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If you are writing a scholarly article on financial economics or investment research, you have no excuse for that after Rubenstein's book.The only quibble I have is the idiosyncratic nature of the history, which Rubenstein freely acknowledges in the preface. Very knowledgeable readers may differ from time to time with Rubenstein's chronology, as very knowledgeable readers do with all history. Business, Economics, and Finance with Matlab, GIS, and Simulation ModelsThis is the most comprehensive, best researched history of thought in financial economics. This is really a quibble, though; I find Rubenstein to be pretty fair in looking at past sources. Excellent book. It may add two dozen references to my forthcoming book on business valuation; it would have shortened the time I spent researching my book Business Economics and Finance. I agree with Rubenstein that too many authors blindly put down a recent book they read as an authority, and are ignorant of the real sources.
I'm about halfway through the book and must say that I have been pleasantly surprised. The shift from insurance products to investments as the driver of the mathematics of finance. In my opinion, knowledge does not grow; it evolves. This would be enough for me to recommend the book, but there's much more.Here's a small sample of the items that I've gleaned so far.What is the intersection of business math, gambling gmaes, and Pascal's triangle.
I've already bought about a dozen books to extend my reading and am downloading dozens of articles from JSTOR. What is the Fisher separation theorem (which my students consider to be obvious) and why is it not obvious. thesis of John Burr Williams, one of the most important economists of which you've probably never heard. Most of us learned investment theory from a textbook. How Ben Graham nearly got the Modigliani-Miller theorem but didn't believe that his conclusion was realistic.This is just from the first hundred pages. I bought the book as a quick way to present accurate historical context to my students.
The importance of the Ph.D. I strongly suggest that you add this book, and its contextual knowledge, to your library. A study of that evolution, with the paths not chosen, is an important step in mastering a discipline. (The graphic that he uses look suspiciously like a binomial tree.).
But it proves nothing except erudition.One problem I have with this book is that it doesn't teach you anything you don't already know--and if you don't already know it, you won't learn it from this book.Also it's too expensive, except by those who wish to put on airs and display it on their bookshelf.Finally, nearly all the vaunted theories of finance have analogs (and digital equivalents) in applied mathematics used in electrical engineering and physics. Every discipline does this. You could argue that financial engineering is simply cribbing these fields.BTW I have not read this book, but have added it to my 'wish list' and eventually will get around to reading it. A better book for the layman is anything by William Bernstein. As Nobel Prize winner Sharpe says on the cover, this is a "idiosyncratic and eclectic" book--a bibliography that's annotated.After you have learned a subject, of course it's fun to go through archival historic documents and comment on them.
The proofs are done in a fashion that most readers can understand, and the sections are divided up in easy to break-up sections. All of the seminal work in finance is discussed in this text, and this can be used as a guide to asset pricing, corporate finance, investments, and other finance courses. This is arguably one of the best books that I have read. This is definitely a must read for any serious student of finance. In fact, I would have used this as a supplement to reading journal articles if it were available in the past. Almost everything relevant to finance and investments is covered in this book, including a good historical discussion of the theories of investment. In addition, Mark Rubinstein has a very clear and simple writing style that transforms complex concepts into words.
Along the way he contributed quite a bit himself. From the APT to the Zero-beta CAPM, Mark Rubinstein has covered about 300 individual ideas in this unparalleled bibliography, with informed and detailed (but economical) discussion of nearly 200 worthy papers. My personal favorite paper of Mark's is his relatively overlooked "The Strong Case for the Generalized Logarithmic Utility Model as the Premier Model of Financial Markets" [GLUM], published in 1977 as the second chapter of Haim Levy and Marshall Sarnatt's "Financial Decision Making under Uncertainty" (Academic Press New York 1977); this is a wonderful model which places restrictions on tastes a la Arrow, Debreau, Hirshleifer, Cass, Stiglitz , Hakansson, Kraus, Grauer and Litzenberger, rather than placing restrictions on beliefs as in the more conventional models commonly understood to represent "Modern Portfolio Theory", i.e., Markowitz, Sharpe, Treynor, Lintner, Mossin, Fama, Jensen, Black, Scholes and Merton. Merton, Hirshleifer, Rubinstein, Blume, Friend, Basu, Banz, Latane, LeRoy, Kraus, Cox, Grossman, Figlewski, Ross, Malkiel, Varian, Constantinides, Geske, [Edward] Miller, Levy, Rendleman, Bartter, concluding with Breeden's 1979 ICAPM. Mark Rubinstein is a man who likes to think for himself, which is a good thing for the rest of us.
Rubinstein also includes Merton's 1987 "Simple Model" in the classical period.Rubinstein's last section, the "modern" period, which admittedly contains little of the behavioral finance literature, covers about 30 significant papers from the famous Grossman and Stiglitz 1980 critique and Leland's 1980 paper on portfolio insurance to Brunnermeier and Parker's 2005 paper on asset pricing bubbles. Merton's "Matthew effect". Researchers in this section include many of those listed in the classical period, as well as Diamond, Verrecchia, [Ken] French, Schwert, Binder, Merges, Mehra, Prescott, Hong, Stein, Ohlson, Berk, Wang, Carhart, Daniel, Grinblatt, Titman, Wermers, Green, Naik, Sagi, Abreu, and Parker.I wish Rubinstein's excellent History had been available back when I was a student roaming the stacks in the Lippincott library at Penn, poking into old dusty tomes and spending what little money I had Xeroxing all of those old wonderful papers, learning "ancient" and "classical" ideas the hard way. Any serious financial economist should read, and re-read, this exquisite book. A gift to us all was his willingness to publish his notes on each of what he deems to be the 180 or so most important contributions to the field.Delineating three periods in the literature as "ancient" (pre-1950), "classical" (1950 - 1980, and "modern" (post-1980), Rubinstein educates us about 40 ancient papers, from Leonardo of Pisa's 1202 "Liber Abaci" through Leonard Jimmie Savage's 1954 "Foundations of Statistics", including the works of Pascal, Fermat, Huygens, de Witt, Halley, de Moivre, Bernoulli, Pareto, Arrow, Bachelier, Knight, Keynes, Working, Hicks, Fisher, Cowles, Graham, Williams, Macaulay, von Hayek, von Neumann, Morgenstern, Friedman, and others, even throwing in Kahneman and Tversky's 1979 Prospect Theory for good measure. More than 100 papers are discussed in this section, including all the usual suspects as well as some unusual ones, including Roy, Arrow, Dreze (who along with others anticipated Harrison & Kreps' work on martingales and continuous states), Kendall, Cootner, Friedman, Tobin, Modigliani & [Merton] Miller (whose work was anticipated by J.B.
Most readers will be familiar with Mark's contributions to financial economics primarily through his co-authorship, with John Cox and Steve Ross, of the binomial options pricing model - no mean feat, that. Marrying these two objectives, a daunting task for most mere mortals, seems to have been easy for Mark Rubinstein. Williams, in his 1938 "Law of the Conservation of Investment Value"), Debreau, Osborne, Alexander, Coase, Muth, Lucas, Stiglitz, Sharpe, Samuelson, Lorie, Pratt, Linter, Mossin, Treynor, Fama, Cohen, Pogue, Farrell, King, Rosenberg, Engle, Hakansson, Jensen, Leland, Roll, MacBeth, Litzenberger, Cass, Black, Scholes, [Robert C]. But his interests and contributions are far more broad. Following the "ancient" literature with the "classical" works, Rubinstein precedes Markowitz' 1952 "Portfolio Selection" with Clendenin's 1951 paper on stock price volatility. Much of the history of investments has only been rewritten by the victors, and can be corrected from primary sources." As a student, and later as a professor and even practitioner, Rubinstein spent untold time poring through countless thousands of documents -- primary material, methodically working his way forward and backward through the more and less famous papers and their citations and references in the literature, in order to learn these ideas for himself.
In the 1977 GLUM paper, Rubinstein notes that the latter, MPT-type, models are not necessarily superior to the former type and chalks their popularity up to historical happenstance and ideological path-dependence: "Men were not lacking in evidence, but inherited habits of thought, which often extended beyond science proper to a worldview, [and] caused them to cling stubbornly to superannuated ideas."In "A History of the Theory of Investments", Rubinstein achieves two things: first, he presents his own annotated bibliography of nearly 200 of the most important works in theoretical financial economics; second, he presents a much better etiology of these ideas than a reader might find in a textbook presentation, working diligently to correct examples of Robert K. He notes, ".much of the forgotten truth about the origins of ideas in financial economics is there for all to see, in older books residing on library shelves or in past journals now often available in electronic form [e.g., JSTOR].
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