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evidence Archives -

14 Aug


More Evidence on the Evidence: An Historical Overview of Capital Market Theory

August 14, 2015 | By |

Why do we at Fischer Investment Strategies refer to our approach as evidence-based investing? As we introduced in our related paper, “Evidence on the Evidence,” we believe that the evidence – especially the kind that has been peer-reviewed and time-tested – is at the root of everything else we do to help investors achieve their personal goals through sound strategy. The alternative – trying one’s luck at stock-picking and market-timing – is a much tougher (and likely more costly) pursuit.

This begs the question: Which specific evidence has borne the most fruit over time? An exhaustive account of every meaningful contribution would be a lengthy list indeed, but it helps to be familiar with the most important insights that, in aggregate, offer investors a clearer pathway through the market’s daily twists and turns.

For our purposes, most of the tenets underlying today’s evidence-based investment strategies originate in the 1950s with Modern Portfolio Theory, so we’ll begin there.

Modern Portfolio Theory (MPT)

Modern-Portfolio-TheoryHarry Markowitz, “Portfolio Selection,” The Journal of Finance, 1952

Modern Portfolio Theory (MPT) represents one of the greatest equalizing breakthroughs in financial economics, paving the way for a radically different approach to investing. Prior to MPT, it was generally assumed that the b