May-June 1973), concluded that
“although there are ‘stochastic nonlinearities’ from period to period,”
they could “not reject the hypothesis that in making a portfolio
decision, an investor should assume that the relationship between a
security’s portfolio risk and its expected return is linear” as CAPM
implied.
(31)
J. Fred Weston, “The State of the Finance Field,” Journal of Finance (Dec. 1967):
539-40.
(32)
Irwin Friend, “Mythodology in Finance,” Journal of Finance (May 1973):
257–72.
(33)
It’s actually the Sveriges Riksbank Prize in Economic
Sciences in Memory of Alfred Nobel, not an actual Nobel Prize, but it’s
administered by the same folks as the other
Nobels.
(34)
Michael C. Jensen, “Some Anomalous Evidence Regarding
Market Efficiency,” Journal of Financial
Economics 6, nos. 2/3 (1978):
95–101.
غزو وول ستريت
الفصل السابع: جاك بوجل يتبنى الهوس بالأداء، ويحقق النصر
(1)
Renshaw, the economics Ph.D., went on to teach at the
University of North Carolina and SUNY-Albany. MBA student Feldstein, who
ended up staying on at Chicago for a doctorate, became a health care
economist and taught at the University of Michigan and
UC-Irvine.
(2)
Edward F. Renshaw and Paul J. Feldstein, “The Case for an
Unmanaged Investment Company,” Financial
Analysts Journal (Jan.-Feb. 1960):
43–46.
(3)
Bogle said in an interview that he was afraid that if
Wellington’s name was attached to the article, the SEC might charge the
firm with improper advertising.
(4)
John B. Armstrong, “The Case for Mutual Fund Management,”
Financial Analysts Journal
(May-June 1960): 33–38.
(5)
The broker’s name was Edward G. Leffler, and this account
is drawn from a history of mutual funds published in Investment Companies 1965: Mutual Funds and Other
Types, 25th annual ed. (New
York: Arthur Wiesenberger & Co., 1965), 7.
(6)
Estimated stock market value of $89.7 billion from
Ellen R. McGrattan, Edward C. Prescott, “The 1929 Stock Market: Irving Fisher Was
Right,”
Federal Reserve Bank of Minneapolis, Research Department Staff Report
294, Dec. 2003, 3.
(7)
“Big Money in Boston,” Fortune, Dec. 1949, 116–21, 189–96. There’s no byline,
but Fortune’s records show that it
was written by Hedley Donovan, who went on to succeed Henry Luce as
editor of Time Inc. The second quote was a paraphrase by Donovan of a
statement by an MIT executive.
(8)
John C. Bogle, “The Economic Role of the Investment
Company,” reprinted in John Bogle on Investing:
The First 50 Years (New York: McGraw-Hill, 2001), 355,
440.
(9)
The Collected Writings of John
Maynard Keynes: Vol. XII, Donald Maggridge, ed.(Cambridge: Cambridge University Press, 1983), 100, 82.
(10)
Benjamin Graham, The Memoirs of the
Dean of Wall Street, edited and introduction by Seymour
Chatman (New York: McGraw-Hill, 1996), 124–26. The peace activist was
Sir Norman Angell.
(11)
Graham, Memoirs of the
Dean, 142.
(12)
This is detailed in Chapter 8, “The Investor and Market
Fluctuations,” of Benjamin Graham, The
Intelligent Investor: A
Book of Practical Counsel, 4th rev. ed. (New York: Harper
& Row, 1973).
(13)
Benjamin Graham and David L. Dodd, Security Analysis (New York: McGraw-Hill, 1934),
299-300.
(14)
Roger Lowenstein, Buffett: The
Making of an American Capitalist (New York: Main Street
Books, 1996), 45.
(15)
John Brooks, The Seven Fat Years:
Chronicles of Wall Street (New York: Harper &
Brothers Publishers, 1958), 1.
(16)
Burton G. Malkiel, “Equity Yields, Growth, and the
Structure of Share Prices,” American Economic
Review (Dec. 1963): 1026.
(17)
Benjamin Graham, “The Future of Financial Analysis,”
Financial Analysts Journal
(May-June 1963): 65–70.
(18)
Adam Smith [George A. W. Goodman], The Money Game (New York: Random House, 1967),
211.
(19)
John Brooks, The Go-Go
Years (New York: Weybright and Talley,
1973).
(20)
Adam Smith, The Money
Game, 18.
(21)
Investment Companies 1966: Mutual
Funds and Other Types (New York: Arthur Wiesenberger
& Co., 1966), 118. The actual title Wiesenberger gave to the
category was “Objective: Maximum Capital Gain.”
(22)
John M. Birmingham Jr., “The Quest for Performance,”
Financial Analysts Journal
(Sept.-Oct. 1966): 93-94.
(23)
Albert Young Bingham, “Relative
Performance—Nonsense,”
Financial Analysts
Journal (July-Aug. 1966):
102.
(24)
There are many different ways to measure volatility. The
one used by Bogle, which was calculated by Arthur Wiesenberger &
Co. for its mutual fund data yearbooks, took the percentage change in
the price of a fund over a given period and divided it by the percentage
change in the Dow Jones Industrial Average.
(25)
Gene Smith, “Funds are Rated by New System,” New York Times, Dec. 8,
1957. Bogle is identified merely as a “mutual fund economist” in
the article—again staying anonymous because he didn’t want to get
Wellington in trouble with the SEC.
(26)
Jack L. Treynor, “How to Rate the Management of Investment
Funds,” Harvard Business Review
(Jan.-Feb. 1965): 63–75.
(27)
Hearings before the Senate? Committee on Banking and
Currency, Mutual Fund Legislation of
1967, 90th Cong., 1st sess.,
353–57.
(28)
Brooks, The Go-Go Years,
148-49.
(29)
William J. Baumol and Burton Malkiel, Comments
on Proposed Rule 10b-10, March
21, 1968, available at
www.sechistorical.org.
(30)
Joseph Nocera, A Piece of the
Action: How the Middle Class Joined the Money Class (New
York: Simon & Schuster, 1994), 116–18. Merrill switched to paying
its brokers with commissions in the early 1970s.
(31)
Investment Company Institute v.
Camp, 401 U.S. 617 (1971).
(32)
A much more extensive account of this can be found in Peter
Bernstein, Capital Ideas (New York:
Free Press, 1993).
(33)
John C. Bogle, “Remutualizing the Mutual Fund Industry—The
Alpha and the Omega,” address at Boston College Law School, Jan. 21,
2004.
(34)
From an advertisement for the book that ran in New York Times on Oct. 14, 1973,
173.
(35)
Vartanig Vartan, “Research vs. Rhesus,” New York Times, Oct. 14, 1973,
181.
(36)
The founding editor was Peter Bernstein, who had recently
sold his investment firm, Bernstein-Macaulay, to American Express. The
firm had been founded in the 1930s by Bernstein’s father, who had
recruited economist Frederick Macaulay—the man who brought coin flipping
to stock market research—to be his partner. The junior Bernstein went on
to become an acclaimed historian of investing.
(37)
Paul A. Samuelson, “Challenge to Judgment,” Journal of Portfolio Management (Fall
1974). Reprinted in Peter L. Bernstein and Frank Fabozzi, eds.,
Streetwise: The Best of the Journal of
Portfolio Management (Princeton: Princeton University
Press, 1997).
(38)
Charles D. Ellis, “The Loser’s Game,” Financial Analysts Journal (July/Aug.
1975).
(39)
Aloysius Ehrbar, “Index Funds—An Idea Whose Time is
Coming,” Fortune, June,
1976, 144–54.
(40)
This account is based chiefly on interviews with Bogle and
on John C. Bogle, The First Index Mutual Fund: A
History of Vanguard Index Trust and the Vanguard Index
Strategy (Valley Forge, Pa.: Vanguard Group,
1997).
(41)
Paul Samuelson, “Coping Sensibly,” Newsweek, March 6, 1978, 88.
(42)
I’m referring mainly to the account in Roger Lowenstein’s
Buffett: The Making of an American
Capitalist.
(43)
“A Conversation With Benjamin Graham,” Financial Analysts Journal
(Sept./Oct. 1976): 20–23.
الفصل الثامن: فيشر بلاك يُؤْثر التركيز على المحتمل
(1)
Mandelbrot tells the story of encountering Zipf’s work in
Benoit Mandelbrot and Richard L. Hudson, The
(Mis)behavior of Markets: A Fractal View of Risk, Ruin, and
Reward (New
York: Basic Books, 2004), 150–59. The Zipf book mentioned is Human Behavior and the Principle of Least Effort: An
Introduction to Human Ecology (Cambridge, Mass.:
Addison-Wesley, 1949).
(2)
This field had been pioneered by Italian mathematical
economist Vilfredo Pareto. Pareto made important contributions to equilibrium
economics and Irving Fisher visited him during his European grand tour
in 1894. He was appalled that Pareto’s wife smoked, but the two
corresponded regularly afterward and Mrs. Pareto translated Fisher’s
doctoral dissertation into Italian. Irving Norton Fisher, My Father Irving Fisher (New York: Comet
Press Books, 1956), 65. Pareto observed around the turn of the century
that in the various European countries he studied, 80 percent of the
wealth was in the hands of 20 percent of the people. This “Pareto’s law”
has since become a standby of pop sociology and business advice: 20
percent of customers generate 80 percent of sales; 20 percent of
vehicles generate 80 percent of the pollution, 20 percent of the people
in a company do 80 percent of the work. Fred Macaulay, in a 1920s
National Bureau of Economic Research study of income distribution, did
not see this proportion at work in the United States and cast doubt upon
it being any sort of statistical law. George Udny Yule, meanwhile, was
among the first to notice power law distributions outside of income
data. J. C. Willis and G. U. Yule, “Some Statistics of Evolution and
Geographical Distribution in Plants and Animals, and Their
Significance,” Nature (1922):
177–179.
(3)
Benoit Mandelbrot, “Forecasts of Future Prices, Unbiased
Markets, and ‘Martingale’ Models,” Journal of
Business (Jan. 1966): 242–55.
(4)
Paul Cootner, The Raondom Character
of Stock Prices (Cambridge, Mass.: MIT Press, 1964),
337.
(5)
M. F. M. Osborne, The Stock
Market and Finance
from a Physicist’s
Viewpoint (Minneapolis: Crossgar Press, 2d
printing 1995, 1st printing 1977),
203, 214.
(6)
William F. Sharpe, interview with the author.
(7)
Peter L. Bernstein, Against the
Gods: The Remarkable Story of Risk (New York: John Wiley
& Sons, 1996), 248.
(8)
This story is told in great detail in Michael J. Clowes,
The Money Flood: How Pension Funds
Revolutionized Investing (New York: John Wiley &
Sons, 2000).
(9)
Merton Miller, “The History of Finance,” Journal of Portfolio
Management (Summer 1999): 95–101.
(10)
Chris Welles, “Who is Barr Rosenberg? And what the hell is
he talking about?” Institutional
Investor (May 1978): 59-60.
(11)
Perry Mehrling, Fischer Black and
the Revolutionary Idea of Finance (Hoboken, N.J.: John
Wiley & Sons, 2005), 22.
(12)
When they finally published their results in 1976, the
projection was for 13 percent nominal stock returns through 2000, with
95 percent confidence that return would be between 5.2 percent and 21.5
percent. (The actual nominal return turned out to be 15 percent.) From
Roger G. Ibbotson and Rex A. Sinquefield, “Stocks, Bonds, Bills, and
Inflation: Simulations of the Future (1976–2000),” Journal of Business (July 1976): 313–38.
The “consensus forecast” quote is also from this article, while
Ibbotson’s line about it being the first scientific forecast of the
market is from an interview with him and was first published in Justin
Fox, “9% Forever?” Fortune, Dec. 26,
2005, 64–72.
(13)
Barry B. Burr, “Eyeing the numbers: Class comparisons
opened the doors,” Pensions & Investment
Age, Oct. 31, 1988, 69.
(14)
This is based on the Pensions
& Investments/Watson Wyatt World 500: The World’s
Largest Managers, published in the Oct. 13, 2008 issue of P&I and available online at
www.pionline.com. Barclays Global Investors reported
$2.08 trillion under management, State Street $1.98
trillion.
(15)
Stock A is selling at $5 a share, say, and the
speculator is sure it’s headed to $20. So he spends $1 to
acquire an option to buy that stock for $10. It amounts to a
leveraged bet on the stock’s trajectory: If the stock does go up to
$15, a $100 investment in the options nets $900
while $100 spent on the stock itself nets $300. If it only
goes to $10, the stockholder still makes $100 while the
options holder gets nothing.
(16)
Paul A. Samuelson, “Rational Theory of Warrant Pricing,”
Industrial Management Review
(Spring 1965): 13–32; Henry P. McKean Jr., “Appendix: A Free Boundary
Problem for the Heat Equation Arising From a Problem of Mathematical
Economics,” 32–39.
(17)
Case M. Sprenkle, “Warrant Prices as Indicators of
Expectations and Preferences,” Yale Economic
Essays 1, no. 2 (1961): 178–231. Reprinted in Cootner,
The Random Character of Stock
Prices (1964); A. James Boness, “Elements of a Theory of
Stock-Option Value,” Journal of Political
Economy (April 1964): 163–75.
(18)
Friedman’s quote was spotted in a newspaper article by Merc
chairman Leo Melamed, who later enlisted the economist’s help in
lobbying regulators to allow the Merc to offer such futures. This story
is told in Leo Melamed, with Bob Tamarkin, Escape to the Futures (New York: John Wiley &
Sons, Inc., 1996), 170–73.
(19)
Robert K. Merton, Social Theory and
Social Structure (New York: Free Press, 1968), 477.
(Quote found via Wikipedia.)
(20)
Espen Gaarder Haug and Nassim Nicholas Taleb, “Why We Have
Never Used the Black-Scholes-Merton Option Pricing Formula,” (working
paper, Social Science Research Network, Jan. 2008,
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1012075).
It should be noted that Haug and Taleb think Black-Scholes-Merton’s
grounding in economic theory is a bad
thing.
(21)
Paul A. Samuelson and Robert C. Merton, “A Complete Model
of Warrant Pricing That Maximizes Utility,” Industrial Management Review (Winter 1969):
17–46.
(22)
Stephen A. Ross, “Neoclassical Finance, Alternative Finance
and the Closed End Fund Puzzle,” European
Financial Management (June 2002):
129–37.
(23)
Robert C. Merton, Continuous-Time
Finance (Cambridge, Mass.: Basil Blackwell, 1990),
15.
(24)
John C. Cox, Stephen A. Ross, and Mark Rubinstein, “Option
Pricing: A Simplified Approach,” Journal of
Financial Economics (Sept. 1979):
229–63.
(25)
Stephen A. Ross, “Options and Efficiency,” Quarterly Journal of Economics (Feb. 1976):
76.
الفصل التاسع: مايكل جنسن يَحْمل الشركات على طاعة السوق
(1)
Adam Smith, The Wealth of
Nations (Indianapolis: Liberty Fund, 1981),
741.
(2)
In the United States the first all-purpose general
incorporation statute was Connecticut’s, enacted in 1837, although some
states allowed easy incorporation of companies in particular industries
before that. In the United Kingdom, Parliament allowed for general
incorporation in 1844. Robert Hessen, In Defense
of the Corporation (Stanford, Calif.: Hoover Institution,
1979). Hessen, it should be noted, thinks these legal changes were mere
formalities because businessmen had already figured out ways to
circumvent the post-South Sea ban on
corporations.
(3)
A. A. Berle Jr., “Management Power and Stockholders’
Property,” Harvard Business Review 5
(1927): 424. There is a train
of revisionist legal scholarship, summarized in Stephen M. Bainbridge,
“The Politics of Corporate Governance,” Harvard
Journal of Law and Public Policy (Summer 1995): 671–734,
that argues that the separation of ownership and control was presenr
long before the 1920s. Yet another argument, outlined to me by Henry
Manne in an interview, is that Berle’s claims were vastly premature and
most corporations in the 1920s were still controlled by a few big
shareholders. But I’m sticking with the standard account because the
1920s is when people like Berle began to notice and write about the
separation of ownership and control.
(4)
Benjamin Graham, The Memoirs of the
Dean of Wall Street (New York: McGraw-Hill, 1996),
199–211.
(5)
The recycling of monopoly oil profits was a major factor in
American intellectual life in the 1920s. The Laura Spelman Rockefeller
Memorial also bankrolled the Social Science Research Council, founded in
1923, which transformed the study of political science in particular,
and was a big funder of the National Bureau of Economic Research. The
Rockefeller Foundation subsumed the Spelman Fund in 1929 and continued
funding those activities, as well as bringing to the United States many
European scholars whose ideas and actions, as already noted in Chapter
2, helped transform the study of economics and
finance.
(6)
The grant was from the Laura Spelman Rockefeller Memorial
fund. Jordan A. Schwarz, Liberal: Adolf A. Berle
and the Vision of an American Era (New York: The Free
Press, 1987), 51–56.
(7)
Adolf A. Berle Jr., and Gardiner C. Means, The Modern Corporation and Private Property
(New Brunswick, N.J.: Transaction Publishers, 1991),
312-13.
(8)
Robert Hessen, “The Modern Corporation and Private
Property: Revisited,” Journal of Law and
Economics (June 1983): 273.
(9)
Jonathan Alter, The Defining
Moment: FDR’s Hundred Days and the Triumph of Hope (New
York: Simon & Schuster, 2006), 97. Another telling quote: “Of
Berle Raymond Moley acidly noted that while he once may have been
considered an infant prodigy, he continued to be an infant long after he
had ceased to be a prodigy,” from Christopher D. O’Sullivan, Sumner Welles, Postwar Planning, and the Quest for a
New World Order, 1937–1943 available at
www.gutenberg-e.org.
(10)
Berle was to exert significant influence over U.S. policy
toward Latin America as assistant secretary of state from 1938 to 1944,
but that didn’t have much of anything to do with the New
Deal.
(11)
“These show marked indications of immortality,” wrote John
Kenneth Galbraith of the two companies in The
Affluent Society (New York: Mentor Books, 1958),
57.
(12)
Testimony to Senate Armed Services Committee, Jan. 15,
1953, quoted in “Excerpts From Two Hearings Before Senate Committee on
Defense Appointment,” New York Times,
Jan. 24, 1953, 8.
(13)
Most notably in Theory of the
Leisure Class (New York: Macmillan, 1899) and Theory of the Business Enterprise (New
York: Scribners, 1904).
(14)
Chamberlin’s dissertation was later published and went
through several editions: Edward Chamberlin, The
Theory of Monopolistic Competition (Cambridge, Mass.:
Harvard University Press, 1933). Means’s report was published as U.S.
Department of Agriculture, Industrial Prices and
Their Relative Inflexibility (Washington, D.C.: U.S.
Government Printing Office, 1935). Equally important was Cambridge
economist Joan Robinson’s Economics of Imperfect
Competition (London: Macmillan, 1933), which I omit from
the main text only because she (a) was British, and thus not directly
involved in the American intellectual debate and (b) makes no other
appearance in this book.
(15)
The books were American Capitalism:
The Concept of a Countervailing Power (Boston: Houghton
Mifflin, 1952), The Affluent Society
(Boston: Houghton Mifflin, 1958), and The New
Industrial State (Boston: Houghton Mifflin, 1967). The Soviet apparatchik parallel
is explored in the last of these, while The
Affluent Society focuses more on overconsumption and
waste.
(16)
Milton Friedman and Rose Friedman, Two Lucky People: Memoirs (Chicago: University of
Chicago Press, 1998), 81.
(17)
This was accomplished with funding from the conservative
Volker Foundation of Kansas City, the same outfit that was to pay to
send Director, Friedman, and Stigler to Mont Pelerin in 1947. Edmund W.
Kitch, ed., “The Fire of Truth: A Remembrance of Law and Economics at
Chicago, 1932–1970,” Journal of Law and
Economics (April 1983): 180-81.
(18)
Kitch, “Fire of Truth,” 183.
(19)
George J. Stigler, Memoirs of an
Unregulated Economist (Chicago: University of Chicago
Press, 1988), 103.
(20)
James M. Buchanan and Gordon Tullock, The Calculus of Consent: Logical Foundations of
Constitutional Democracy (Ann Arbor, Mich.: University of
Michigan Press, 1962), is generally seen as the founding document of the
public choice school, although Tullock credits earlier works by Scottish
scholar Duncan Black.
(21)
Milton Friedman, “A Friedman Doctrine—The Social
Responsibility of Business is to Increase its Profits,” New York Times Magazine, Sept. 13, 1970,
32-33, 122.
(22)
New York Times Magazine,
Letters, Oct. 4, 1970, 21, 63.
(23)
This seemed like an excellent opportunity to put in an
enthusiastic plug for Marc Levinson, The Box:
How the Shipping Container Made the World Smaller and the World
Economy Bigger (Princeton: Princeton University Press,
2006).
(24)
Details on the Rochester endowment’s investment policy are
in Robert Sheehan, “The Rich, Risky Life of a University Trustee,”
Fortune, Jan. 1967,
169.
(25)
“We expect the major benefits of the security analysis
activity to be reflected in the higher capitalized value of the
ownership claims of corporations, and not in the period-to-period portfolio returns of the
analyst.” Michael C. Jensen and William H. Meckling, “Theory of the
Firm: Managerial Behavior, Agency Costs and Ownership Structure,”
Journal of Financial Economics
(Oct. 1976): 305–60. It took so long to get the paper published,
according to Jensen, because Jensen’s and Meckling’s arguments were torn
to pieces when they first presented them at a Chicago economics seminar
in 1973. “There was this unspoken belief [at Chicago], never formalized
but very strong, that competition between corporations would deliver an
optimal result,” Jensen said. “The paper challenged that.” Several
Chicagoans also objected that the principal-agent conflict had been
amply and recently discussed in Armen Alchian and Harold Demsetz,
“Production, Information Costs, and Economic Organization,” American Economic Review (Dec. 1972):
777–95. I focus on the Jensen-Meckling paper instead because it is far
more explicit in linking agency costs and the efficient market, and
because Jensen subsequently built an illustrious career upon
it.
(26)
Joel Stern, “Let’s Abandon Earnings Per Share,” Wall Street Journal, Dec. 18,
1972. Reprinted in Joel M. Stern with Irwin Ross, Against the Grain: How to Succeed in Business by
Peddling Heresy (Hoboken: John Wiley & Sons,
2003), 171–77.
(27)
Alfred Rappaport, “Selecting strategies that create
shareholder value,” Harvard Business
Review (May-June 1981): 139–49.
(28)
Diana Henriques, The White Sharks
of Wall Street: Thomas Mellon Evans and the Original Corporate
Raiders (New York: A Lisa Drew Book/Scribner, 2000),
150–58.
(29)
Cited in Daniel R. Fischel, “Efficient Capital Market
Theory, the Market for Corporate Control, and the Regulation of Cash
Tender Offers,” Texas Law Review 57,
no. 1 (Dec. 1978): 17.
(30)
Henry G. Manne, “Mergers and the Market for Corporate
Control,” Journal of Political
Economy (April 1965): 113.
(31)
Manne, “Mergers and the Market,”
112.
(32)
Louis Lowenstein, “Pruning Deadwood in Hostile Takeovers: A
Proposal for Legislation,” Columbia Law
Review (March 1983): 251-52.
(33)
Both the Milken background and the rise of the
takeover artists are recounted in
Connie Bruck, The Predators’ Ball: The Junk Bond
Raiders and the Man Who Staked Them (New York: Simon
& Schuster, 1988). Drexel was not the first firm to “manufacture”
junk bonds; Lehman Brothers was, in 1977. But Drexel soon came to
dominate the business.
(34)
Years later, after a federal judge had thrown Milken in
jail for securities fraud, Chicago professor and soon-to-be law school
dean Daniel Fischel wrote a book with the very unprofessorial title
Payback: The Conspiracy to Destroy Michael
Milken and His Financial Revolution (New York:
HarperBusiness, 1995).
(35)
Fischel, Payback, 38.
(Despite the incendiary title, it’s a useful source of
information.)
(36)
Economic Report of the President,
February 1985, Washington, D.C.:
U.S. Government Printing Office, 1995, 187–216. In an interview
with the author, William A. Niskanen, then a member of President
Reagan’s Council of Economic Advisers, said he wrote the
chapter.
(37)
The ranks of these critics were huge, but perhaps the most
thoughtful was Columbia law professor Louis Lowenstein, a former
corporate lawyer and executive who in a series of law review
articles—most notably “Pruning Deadwood in Hostile Takeovers: A Proposal
for Legislation”—and then the books What’s Wrong
With Wall Street?
(Reading, Mass.: Addison-Wesley, 1988) and Sense
and Nonsense in Corporate Finance (Reading, Mass.:
Addison-Wesley, 1991) systematically tore down many of the
rational-market-based arguments of the takeover apologists. Lowenstein’s
son, journalist Roger Lowenstein, has become another well-known critic
of the efficient marketeers.
(38)
The most important agent of this spread of ideas was
probably Richard Brealey and Stewart Myers, Principles of Corporate Finance (New York: McGraw-Hill,
1981), which soon became the standard text on the subject, a required
course in most business schools. Brealey was a professor at the London
School of Business. He had come to the United States in the 1960s to
work for Keystone Funds, fallen in with the Chicago Center for Research
on Security Prices crowd, and authored some lucid works for investment
practitioners on the new finance. McGraw-Hill asked him to write a corporate finance
text,
and he ended up collaborating with Myers, a Stanford Ph.D. who taught at
MIT’s Sloan School. Theirs wasn’t the first corporate finance text to
mention the efficient market hypothesis, but it was the first to be
completely suffused by it.
(39)
William Wong, “Harvard West? Losing ‘Minor’ Image as a
Business School, Stanford’s Fame Rises,” Wall
Street Journal, Sept. 23, 1976, 1,
28.
(40)
Thomas McCraw and Jeffrey L. Cruikshank, The Intellectual
Venture Capitalist: John H. McArthur and the Work of the Harvard
Business School (Boston: Harvard Business School Press,
1999), 8.
(41)
Leonard Silk, “The Peril Behind the Takeover Boom,”
New York Times, Dec. 29, 1985,
F1, F6.
(42)
Michael C. Jensen, “Agency Costs of Free Cash Flow,
Corporate Finance, and Takeovers,” Papers and Proceedings of the AEA
annual meeting, held Dec. 28–30, 1985, American
Economic Review (May 1986):
323–29.
(43)
Michael C. Jensen, “The Eclipse of the Public Corporation,”
Harvard Business Review
(Sept.-Oct. 1989): 61-62.
(44)
Doug Henwood, Wall
Street (London: Verso, 1998), 276-77. Henwood, by
the way, is just about the only person who means Michael Jensen
when he writes “Jensenism.” The term generally refers to the
controversial theories about IQ and heredity of psychologist
Arthur Jensen.
التحدي
الفصل العاشر: ديك تالر يمنح الرجل الاقتصادي شخصية
(1)
I owe this insight (the billiards connection, that is)
entirely to Colin Camerer.
(2)
The apotheosis of this work was the “Skinner box,” devised
ca. 1930 by Harvard psychologist B. F. Skinner. Animals, usually pigeons
or rats, were stuck in a box with a lever and a food dispenser. They
then learned which actions were rewarded and which were punished, and
generally reacted accordingly. Human behavior, Skinner argued, was the
result of similar conditioning by society. In the 1950s, though, a few
psychology students who wanted to do more than put pigeons and rats in
boxes began looking into how people
made choices.
(3)
Most of the information and all of the quotes in the
foregoing paragraphs are from Kahneman’s autobiography in Les Prix Nobel 2002 (Stockholm: Nobel
Foundation, 2003); also available at
www.nobelprize.org.
(4)
I would repeat some of the questions Tversky asked, but
they’re phrased in the arcane language of statistics. Amos Tversky and
Daniel Kahneman, “Belief in the Law of Small Numbers,” Psychological Bulletin 2 (1971): 105–10.
Reprinted in Daniel Kahneman, Paul Slovic, and Amos Tversky, Judgment Under Uncertainty: Heuristics and
Biases (Cambridge, UK: Cambridge University Press, 1982),
23–31.
(5)
Herbert A. Simon, Models of My
Life (New York: Basic Books, 1991),
144.
(6)
John F. Muth, “Rational Expectations and the Theory of
Price Movements,” Econometrica (July
1961): 315–35. The paper was first presented at an Econometric Society
meeting in 1959.
(7)
The other two were Edward Prescott and Thomas
Sargent.
(8)
Donald N. McCloskey, The
Rhetoric of Economics (Madison, Wisc.: University
of Wisconsin Press, 1985), 91. (Donald subsequently became
Deirdre, which is another story entirely. Deirdre McCloskey,
Crossing: A Memoir
[Chicago: University of Chicago Press,
1999].)
(9)
Robert E. Lucas Jr., “The Death of Keynesian Economics,”
Issues and Ideas (University of
Chicago), (Winter 1980): 18-19. Cited in N. Gregory Mankiw, “The
Reincarnation of Keynesian Economics,” European
Economic Review (April 1992): 559.
(10)
Kathryn Crowley, ed., The Collected
Scientific Papers of Paul A. Samuelson, vol. 5,
(Cambridge and London: MIT Press, 1986), 291.
(11)
Kenneth J. Arrow, “Uncertainty and the Welfare Economics of
Medical Care,” American Economic
Review (Dec. 1963): 941–73.
(12)
Sanford J. Grossman and Joseph E. Stiglitz, “On the
Impossibility of Informationally Efficient Markets,” American Economic Review (June 1980):
393–408, quote is from p. 405. The paper was first presented at an
Econometric Society meeting in 1975.
(13)
Bernanke got his doctorate from MIT in 1979 and Krugman in
1977. Summers got his from Harvard in 1982, and had been an MIT
undergraduate before that. A few others: former Federal Reserve governor
Frederic Mishkin (MIT 1976); Bush administration economic advisers Glenn
Hubbard (Harvard 1981), Larry Lindsey (Harvard 1985), and Greg Mankiw
(MIT 1984); Clinton administration economic adviser Laura Tyson (MIT
1974); Columbia professor and globetrotting do-gooder Jeffrey Sachs
(Harvard 1980); blogger/professors Brad DeLong and Tyler Cowen (both
Harvard 1987); freakonomist Steven Levitt (MIT 1994), and so
on.
(14)
The Sveriges Riksbank Prize in Economic Sciences in Memory
of Alfred Nobel 1978, press release, Oct. 16,
1978.
(15)
Daniel Kahneman and Amos Tversky, “Prospect Theory: An
Analysis of Decision Under Risk,” Econometrica (March 1979):
263–92.
(16)
Richard H. Thaler, Quasi
Rational Economics (New York: Russell Sage
Foundation, 1991), xi-xii.
(17)
Justin Fox “Is the Market Rational?” Fortune, Dec. 9, 2002, 120.
(18)
Richard H. Thaler, “Toward a Positive Theory of Consumer
Choice,” Journal of Economic Behavior and
Organization 1 (1980): 39–60. Reprinted in Thaler,
Quasi Rational Economics.
(19)
Richard H. Thaler and H. M. Shefrin, “An Economic Theory of
Self-Control,” Journal of Political
Economy (April 1981): 392–406.
(20)
The best description of Chamberlin’s experiment, and of the
rise of experimental economics in general, is in Ross M. Miller,
Paving Wall Street: Experimental Economics
and the Quest for the Perfect Market (New York: John
Wiley & Sons, 2002).
(21)
It’s called the Social Science Faculty, and includes
anthropologists, psychologists, political scientists, and legal scholars
as well as economists.
الفصل الحادي عشر: بوب شيلر يبيِّن الخطأ الأبرز
(1)
At least, that’s how Thaler remembers it. The account is
assembled from his recollections as well as those of Shefrin and
Kahneman. Jensen professes not to recall the exchange at all, but he
doesn’t dispute that it happened and the views he held at the time are
well documented.
(2)
Robin M. Hogarth, Melvin W. Reder, “Prefatory Note,”
Journal of Business (Oct. 1986):
S181.
(3)
Others included Kahneman, Tversky, Thaler, Shefrin, and
Shefrin’s Santa Clara University colleague Meir Statman, as well as
economists Kenneth Arrow, Robert Lucas, Herbert Simon, and George
Stigler.
(4)
Merton H. Miller, “Behavioral Rationality in Finance: The
Case of Dividends,” Journal of
Business (Oct. 1986): S467.
(5)
Adam Smith [George A. W. Goodman], The Money Game (New York: Random House, 1967),
158.
(6)
Clive W. J. Granger and Oskar Morgenstern, Predictability of
Stock Market Prices, (Lexington, Mass.: D.C. Heath and
Co., 1970), 3. According to Granger, the book’s introductory chapter, which contains
its most incendiary comments, was all Morgenstern’s work, although he
agreed with most of what Morgenstern had to say.
(7)
Granger and Morgenstern, Predictability of Stock Market Prices, 9,
22.
(8)
Leo Melamed, with Bob Tamarkin, Escape to the Futures (New York: John Wiley &
Sons, Inc., 1996), 99.
(9)
Holbrook Working, “Price Effects of Futures Trading,”
(reprinted from Food Research Institute
Studies 1, no. 1 [Feb. 1960]), in Selected Writings of Holbrook Working, Anne E. Peck,
ed., (Chicago: Chicago Board of Trade, 1977),
45–71.
(10)
Roger W. Gray, “Onions Revisited,” (reprinted from
Journal of Farm Economics 45, no.
2 [May 1963]), in Peck, Selected Writings,
325–28.
(11)
Aaron C. Johnson, “Effects of Futures Trading on Price
Performance in the Cash Onion Market, 1930–1968,” (excerpted from USDA,
ERS, Technical Bulletin no. 1470, Feb. 1973), in Peck Selected Writings,
329–36.
(12)
A recent summing up of the research on the question of
whether derivatives markets add volatility can be found in Stewart
Mayhew, “The Impact of Derivatives on Cash Markets: What Have We
Learned” (working paper, Terry College of Business, University of
Georgia, 2000), available at
http://media.terry.uga.edu/documents/finance/impact.pdf.
(13)
Arjo Klamer, Conversations
with Economists: New Classical Opponents and Their Opponents
Speak Out on the Current Controversy in
Macroeconomics (Totowa, N.J.: Rowman &
Allanheld Publishers, 1984), 223.
(14)
This work is described in chapter 13, “Bond Market
Volatility: An Introductory Survey,” of Robert J. Shiller, Market Volatility (Cambridge, Mass.: MIT
Press, 1989), 219–36.
The best known of his papers on the subject was “The Volatility of Long-Term Interest Rates and Expectations Models of the Term Structure,” Journal of Political Economy (Dec. 1979): 1190–219. Reprinted in Shiller, Market Volatility, 256–87.
(15)
Robert J. Shiller, “Do Stock Prices Move Too Much to be
Justified by Subsequent Changes in Dividends?” American Economic
Review (June 1981): 421–35. Reprinted in Shiller,
Market Volatility, 105–30. Two
Federal Reserve Board economists published a similar study with similar
results—based on reported earnings rather than dividends—the same year.
But they didn’t give it nearly as attention getting a title, and it got
substantially less attention:
Stephen F. LeRoy and Richard D. Porter, “The Present-Value Relation:
Tests Based on Implied Variance Bounds,” Econometrica (May 1981): 555–74.
(16)
Robert C. Merton, “On the Current State of the
Stock Market Rationality Hypothesis,” Macroeconomics and Finance: Essays in Honor of Franco
Modigliani, Rudiger Dornbusch, Stanley Fischer,
and John Bossons, eds. (Cambridge: MIT Press, 1987),
117.
(17)
Robert J. Shiller, “Stock Prices and Social Dynamics,”
Brookings Papers on Economic
Activity 2 (1984): 457–98. Reprinted in Shiller,
Market Volatility,
8.
(18)
Paul A. Samuelson and William A. Barnett, Inside the Economist’s Mind (Malden, Mass.,
and Oxford: Blackwell, 2006), 241. (The economist who urged Shiller to
keep the line in was Yale’s William Nordhaus.)
(19)
Summers’s father was Samuelson’s younger brother, but had
changed his surname to avoid anti-Jewish discrimination. Arrow was
Summers’s mother’s brother. Summers studied economics as an
undergraduate at MIT, got his Ph.D. at Harvard and his first teaching
job at MIT, and then he returned to become the youngest-ever tenured
professor at Harvard, all the while writing a lot of working papers for
the National Bureau of Economic Research.
(20)
Lawrence H. Summers, “Does the Stock Market Rationally
Reflect Fundamental Values?” Journal of
Finance (July 1986) 591–601. The piece was originally
circulated as a National Bureau of Economic Research working paper in
1982.
(21)
Lawrence H. Summers, “On Economics and Finance,”
Journal of Finance (July
1985): 633–35.
(22)
Lawrence H. Summers, “Finance and Idiots,” copy of undated
paper with comments from Fischer Black, provided to the author by Andrei
Shleifer.
(23)
Hersh M. Shefrin and Meir Statman, “Explaining Investor
Preference for Cash Dividends,” Journal of
Financial Economics (1984): 253–82. The Journal of Finance had actually run one
behavioral finance article more than a decade before, but it was not by
a finance professor and it occasioned little follow-up: Paul Slovic,
“Psychological Study of Human Judgment: Implications for Investment
Decision Making,” Journal of Finance
(Sept. 1972): 779–99. (Slovic was a research psychologist at the Oregon
Research Institute who was later to work closely with Kahneman and
Tversky.)
(24)
Fischer Black, “The Dividend Puzzle,” Journal of Portfolio Management (Winter
1976): 5–8.
(25)
Black did complain that Shefrin and Statman had spelled his
first name wrong—a recurring theme in Black’s interactions with the
world. But that seemed to be his only real problem with their work. In a
subsequent letter to Shefrin, Journal of
Financial Economics editor G. William Schwert professed
to have “reservations” because the piece “seems to have no empirical
implications.” But he couldn’t dismiss Black’s positive verdict. May
1982 comments from Fischer Black and May 27, 1982, letter from G.
William Schwert courtesy of Hersh Shefrin.
(26)
Fischer Black, “Noise,” Journal of Finance (July 1986): 530,
533.
(27)
Richard Roll, “R2,” Journal of Finance (July 1988): 541–66.
Roll had investigated the question earlier for the orange juice futures
market, with similar results: Richard Roll, “Orange Juice and Weather,”
American Economic Review (Dec.
1984): 861–79.
(28)
Victor Niederhoffer, M. F. M. Osborne, “Market Making and
Reversal on the Stock Exchange,” Journal of the
American Statistical Association (Dec. 1966):
897–916.
(29)
I owe this observation to Baruch Lev, who wasn’t referring
to Niederhoffer’s work in particular but remembered Merton Miller saying
in class one day in the 1960s, “I will start to believe when I see the
first study that contradicts market efficiency.”
(30)
Fama, “Efficient Capital Markets,”
398.
(31)
Victor Niederhoffer and Patrick J. Regan, “Earnings
Changes, Analysts’ Forecasts, and
Stock Prices,” Financial Analysts
Journal (May-June 1972): 65–71. An even earlier account
of the phenomenon was a chapter called “Earnings Changes vs. Stock Price
Changes” in Burton P. Fabricand, Beating the
Street—How to Make Money on the Stock Market (New York:
David McKay, 1969). But none of the academic researchers appear to have
noticed it.
(32)
S. Francis Nicholson, “Price-Earnings Ratios,” Financial Analysts Journal (July-August
1960): 43–45.
(33)
The most important and controversial of the lot, because it
directly posed the question of whether the value effect violated the
efficient market hypothesis, was Sanjoy Basu, “Investment Performance of
Common Stocks in Relation to Their Price-Earnings Ratios: A Tesr of the
Efficient Market Hypothesis,” Journal of
Finance (June 1977): 663–82.
(34)
Ray Ball, “Anomalies in Relationships Between Securities’
Yields and Yield-Surrogates,” Journal of
Financial Economics 6 (1977): 103–26. Preparing the
groundwork for this had been Stephen A. Ross, “The Arbitrage Theory of
Capital Asset Pricing.” Journal of Economic
Theory (Dec. 1976), 343–62, and Richard Roll, who pointed
out in 1977 that the theoretical “market portfolio” at the heart of the
capital asset model was such a vast and amorphous thing (should it
include gold, real estate, life insurance policies?) that its
performance couldn’t really be measured. Richard Roll, “A Critique of
the Asset Pricing Theory’s Tests, Parr I: On Past and Potential
Testability of the Theory,” Journal of Financial
Economics 4 (1977): 129–76.
(35)
Rolf W. Bänz, “The Relationship Between Market Value and
Return of Common Stocks,” Journal of Financial
Economics (Nov. 1981): 3–18.
(36)
Floyd Norris, “Return of the Small Stock Conundrum,”
New York Times, Jan. 6,
1991.
(37)
Peter Tanous, Investment
Gurus (New York: New York Institute of Finance,
1997).
(38)
Eugene F. Fama, “Efficient Capital Markets: II,” Journal of Finance (Dec. 1991):
1575–617.
(39)
Robert Haugen, The New Finance: The
Case Against Efficient Markets (Englewood Cliffs, N.J.:
Prentice Hall, 1995), 65.
(40)
Eugene F. Fama, Kenneth R. French, “The Cross-Section of
Expected Stock Returns,” Journal of
Finance (June 1992): 450.
(41)
Narasimhan Jegadeesh, Sheridan Titman, “Returns to Buying
Winners and Selling Losers: Implications for Stock Market Efficiency,”
Journal of Finance (March 1993):
65–91.
(42)
Mark Carhart, “On persistence in mutual fund performance,”
Journal of Finance 52 (March
1997): 57–82.
الفصل الثاني عشر: التفوق على السوق مع وارين بافيت وإد ثورب
(1)
Roger Lowenstein, Buffett: The
Making of an American Capitalist (New York: Main Street
Books, 1996), 317. All the information on Buffett in this chapter is, unless otherwise
noted, from Lowenstein’s book.
(2)
Warren E. Buffett, “The Superinvestors of
Graham-and-Doddsville,” Hermes (Fall
1984): 4–15.
(3)
For the full story on that, read Connie Bruck’s Master of the Game: Steve Ross and the Creation of
Time Warner (New York: Penguin Books, 1995), esp.
29–39.
(4)
Thorp also figured out in the early 1960s how to beat the
house at baccarat and roulette, the latter by using a wearable
computer—the world’s first—that he and legendary MIT scientist Claude
Shannon designed to predict the ball’s path after it was
dropped.
(5)
Paul A. Samuelson, “Review of Beat
the Market,”Journal of the American Statistical
Association (Sept. 1968): 1049–51.
(6)
Carol J. Loomis, “The Jones Nobody Keeps Up With,”
Fortune, April 1966, 237, 240,
247.
(7)
Jonathan R. Laing, “Playing the Odds: Computer Formulas Are
One Man’s Secret to Success,” Wall Street
Journal, Sept. 23, 1974.
(8)
Andrew Tobias, Money
Angles (New York: Simon & Schuster, 1984),
70-71.
(9)
William Poundstone, Fortune’s
Formula (New York: Hill and Wang, 2005),
175–77.
(10)
James Agee (the article is not bylined, but Fortune’s records indicate that Agee wrote
it), “Arbitrage,” Fortune, June 1934,
93–97, 150–60.
(11)
Lowenstein, Buffett,
161. The actual Forbes article, published Nov. 1, 1974, substituted
“harem” for “whorehouse.”
(12)
Carol J. Loomis, “The Inside Story of Warren Buffett,”
Fortune, April 11, 1988,
32.
(13)
Shawn Tully, “Princeton’s Rich Commodities Scholars,”
Fortune, Feb. 9, 1981, 94–98.
Commodities Corp. alumni include legendary (among the cognoscenti)
traders David Tudor Jones, Bruce Kovner, and Monroe
Trout.
(14)
George Anders, “Some ‘Efficient-Market’ Scholars Decide
It’s Possible to Beat the Averages After All,” Wall Street Journal, Dec. 31, 1985,
11.
(15)
Barr Rosenberg, Kenneth Reid, and Ronald Lanstein,
“Persuasive Proof of Market Inefficiency,” Journal of Portfolio Management (Spring 1985): 9–17.
Reprinted in Streetwise: The Best of the Journal
of Portfolio Management, Peter L. Bernstein and Frank
Fabozzi, eds., (Princeton, N.J.: Princeton University Press, 1997),
48–55.
(16)
Michael Schrage, “Nerd on the Street,” Manhattan Inc., Oct. 1987,
104.
(17)
Peter L. Bernstein, Against the
Gods: The Remarkable Story of Risk (New York: John Wiley
& Sons, 1998), 7. (The Charles, in case anyone is puzzled by the
quote, is the river that runs between Boston and Cambridge,
Massachusetts.)
(18)
Roger Lowenstein, When Genius
Failed (New York: Random House,
2000).
الفصل الثالث عشر: آلان جرينسبان يمنع هبوطًا عشوائيًّا في وول ستريت
(1)
This is the gist of Peter Bernstein’s book, Against the Gods: The Remarkable Story of
Risk (New York: John Wiley & Sons,
1996).
(2)
Warren E. Buffett, Berkshire Hathaway 1987 Letter to
Shareholders, Feb. 29, 1988. Available at
www.berkshirehathaway.com/letters/letters.html.
(Italics his.)
(3)
Most of this summary of events is taken from the January
1988 “Brady report”: Report of the Presidential
Task Force on Market Mechanisms, Washington, D.C.: U.S.
Government Printing Office, 1988, 15–29. The Brady report is politic
enough not to focus on the comments by Baker, who was still treasury
secretary when it came out. They can be found in Peter T. Kilborn, “U.S.
Cautions Bonn That It May Force the Dollar Lower,” New York Times, Oct. 16, 1987,
1.
(4)
The Brady report concluded that about a third of the
selling on October 19 was portfolio-insurance
related.
(5)
Perry Mehrling, Fischer Black and
the Revolutionary Idea of Finance (Hoboken, N.J., John
Wiley & Sons, 2005), 271.
(6)
Barbara Donnelly, “Efficient Market Theorists Are Puzzled
by Recent Gyrations in Stock Market,” Wall
Street Journal, Oct. 23, 1987, 7.
(7)
Gary Hector, “What Makes Stock Prices Move?” Fortune, Oct. 10, 1988,
69.
(8)
A few months after the crash, Richard Roll studied the
behavior of twenty-three stock markets around the world on and before
October 19 and concluded that the whole event was just “the normal
response of each country’s stock market to a worldwide market movement.”
Richard Roll, “The International Crash of October 1987,” Financial Analysts Journal
(Sept.-Oct. 1988): 19.
(9)
The main reports were the abovementioned Brady report and
the SEC’s The October 1987 Market Break: A
Report by the Division of Market Regulation (Feb. 1988),
which were both perceived by the Chicago exchanges as blaming them for
the crash. Merton H. Miller summarizes the results of a Chicago Merc
study that saw things differently in “The Economics and Politics of
Index Arbitrage,” keynote address, fourth annual Pacific Basin Research
Conference, Hong Kong, July 6–8, 1992, in Merton
Miller on Derivatives (New York: John Wiley &
Sons, 1997), 26–39.
(10)
Donnelly, “Efficient Market Theorists Are
Puzzled.”
(11)
Robert J. Shiller, “Speculative Prices and Popular Models,”
Journal of Economic Perspectives
(Spring 1990): 58.
(12)
Hector, “What Makes Stock Prices Move?”
72.
(13)
Jens Carsten Jackwerth and Mark Rubinstein, “Recovering
Probability Distributions from Equity Prices,” Journal of Finance (Dec. 1996):
2.
(14)
Benoit Mandelbrot, interview with the
author.
(15)
Gregg A. Jarrell, “En-Nobeling Financial Economics,”
Wall Street Journal, Oct. 17,
1990, A14.
(16)
Myron S. Scholes, “Derivatives in a Dynamic Environment,”
and Robert C. Merton, “Applications of Option-Pricing Theory:
Twenty-Five Years Later,” in Nobel Lectures,
Economics 1996–2000, Torsten Persson, ed., (Singapore:
World Scientific Publishing Co., 2003). Also available at
http://nobelprize.org.
(17)
In the case of Orange County, Treasurer Robert Citrin
followed a strategy in the early 1990s of buying derivatives called
“inverse floaters,” which paid higher returns the lower that short-term
interest rates went. From 1991 to 1994 this strategy paid off
handsomely, bringing in profits of over $750 million—with almost
no volatility. But Greenspan’s Fed raised short-term rates because of
inflation fears in 1994, and the value of the portfolio Citrin managed
suddenly dropped by $1.7 billion.
(18)
Merton H. Miller, Merton Miller on
Derivatives (New York: John Wiley & Sons, 1997),
ix.
(19)
Robert J. Shiller, The New
Financial Order: Risk in the 21st
Century (Princeton: Princeton University Press, 2003),
1-2, 5.
(20)
“Roundtable: The Limits of VAR,” Derivatives Strategy (April 1998):
www.derivativestrategy.com/magazine/archive/1998/0498fea.asp.
(21)
The subsequent account of Long-Term Capital Management’s
fall is, except where otherwise attributed, taken from the two books:
Nicholas Dunbar, Inventing Money: The Story of
Long-Term Capital Management and the Legends Behind It
(New York: John Wiley & Sons, 2000); Roger Lowenstein, When Genius Failed: The Rise and Fall of Long-Term
Capital Management (New York: Random House,
2000).
(22)
Joe Kolman, “LTCM Speaks,” Derivatives Strategy (April 1999):
www.derivativestrategy.com/magazine/archive/1998/0499fea1.asp.
(23)
Robert Litzenberger speech, Society of Quantitative
Analysts.
(24)
Richard Bookstaber, A Demon of
Their Own Design: Markets, Hedge Funds, and the Perils of Financial
Innovation (Hoboken, N.J.: John Wiley & Sons,
2007), 97.
(25)
The LTCM partner whose lecture Markowitz attended was David
Modest.
(26)
The most detailed description of the Greenspan’s and
Corrigan’s actions is in Bob Woodward, Maestro:
Greenspan’s Fed and the American Boom (New York:
Touchstone, 2001), 36–47, but better accounts of the market’s
malfunctioning on the twentieth can be found in the Brady report and in
James B. Stewart and Daniel Hertzberg, “Terrible Tuesday: How the Stock
Market Almost Disintegrated a Day After the Crash,” Wall Street Journal, 1, 23. (Stewart and
Hertzberg won a Pulitzer for the piece.)
(27)
James Tobin, “A Proposal for International Monetary
Reform,” Eastern Economic Journal
(July-Oct. 1978): 153–59; Keynes, General Theory, 160; “Glass’s
5% Tax Plan Stirs Wall Street,” New York
Times, June 6, 1929, 6.
الانهيار
الفصل الرابع عشر: أندريه شلايفر يتجاوز اقتصاد الحاخامات
(1)
Andrei Shleifer, “Do Demand Curves for Stocks Slope Down?”
Journal of Finance (July 1986):
579–90.
(2)
This is Shleifer’s recollection. Scholes doesn’t recall the event but admist it sounds
like something he would’ve said.
(3)
Oliver Blanchard, “In Honor of Andrei Shleifer: Winner of
the John Bates Clark Medal,” Journal of Economic
Perspectives (Winter 2001):
189–204.
(4)
Shleifer ran an advisory office in Moscow that was
affiliated with Harvard and funded by the U.S. Agency for International
Development. USAID later charged that Shleifer had countenanced
conflicts of interest as he, his number two, and their wives and
girlfriends made investments in Russian companies while advising the
country’s government. Shleifer maintained that he had been in Harvard’s
employ, not USAID’s, and that his behavior hadn’t violated the
university’s less-stringent conflict-of-interest rules. But a federal
judge didn’t buy it, Harvard ended up paying a fine of $26.5
million and Shleifer $2 million, and the episode exacerbated
faculty dissatisfaction with Summers, who ended up leaving Harvard’s
presidency in 2006. An epic, and almost virulently Shleifer-unfriendly,
account of the affair can be found in David McClintick, “How Harvard
Lost Russia,” Institutional Investor
(Feb. 2006).
(5)
Fischer Black, “Estimating Expected Return,” Financial Analysts Journal (Sept.-Oct.
1993): 36–38.
(6)
Louis K. C. Chan and Josef Lakonishok, “Are the Reports of
Beta’s Death Premature?” Journal of Portfolio
Management (Summer 1993): 51–62.
(7)
Josef Lakonishok, Andrei Shleifer, Richard Thaler, Robert
Vishny, “Window Dressing by Pension Fund Managers,” American Economic Review (May 1991):
227–31.
(8)
“Pensions & Investments/Watson Wyatt World 500: The
world’s largest managers,” Pensions &
Investments, Oct. 13, 2008. Shleifer and Vishny had by
this point both left the firm.
(9)
John Maynard Keynes, General
Theory, (New York: Harcourt, Brace, 1936),
157.
(10)
Amir Barnea, Robert A. Haugen, and Lemma W. Senbet,
Agency Problems and Financial
Contracting (Englewood Cliffs, N.J.: Prentice-Hall,
1985).
(11)
Andrei Shleifer and Robert W. Vishny, “The Limits of
Arbitrage,” Journal of Finance (March
1997): 37.
(12)
Jeremy J. Siegel, Stocks for the
Long Run, 2nd ed. (New York:
McGraw-Hill, 1998), 45.
(13)
Pablo Galarza, “It’s Still Stocks for the Long Run,”
Money, Dec.
2004.
(14)
Robert J. Shiller, “Price-Earnings Ratios as Forecasters of
Returns: The Stock Market Outlook in 1996,” paper posted on Shiller’s
Web site, July 21, 1996,
www.econ.yale.edu/%7Eshiller/data/peratio.html.
The original paper was John Y. Campbell and Robert J. Shiller, “Stock Prices, Earnings,
and Expected Dividends,” Journal of
Finance (July 1988): 661–76.
(15)
Alan Greenspan, The Age of
Turbulence (New York: Penguin, 2007),
176–79.
(16)
J. Bradford DeLong and Konstantin Magin, “Contrary to
Robert Shiller’s Predictions, Stock Market Investors Made Much Money in
the Past Decade: What Does This Tell Us?” Economists’ Voice (July 2006).
(17)
“Volatility in U.S. and Japanese Stock Markets:
Selections from the First Annual Symposium on Global Financial
Markets,” Journal of Applied Corporate
Finance Spring 1992: 4–35. (Roll’s quote is on
pp. 29-30.)
(18)
This is directly from Cliff Asness. A slightly different
version of the story can be found in Joseph Nocera, “The Quantitative,
Data-Based, Risk-Massaging Road to Riches,” New
York Times Magazine, June 5, 2005.
(19)
The October 2000 version is available for download at
http://ssrn.com/abstract=240371.
(20)
Williams (1997), 188.
(21)
Clifford Asness, “Bubble Logic: Or, How to Learn to Stop
Worrying and Love the Bull,” partial draft of an unpublished book, June
1, 2000.
(22)
Owen A. Lamont and Richard H. Thaler. “Can The Market Add
and Subtract? Mispricing in Tech Stock Carve-Outs,” Journal of Political Economy (April 2003):
227–68.
(23)
Jeremy Siegel, “Big-Cap Tech Stocks Are a Sucker Bet,”
Wall Street Journal, March 14,
2000.
(24)
Justin Fox, “9% Forever?” Fortune, Dec. 26, 2005.
الفصل الخامس عشر: مايك جنسن يغيِّر رأيه في الشركة
(1)
Jack Willoughby, “Burning Up: Warning: Internet companies
are running out of cash—fast,” Barron’s, March 20, 2000, 29.
(2)
Greg Kyle, president of Pegasus. Quoted in Betsy Schiffman,
“Going, Going, Gone: Business-to-Consumer Sector Goes Bust,” Forbes.com,
April 19, 2000.
(3)
George Soros, “The Theory of Reflexivity.” Delivered April
26, 1994, to the MIT Department of Economics World Economy Laboratory
Conference, Washington, D.C.
(4)
Justin Fox, “Net Stock Rules: Masters of a Parallel
Universe,” Fortune, June 7, 1999;
Daniel Gross’s book Pop: Why Bubbles Are Great
for the Economy (New York: Collins, 2007), explores this
argument in more detail.
(5)
This approximate number was arrived at by taking Time
Warner’s market cap before the merger with AOL was announced, $76
billion, and subtracting from it the value of the 45 percent of the
company that those shareholders owned after the merged company’s stock
slumped in late 2002.
(6)
Michael C. Jensen, “Agency Costs of Overvalued Equity,”
(working paper 39/2004, European Corporate Governance Institute, May
2004).
(7)
He participated in an interdisciplinary project on
“Mind/Brain/Behavior” launched in 1993 by Harvard president Neil
Rudenstine, in which he worked alongside psychologists and
neurobiologists to study “self-command.”
(8)
Influential journalist James Fallows, after an extended
stay in Asia, went so far as to call into question the entire
neoclassical approach by attempting to resurrect the arguments of
nineteenth-century German thinker Friedrich List. List, who remained
influential in Asia, had tried to construct an economics based on
national interest rather than individual utility. He is, it should be
emphasized, a figure worthy of renewed interest whether you buy in to
his economic ideas or not. He founded the German railway system, for one
thing. Also, after moving to the United States in 1825 on the
recommendation of his good friend the Marquis de Lafayette, he spent
several very active years editing a newspaper in Pennsylvania, helping
out with Andrew Jackson’s presidential campaign, and playing a major
role in U.S. economic-policy debates before returning home in 1831.
William Notz, “Friedrich List on America,” American Economic Review (June 1926): 249–65. Fallows’s
take on List can be found in James Fallows, Looking at the Sun: The Rise of the New East Asian Economic and
Political System (New York: Vintage, 1995),
179–95.
(9)
Speech at the Second Mitsui Life Symposium on Global
Financial Markets, May 11, 1993. Published as Merton Miller, “Is
American Corporate Governance Fatally Flawed?” Journal of Applied Corporate Finance (Winter 1994):
32–39.
(10)
Michael C. Jensen, “Eclipse of the Public Corporation,”
Harvard Business Review
(Sept.-Oct. 1989): 73-74.
(11)
Thomas Frank, One Market Under
God (New York: Doubleday, 2000), 93-94 (in the UK
edition).
(12)
I have a vivid memory of two Social Democratic members of
parliament from Germany reciting Jensen’s agency theory in great detail
during a visit to Fortune in 1999 or
so. Sadly, I haven’t been able to find my notes.
(13)
Doug Henwood, Wall
Street (rev. ed.) (London: Verso, 1998),
179.
(14)
Gary Hector, “Yes, You Can Manage for the Long Term,” Fortune, Nov. 21, 1988.
(15)
Hector, “Yes, You Can.”
(16)
Marc Gunther, “Investors of the World United,” Fortune,
June 24, 2002.
(17)
Fred R. Bleakley, “A Trustee Takes on the Greenmailers,”
New York Times, Feb. 10, 1985,
143.
(18)
Michael C. Jensen, “The Modern Industrial Revolution, Exit,
and Control Systems,” Journal of
Finance (July 1993): 831–80, quote from p. 867. Jensen’s
change of heart was influenced by the work of Harvard law professor Mark
Roe, who in a series of law review articles and then his book, Strong Managers, Weak Owners (Princeton,
N.J.: Princeton University Press, 1996), made the case that Congress and
the legal system had long undercut the power of institutional
investors.
(19)
The repeated use of Fortune cover headlines in this chapter is in part the
product of having ready access to back issues of the magazine. But they
also do a great job of capturing the conventional wisdom, or soon-to-be
conventional wisdom of the business world.
(20)
Michael C. Jensen and Kevin J. Murphy, Harvard Business Review (May-June 1990):
138–53, quote from p. 138.
(21)
“U.S. Steel Announces Sweeping Modernization
Scheme,” by Benjamin Graham.
Reprinted as appendix A
to the 1990
Berkshire Hathaway shareholder
letter.
(22)
The Brown quote was from a videotape of the rally loaned to
me by the Financial Accounting Standards Board, and the Marcus quote in
the transcripts of an FASB public hearing.
Both were originally cited in Justin Fox, “The Next Best Thing to Free Money,” Fortune, July 7, 1997, 60.
(23)
Connecticut senator Joe Lieberman led the
charge.
(24)
Justin Fox, “The Next Best Thing to Free
Money.”
(25)
The one notable exception was Mark Rubinstein, cocreator of
the binomial optionpricing model, who thought options should be expensed
but hated the way the FASB did it. The standard set in stone the
valuation of the option when it was granted, and didn’t allow for any
“trueing up” later on if it expired worthless or was exercised for a big
gain.
(26)
Think of it this way. If a CEO gets a million options a
year, and the company’s stock stays at $10 for a decade, he makes
no profit at all. If instead the price bounces from $10 one year
to $20 and the next to $10 again, he makes $50
million while a buy-and-hold shareholder is stuck at
zero.
(27)
Alfred Rappaport, “The Economics of Short-Term Performance
Obsession,” Financial Analysts
Journal (May–June 2005): 65–79.
(28)
Alex Berenson has written an entire book about
this phenomenon: The Number: How the Drive for Quarterly Earnings
Corrupted Wall Street and Corporate America (New York:
Random House, 2003).
(29)
“The most general implication of the efficient market
hypothesis is that most security analysis is logically complete and
valueless,” is how Lorie and Hamilton began their passage on security
analysis. In his Warren Buffett biography, Roger Lowenstein used this as
evidence of the extremism of the efficient marketeers. But Lorie wasn’t
an efficient markets extremist (he was convinced his student Victor
Niederhoffer could beat the market), and what he and Hamilton were
trying to say was something Buffett and Benjamin Graham would both
endorse: You shouldn’t buy a company’s stock because you like its
prospects, you should buy it because you think the current market price
is lower than those prospects warrant. James H. Lorie and Mary T.
Hamilton, The Stock Market: Theories and
Evidence (Homewood, Ill.: Richard D. Irwin Inc., 1973),
100.
(30)
I can testify to this from personal experience, having once
invited Jensen to a Fortune magazine
conference where he presented the idea to a room full of corporate
executives.
(31)
Michael Brennan, “A Plain Man’s Response to Professor
Jensen” (unpublished paper, 1994). It followed an exchange between
Brennan and Jensen in the Journal of Applied
Corporate Finance (Summer 1994):
31–45.
(32)
Jim Collins, Good to
Great (New York: HarperBusiness, 2001),
49.
(33)
Some of this story is told in David Warsh,
“Beyond Coordination and
Control Is … Transformation,” Economic
Principals, April 8, 2007.
(34)
Michael C. Jensen, “Putting Integrity
into Finance Theory and Practice: A Positive
Approach (Pdf of Keynote Slides),” first presented
at the meetings of the American Finance
Association, Boston, Mass., Jan. 6, 2006.
Available at
http://ssrn.com/abstract=876312.
الفصل السادس عشر: جين فاما وديك تالر يهزم كلٌّ منهما الآخر بالضربة القاضية
(1)
Jason M. Heltzer, Evan M. Raine, “Rumble in Hyde Park,”
Follies 2002, University of Chicago Graduate School of Business (script
given to the author by Jason Heltzer). Heltzer wrote another Fama-Thaler
duet to the tune of “Confrontation” from Les Miserables that was,
regrettably, never performed.
(2)
Richard H. Thaler, “Irving Fisher: Modern Behavioral
Economist,” American Economic Review
(May 1997): 439–41.
(3)
The origin of the 401(k) is described in Michael J. Clowes,
The Money Flood, (New York: John
Wiley & Sons, 2000), 188-89. The story of the rise of “investor
nation” is told in depth in Joseph Nocera, A
Piece of the Action: How the Middle Class Joined the Money
Class (New York: Simon & Schuster,
1994).
(4)
Thomas L. Friedman, The Lexus and
the Olive Tree (New York: Anchor Books, Random House,
2000), 58.
(5)
Quantitative Analysis of Investor
Behavior 2003, Dalbar, Inc., July 14,
2003.
(6)
Chris Flynn, Herbert Lum, DC Plans
Under Performed DB Plans (Toronto: CEM Benchmarking,
2006).
(7)
John J. Curran, “Why Investors Make the Wrong Choices,”
Fortune, Nov. 24, 1986; Clint
Willis, “The Ten Mistakes to Avoid with Money,” Money, June 1990.
(8)
Gary Belsky and Thomas Gilovich, Why Smart People Make Big Money Mistakes and How to Correct
Them (New York: Simon & Schuster, 1999); Dan
Ariely, Predictably Irrational (New
York: HarperCollins, 2008); Jason Zweig, Your
Money and Your Brain (New York: Simon & Schuster,
2007); and so on.
(9)
To get the records, Odean had to promise not to say
which firm, and he won’t. But
everyone else in finance assumes it had to be Charles Schwab. Terrance
Odean, “Are Investors Reluctant to Realize Their Losses,” Journal of Finance (Oct. 1998): 1775–98.
Terrance Odean, “Volume, Volatility, Price, and Profit When All Traders
Are Above Average,” Journal of
Finance (Dec. 1998): 1887–934. Brad M. Barber and
Terrance Odean, “Boys Will Be Boys: Gender, Overconfidence and Common
Stock Investment,” Quarterly Journal of
Economics (Feb. 2001): 261–92.
(10)
A good summary of the evidence can be found in James Choi,
David Laibson, Brigitte Madrian, and Andrew Metrick, “Saving for
Retirement on the Path of Least Resistance,” in Behavioral Public Finance: Toward a New Agenda, Edward
J. McCaffrey and Joel Slemrod, eds. (New York: Russell Sage Foundation,
2006), 304–51.
(11)
George Ainslie, “Impulse Control in Pigeons,” Journal of the Experimental Analysis of
Behavior 21 (1974): 485–89.
(12)
Samuel M. McClure, David I. Laibson, George Loewenstein,
and Jonathan D. Cohen, “Separate Neural Systems Value Immediate and
Delayed Rewards,” Science (Oct. 15,
2004): 503–7.
(13)
Richard Thaler and Shlomo Benartzi, “Save More Tomorrow:
Using Behavioral Economics to Increase Employee Savings,” Journal of Political Economy (Feb. 2004):
pt. 2, S164–S187.
(14)
Justin Fox, “Why Johnny Can’t Save for Retirement,”
Fortune, March 21,
2005.
(15)
Richard H. Thaler, Cass R. Sunstein, Nudge: Improving Decisions About Health, Wealth, and
Happiness (New Haven: Yale University Press,
2008).
(16)
Cass R. Sunstein, ed., Behavioral
Law and Economics (Cambridge and New York: Cambridge
University Press, 2000).
(17)
Aditya Chakrabortty, “From Obama to Cameron,
why do so many politicians
want a piece of Richard Thaler?” Guardian, July 12,
2008, 16.
(18)
Edward Glaeser, “Paternalism and Psychology,” University of
Chicago Law Review (2006): 133–56.
(19)
Told to me by William Sharpe.
(20)
The first criticism is in Paul Zarowin, “Does the Stock
Market React to Corporate Earnings Information?” Journal of Finance (1989): 1385–99, the second in K. C.
Chan and Nai fu Chen, “Structural and Return Characteristics of Small
and Large Firms,” Journal of Finance
(1991): 1467–82.
(21)
Eugene F. Fama, “Market Efficiency, Long-Term Returns, and
Behavioral Finance,” Journal of Financial
Economics (Sept. 1998): 283–306. Fama originally posted
the paper in 1997 on the Social Science Research Network, an academic
Web site run by Michael Jensen that has become the main forum for
sharing work in progress in finance and several other disciplines. It
was, as of April 2008, the most-downloaded paper in SSRN’s
history.
(22)
“Is That a $100 Bill Lying on the Ground? Two Views
of Market Efficiency,” Knowledge@Wharton, Oct. 23, 2002,
http://knowledge.wharton.upenn.edu/article.cfm?articleid=650.
(23)
Peter Bossaerts, The Paradox of
Asset Pricing (Princeton, N.J.: Princeton University
Press, 2002).
(24)
Eugene F. Fama and Kenneth R. French, “Disagreement,
Tastes, and Asset Pricing,” Journal of Financial
Economics (March 2007): 667–89.
(25)
“The Mecca of the economist lies in economic biology rather
than economic dynamics,” Alfred Marshall, Principles of Economics, preface to the
8th ed. (Amherst, N.Y.: Prometheus Books,
1997), xx.
(26)
J. Doyne Farmer, “Physicists Attempt to Scale the Ivory
Tower of Finance,” Computational
Finance (Nov./Dec. 1999): 26.
(27)
Paul Krugman, “Ricardo’s Difficult Idea,” The Economics and
Politics of International Trade: Freedom and Trade,
Routledge Studies in the Modern World Economy, 10 (London: Routledge,
1998), 22–36. Also available online at
http://web.mit.edu/krugman/www/ricardo.htm.
(28)
James B. Ramsey, “If Nonlinear Models Cannot Forecast, What
Use Are They?” Studies in Nonlinear
Dynamics 1, issue 2 (1996): 65–86.
(29)
W. Brian Arthur, John H. Holland, Blake LeBaron, Richard
Palmer, and Paul Tayler, “Asset Pricing Under Endogenous Expectations in
an Artificial Stock Market,” in The Economy As
an Evolving Complex System II (Reading, Mass.:
Addison-Wesley, 1997), 15–44.
(30)
He does have some devoted fans off campus, such as Eric D.
Beinhocker, author of The Origin of Wealth:
Evolution, Complexity, and the Radical Remaking of
Economics (Boston: Harvard Business School Press, 2006),
and Legg Mason strategist Michael Mauboussin.
(31)
The
definitive layman’s account of the rise of new growth theory is David
Warsh, Knowledge and the Wealth of Nations: A
Story of Economic Discovery (New York: W. W. Norton,
2006).
(32)
On “adaptive rational equilibrium,” see William A. Brock
and Cars H. Hommes, “A Rational Route to Randomness,” Econometrica (Sept. 1997): 1059–95; on
“efficient learning,” see Bossaerts, Paradox; on “adaptive market hypothesis,” see Andrew W.
Lo, “The Adaptive Markets Hypothesis: Market Efficiency From and
Evolutionary Perspective,” Journal of Portfolio
Management 30 (2004): 15–29; on “rational belief
equilibria,” see Mordecai Kurz, “On Rational Belief Equilibria,”
Economic Theory 4 (1994): 859–76.
(33)
John C. Bogle, “An Index Fund Fundamentalist,” Journal of Portfolio Management (Spring
2002): 31–38; “The Implications of Style Analysis for Mutual Fund
Performance Evaluation,” Journal of Portfolio
Management (Summer 1998): 34–42.
خاتمة
(1)
“Here, as in most of the working-men’s quarters of Manchester,
the pork-raisers rent the courts and build pig-pens in them,” Friedrich
Engels wrote in The Condition of the Working-Class
in England in 1844. “In almost every court one or even
several such pens may be found, into which the inhabitants of the court
throw all refuse and offal, whence the swine grow fat; and the atmosphere,
confined on all four sides, is utterly corrupted by putrefying animal and
vegetable substances.”
(2)
T. S. Ashton, Economic and Social
Investigations in Manchester, 1833–1933: A Centenary History of the
Manchester Statistical Society (London: P. S. King &
Son, 1934), 71-72.
(3)
John Mills, “On Credit Cycles and the Origin of Commercial
Panics,” Transactions of the Manchester Statistical
Society, sess. 1867-68, 9–40.
(4)
John Mills, “Inaugural Address: On the Scope and Method of
Statistical Enquiry, and on some Questions of the Day,” Transactions of the Manchester Statistical
Society, sess. 1871-72, 4.
(5)
“The Solar Period and the Price of Corn,” read at meeting of
British Association in Bristol, 1875. Reprinted in W. Stanley Jevons,
Investigations in Currency &
Finance (London: Macmillan and Co., 1884),
203.
(6)
Mills, “On Credit Cycles,” 29. He suggests on the next page
that Jevons be the one to do the educating: “[T]he Cobden chair of Political
Economy at Owens College, at present so ably filled, might become a centre
from which should radiate the remedial influences which I venture to
suggest.”
(7)
A notable exception was MIT economist Charles Kindleberger. But
Kindleberger’s 1978 history, Manias, Panics and
Crashes: A History of Financial Crises (New York: Basic
Books, 1978), which drew heavily on Minsky’s theories, also seemed to draw
far more readers from trading floors than economics seminar
rooms.
(8)
Hyman P. Minsky, “The Financial Instability Hypothesis:
A Restatement,” Thames Papers in Political
Economy (Autumn 1978). Reprinted in Can “It” Happen Again: Essays on Instability and
Finance (Armonk, N.Y.: M. E. Sharpe, 1982),
106.
(9)
Mark Zandi, “Where are the Regulators?” Moody’s Economy.com,
Nov. 1, 2005,
www.economy.com/home/article.asp?cid=18664.
(10)
Peter Thal Larsen, “Goldman pays the price of being big,”
Financial Times, Aug. 13,
2007.
(11)
Charles Himmelberg, Christopher Mayer, and Todd Sinai,
“Assessing High House Prices: Bubbles, Fundamentals and Misperceptions,”
Journal of Economic Perspectives
(Fall 2005): 67–92.
(12)
Justin Lahart, “In Time of Tumult, Obscure Economist Gains
Currency,” Wall Street Journal, Aug. 18,
2007, 1.
(13)
Alan Greenspan, “Reflections on Central Banking,”
speech given at the annual Jackson Hole symposium of the Federal
Reserve Bank of Kansas City, Aug. 26, 2005.
(14)
Alan Greenspan, “Mortgage Banking,” speech to the American
Bankers Association Annual Convention, Palm Desert, California (via
satellite), Sept. 26, 2005.
(15)
Alan Greenspan and James Kennedy, “Estimates of Home Mortgage
Originations, Repayments and Debt on One-to-Four Family Residences,” Finance
and Economics Discussion Series, Divisions of Research and Statistics and
Monetary Affairs, Federal Reserve Board, 2005–41; Greenspan and Kennedy,
“Sources and Uses of Equity Extracted from Homes,” Finance and Economics
Discussion Series, Divisions of Research and Statistics and Monetary
Affairs, Federal Reserve Board, 2007–20.
(16)
Joseph Stagg Lawrence, Wall Street and
Washington (Princeton: Princeton University Press, 1929),
179.
(17)
John Maynard Keynes, The General Theory
of Employment, Interest and
Money (New York: Harcourt, Brace, 1936),
322.
(18)
Paul L. Kasriel, “Is Mishkin Mishuga About Asymmetric Monetary
Policy Responses?” Econtrarian (Northern
Trust Global Economic Research), Sept. 12, 2007.
(19)
Members of this minority include Peter Schiff, Jim Rogers, Marc
Faber, and many more.
(20)
Robert Shiller, The Subprime Solution:
How Today’s Global Financial Crisis Happened and What to Do About
It (Princeton: Princeton University Press,
2008).
(21)
“AMA: Plastic Surgery ‘Only A Few Years Away’ From Making
Someone Look Better,” The Onion, July 19,
2007.
تعقيب
(1)
“How to Tame Global Finance,” Prospect, Sept. 2009.
(2)
Paul Krugman, “How Did Economists Get It So Wrong?” New York Times Magazine, Sept. 2,
2009.
(3)
John Cassidy, How Markets Fail: The
Logic of Economic Calamities (New York: Farrar, Straus and
Giroux, 2009), p. 346.
(4)
Tim Harford, “Confessions of an Armchair Economist,” Financial Times, Aug. 4,
2010.
(5)
I owe this insight to Jack Bloom, who surely didn’t originate
it but made me take notice of it.
(6)
Amar Bhidé, “The Judgment Deficit,” Harvard Business Review, Sept. 2010, and A Call for Judgment: Sensible Finance for a Dynamic
Economy (New York: Oxford University Press,
2010).
