Comments on “ERISA and the Prudent Man Rule”
As Professor Blair has pointed out, modern portfolio theory suggests a multitude of irrationalities in common law standards for trustees managing investment funds. In elaborating the statutory standards for the “prudent expert” established by the Employee Retirement Income Security Act,1 these perversities are certainly to be avoided. Using portfolio theory to criticize the current standards, however, is a different and much simpler task than using the theory to promulgate new standards that courts can use effectively.
KeywordsSupra Note Investment Strategy Capital Asset Price Model Portfolio Theory Efficient Market Hypothesis
Unable to display preview. Download preview PDF.
- 3.Brown id., criticizes the complete information assumption; Cooter, Kornhauser, and Lande, “Liability Rules, Limited Information and The Role of Precedent,” 10 Bell Journal of Economics, 366 (1979), criticize the informational and behavioral assumptions; Green “On the Optimal Structure of Liability Laws,” 7 Bell Journal of Economics 553 (1976), investigates the cost uniformity assumption. See also the articles cited in note 4 infra.CrossRefGoogle Scholar
- 4.Diamond, “Accident Law and Resource Allocation,” 5 Bell Journal of Economics and Management Science 366 (1924); Diamond & Mirrless, “On the Assignment of Liability: The Uniform Case,” 6 Bell Journal of Economics 487 (1975).Google Scholar
- 6.On tort law, see Fletcher, “Fairness and Utility in Tort Theory,” 85 Harv. L. Rev. 537 (1972); Epstein, “A Theory of Strict Liability,” 2 J. Legal Stud. 151 (1973’; Schwartz, “Contributory and and Comparative Negligence: A Reappraisal,” 87 Yale L.J. 697 (1978). On antitrust law, see Blake and Jones, “Toward a Three Dimensional Antitrust Policy,” 65 Colum. L. Rev. 422 (1965); “Antitrust Jurisprudence: A Symposium on the Economic, Political, and Social Goals of Antitrust Policy,” 125 U. Pa. L. Rev. 1182 (1977).CrossRefGoogle Scholar
- 12.Markowitz, Portfolio Selection: Efficient Diversification of Investments, New Haven, 1920. Jensen, “Capital Markets: Theory and Evidence,” 3 Bell Journal of Economics 357 (1972).Google Scholar
- 13.Sharpe, “Capital Asset Prices: A Theory of Market Equilibrium under Consitions of Risk,” 19 Journal of Finance 425 (1964); Linter, “Security Prices, Risk and Maximal Gains from Diversification,” 20 Journal of Finance 587 (1965);, “The Valuation of Risk Assets and the Selection of Risky Investments in Stock Portfolios and Capital Budgets,” 47 Rev. of Econ. & Stat. 13 (1965); Jensen, supra note 12.CrossRefGoogle Scholar
- 14a.Pettaway, “On the Use of β in Regulatory Proceedings, and Empirical Examination,” 9 Bell Journal of Economics 239 (1978).Google Scholar
- 16.Compare Sharpe, “Risk, Market Sensitivity and Diversification”, Financial Analysts J., Jan.–Feb. 1972 at 74–77 (recommending 30–40 stocks as “best”) Langbein and Posner, “Market Funds and Trust-Investment Law,” 1976 Am. B. Foundation Research J. 1, II (recommending a market portfolio.)Google Scholar
- 18.Fama, “Efficient Capital Markets: A Review of Theory and Empirical Work,” 25 Journal of Finance 383 (1920).Google Scholar