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From tools to theories: The emergence of modern financial economics

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  • Koehn, Julia
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    Abstract

    It is shown that early research in modern financial economics had substantially been driven by the application of the research strategy of economics and the use of newly developed mathematical methods. For this purpose the professionalization of business education as a consequence of changes in the U.S. economy after Word War II is presented. The emergence of professional Journals in financial economics, similar to the academic culture including the trend of applying abstract mathematical reasoning and during the war developed methods like linear programming are highlighted. Also the meaning of Milton Friedman's 1953 essay The Methodology of Positive Economics for the dominance of abstract and prediction driven research in modern financial economics gets discussed. Finally, the emergence of Harry Markowitz's paper Portfolio Selection (1952) is used to substantiate the hypothesis. --

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    Bibliographic Info

    Paper provided by Witten/Herdecke University, Faculty of Management and Economics in its series Discussion Papers with number 16/2011.

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    Date of creation: 2011
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    Handle: RePEc:zbw:uwhdps:162011

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    Keywords: history of finance; portfolio theory; business schools; modern financial economics; modelling; theories of modern financial economics; risk management; positivism; professionalization; methodology of finance;

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    1. Debreu, Gerard, 1991. "The Mathematization of Economic Theory," American Economic Review, American Economic Association, American Economic Association, vol. 81(1), pages 1-7, March.
    2. Whitley, Richard, 1986. "The transformation of business finance into financial economics: The roles of academic expansion and changes in U.S. capital markets," Accounting, Organizations and Society, Elsevier, vol. 11(2), pages 171-192, March.
    3. Samuels, Warren J., 2002. "Machine Dreams: Economics Becomes a Cyborg Science. By Philip Mirowski. New York: Cambridge University Press, 2002. Pp. xiv, 655. $35.00, paper," The Journal of Economic History, Cambridge University Press, Cambridge University Press, vol. 62(03), pages 913-915, September.
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    6. Blaug,Mark, 1997. "Economic Theory in Retrospect," Cambridge Books, Cambridge University Press, Cambridge University Press, number 9780521577014.
    7. J. Fred Weston, 1967. "The State Of The Finance Field," Journal of Finance, American Finance Association, American Finance Association, vol. 22(4), pages 539-540, December.
    8. Blaug, Mark, 2003. "The Formalist Revolution of the 1950s," Journal of the History of Economic Thought, Cambridge University Press, Cambridge University Press, vol. 25(02), pages 145-156, June.
    9. Donald MacKenzie, 2006. "An Engine, Not a Camera: How Financial Models Shape Markets," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262134608, December.
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    11. Hausman,Daniel M. & McPherson,Michael S., 2006. "Economic Analysis, Moral Philosophy and Public Policy," Cambridge Books, Cambridge University Press, Cambridge University Press, number 9780521608664.
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