The Birth of Modern Investing: How Chicago Economists Revolutionized Finance
This article explores the transformative impact of University of Chicago economists in the 1960s and 1970s, whose radical ideas established the foundation of modern global finance. Central to this shift was Eugene Fama’s efficient-market hypothesis (EMH), which challenged the prevailing belief that skilled professionals could consistently beat the market through intuition. Instead, EMH posited that asset prices reflect all available information, making diversification and disciplined risk management superior strategies. Supported by the computational revolution of the era, these theories facilitated the rise of data-driven passive investing. The narrative highlights key milestones, such as Wells Fargo launching the first index fund in 1971 and John Bogle creating the first retail index mutual fund in 1976. While active value investors like Warren Buffett remain exceptions, the article argues that increased market efficiency and computing power have made outperforming averages significantly harder today. The piece references Errol Morris’s documentary, Tune Out the Noise, which chronicles this historical shift from art to science in investment management, emphasizing how these academic insights reshaped financial markets and individual wealth strategies worldwide.
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The Birth of Modern Investing: How Chicago Economists Revolutionized Finance
This article explores the transformative impact of University of Chicago economists in the 1960s and 1970s, whose radical ideas established the foundation of modern global finance. Central to this shift was Eugene Fama’s efficient-market hypothesis (EMH), which challenged the prevailing belief that skilled professionals could consistently beat the market through intuition. Instead, EMH posited that asset prices reflect all available information, making diversification and disciplined risk management superior strategies. Supported by the computational revolution of the era, these theories facilitated the rise of data-driven passive investing. The narrative highlights key milestones, such as Wells Fargo launching the first index fund in 1971 and John Bogle creating the first retail index mutual fund in 1976. While active value investors like Warren Buffett remain exceptions, the article argues that increased market efficiency and computing power have made outperforming averages significantly harder today. The piece references Errol Morris’s documentary, Tune Out the Noise, which chronicles this historical shift from art to science in investment management, emphasizing how these academic insights reshaped financial markets and individual wealth strategies worldwide.
World Finance