I’m responsible this week for posting questions on Blackboard for a class I’m taking: Blackboard is interactive software that supports the creation of threads for online discussions. The topic is mean variance portfolio theory, the capital asset pricing model, and arbitrage pricing theory. One source that I drew upon was Nassim Taleb’s The Black Swan. Taleb’s displeasure with models that rely upon normally distributed returns and ex ante measures is so extreme that he suggests that Harry Markowitz and Bill Sharpe should return their Nobel prizes.
Last night it occurred to me that while MPT and CAPM might have their shortcomings, their development allowed the creation of subsequent work, such as APT and Fama-French’s 3-factor model. One might wonder if these later models could have been developed without someone like Markowitz and Sharpe to get the ball rolling with their earlier work, despite its shortcomings.
The same holds true with much of what we do in performance measurement. It’s easy to criticize some of what was done previously, but without that earlier work it’s likely we wouldn’t be as far along as we are today. And, it’s easy to criticize some of the ideas that have been put forward with the GIPS standards, but without someone willing to put these ideas out there, where would we be? Being a pioneer is challenging because it opens you up to being criticized; but someone has to be willing to take the risk and put forward ideas. We should be grateful for those who did and continue to do so.