Chapter –14
FINANCIAL ECONOMICS
(Modigliani, Markowitz, Merton Miller, Sharpe, Robert Merton and Scholes, Eugene Fama, Lars Peter Hansen, Robert J. Shiller)
Of the financial economists who received the Nobel Prize in Economics, Franco Modigliani was the first to receive the prize in 1985. He was followed by Markowitz, Merton Miller and Sharpe who received the Nobel Prize together in 1990. And in 1997, Robert Merton and Myron Scholes received the prize.
Franco Modigliani and Merton H. Miller are popular through their widely discussed theory named as Modigliani – Miller Theory (referred to here after as M and M theory). In their pioneering article “Dividend policy, Growth and The Valuation of Shares”, (in J.B. Oct, 1961) M & M have showed the irrelevance of dividend policy. M and M assumed a world without taxes, transaction costs or other market imperfections.
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*Fn This Chapter is written by my daughter, Dr.V.Rama Devi, who has been working since June 2008 as Professor in the School of Management Studies, K.L.C.E.(KLCE became K.L. University in 2009, Guntur-2 (A.P.). Earlier, she worked as Associate Professor, College of Management, GITAM University, Visakhapatnam and as Asst. Professor at ICFAI University, Hyderabad. She is now working as Professor in Management in Sikkim Central University. An adapted version of this Chapter is published in Southern Economist, 1st Dec., 2008, Bangaluru.