Wells Fargo Bank was established during the gold rush because gold miners needed a way to convert their gold into cash. The bank also operated an express service to ship goods and mail. McQuown wanted to change investment management strategies from the unsophisticated ways of “water walkers” (having a magic touch to pick stocks) to a more quantitative and scientific method. McQuown heard about Fischer-Lorie results on common stock returns. A meeting with Lorie was arranged, and his popularity began to increase. As he was giving a talk in 1963 to IBM, the CEO from Wells Fargo was in the audience. McQuown was hired by Wells Fargo to further develop a quantitative technology for money management.
McQuown was suspicious that stock prices could not be easily exploited for profit, and hired Wagner and Cuneo, who were non-finance minds so he could teach them whatever he wanted. Scholes disapproved of their research, and they turned their focus to efficient market portfolio strategies. The strategy was to gather many great minds together in conferences and focus on helping Wells Fargo; in return wells Fargo financed all the research. The first conference was held in 1969 and focused turned to the CAPM.
B for Rooster for a spelling mistake (also, it's not clear to me who's popularity increased).
ReplyDeleteI was a little miffed at this section, because it isn't specific about what Scholes didn't like about the initial research.
On the other hand, it is specific that Black, Jensen and Scholes were the first ones to recognize that the CAPM was missing something: that low beta stocks outperform and high beta stocks underperform. I mentioned that in lecture back in January.