I received a BS in Chemical Engineering in 1955 and a PhD in Economics in 1963 from MIT. That year I was also appointed an Assistant Professor of Business Administration at the University of California, Berkeley. Three years later I was promoted to Associate Professor with tenure, and three years after that to Professor. I also served as head of the Finance area at the Business School.
Academic research was in various areas of Financial Economics. One of these areas today would be called Behavioral Finance. This research showed that investors are concerned about the risk of opportunity loss, as well as the risk of unfavorable outcomes.
For instance, investors frequently feel uncomfortable with a large amount of cash in their portfolio. This concern cannot be explained by fear about a decline in stock prices. The discomfort must be caused by the possibility of an increase in stock prices. When stock prices increase more cash in the portfolio causes a larger opportunity loss. These opportunity losses cause pain for investors and their advisors just like unfavorable outcomes.
This research showed that the well known strategy of dollar averaging limits opportunity loss. Moreover, dollar averaging appears to be intuitively appealing not because it makes outcomes more favorable, but because it reduces the possibility of large opportunity loss. The research also showed that diversification is optimal not only because it reduces the possibilty of large unfavorable outcomes, but because it reduces the possibility of large opportunity losses. Specific references for this research are given in Papers.
Other research at that time was on the valuation of options on bond prices. That work was subsequently easily eclipsed by the celebrated models for valuing stock options. Nevertheless, for bonds that early model seems to still have some merit. Also, earlier research in developing that model, showed that the dependence of short term interest rates on their prior values explains major features of the term structure of interest rates.
Running out of new ideas for research and deciding it was time to try something else the next step was gaining some business experience. Later, financial economists were in demand by business for modeling financial derivatives and finding solutions to other financial problems. At that earlier time, however, the only opportunities available to PhD economists in business were in business economics and forecasting. After some earlier positions in business economics I became an SVP and head of the economics area at Irving Tust in New York. I left that post after 10 years upon the acquisiton of Irving Trust by the Bank of New York.
Biography
I received a BS in Chemical Engineering in 1955 and a PhD in Economics in 1963 from MIT. That year I was also appointed an Assistant Professor of Business Administration at the University of California, Berkeley. Three years later I was promoted to Associate Professor with tenure, and three years after that to Professor. I also served as head of the Finance area at the Business School.
Academic research was in various areas of Financial Economics. One of these areas today would be called Behavioral Finance. This research showed that investors are concerned about the risk of opportunity loss, as well as the risk of unfavorable outcomes.
For instance, investors frequently feel uncomfortable with a large amount of cash in their portfolio. This concern cannot be explained by fear about a decline in stock prices. The discomfort must be caused by the possibility of an increase in stock prices. When stock prices increase more cash in the portfolio causes a larger opportunity loss. These opportunity losses cause pain for investors and their advisors just like unfavorable outcomes.
This research showed that the well known strategy of dollar averaging limits opportunity loss. Moreover, dollar averaging appears to be intuitively appealing not because it makes outcomes more favorable, but because it reduces the possibility of large opportunity loss. The research also showed that diversification is optimal not only because it reduces the possibilty of large unfavorable outcomes, but because it reduces the possibility of large opportunity losses. Specific references for this research are given in Papers.
Other research at that time was on the valuation of options on bond prices. That work was subsequently easily eclipsed by the celebrated models for valuing stock options. Nevertheless, for bonds that early model seems to still have some merit. Also, earlier research in developing that model, showed that the dependence of short term interest rates on their prior values explains major features of the term structure of interest rates.
Running out of new ideas for research and deciding it was time to try something else the next step was gaining some business experience. Later, financial economists were in demand by business for modeling financial derivatives and finding solutions to other financial problems. At that earlier time, however, the only opportunities available to PhD economists in business were in business economics and forecasting. After some earlier positions in business economics I became an SVP and head of the economics area at Irving Tust in New York. I left that post after 10 years upon the acquisiton of Irving Trust by the Bank of New York.