On the Himalayan Shoulders of Harry Markowitz
Few scientific scholars live to see their brain children come into almost universal usage. Harry Markowitz (1952, 1959, 2008) has been such an exceptional innovator. His quadratic programming Mean-Variance algorithms are used daily by thousands of money managers everywhere. When a quantum upward jump occurs, Robert K. Merton and other historians of science tell us that usually more than one scholar contributes to the advance – as with Newton and Leibniz or Darwin andWallace.When we cite Markowitz–Tobin– Lintner–Mossin–Sharpe methodologies, we pay tribute to the creative interactions among and between the innovators.1 Genuine scientific advances all too often do meet with resistance from historical orthodoxies. Max Planck (1900, 1901) gained eternal fame for himself when (“as an act of desperation”) he introduced quantum notions into classical physics. Was he instantly and universally applauded? Not quite so. Autobiographically, he had to declare that old guards are slow to accept new-fangled theories. As they are so often resistant to new methodologies, the new orthodoxy gets born only after they die one by one. Planck sums it up: Science progresses funeral by funeral! Harry Markowitz encountered the Planckian syndrome early on. At Markowitz’s Chicago 1952 oral Ph.D. exam, Professor Milton Friedman made waves against quadratic programming, declaring that it was not even economics, and neither was it interesting mathematics.
KeywordsPortfolio Selection Risk Tolerance Sharpe Ratio Certainty Equivalent Quadratic Utility
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