IRRC Institute Research Award: Post-Modern Portfolio Theory

Uniting the Real Economy with Portfolio and Investment Theory

We are pleased to sponsor the second annual competition for the 2013 Investor Responsibility Research Center Institute Research Award.

An esteemed panel of judges will select two papers - one academic and one practitioner - to receive the award along with a $10,000 prize.¹ Award submissions were due online on Friday, November 30, 2012, and winners will be notified and announced in 2013.

This competition seeks to encourage new research that integrates the analysis of private sector behavior with investment theory. The inaugural award succeeded in generating thought-provoking research that serves investors, policymakers, academia, and other stakeholders.

Winning papers will be published by the IRRC Institute and submitted to the Social Science Research Network for publication. The IRRC Institute will distribute the winning papers to more than 5,000 individuals interested in the organization's research.

The winners of the 2012 award are:

Steve Lydenberg received the practitioner award for research entitled, Reason, Rationality and Fiduciary Duty. A 30-year veteran of the asset management industry, Lydenberg is the founding director of the Initiative for Responsible Investment at the Hauser Center for Nonprofit Organizations at Harvard University and partner with Strategic Vision for Domini Social Investments. Download the research here.

Professor Menachem Brenner and Dr.Yehuda Izhakian at New York University the Stern School of Business received the academic award and $10,000 for research about how stock prices are impacted by ambiguity, the unknown probabilities that generate risk entitled, Asset Pricing and Ambiguity: Empirical Evidence.

Download the 2012 press release here.

Why the Award?

Modern portfolio theory has dominated the academic investment landscape for a half century. One hallmark of MPT and other key investment theory paradigms is an increased focus on elements of the economic system proximate to security selection and portfolio construction (i.e. securities, asset classes, investors) rather than the real economy.

Meanwhile, the increasing importance of the private sector relative to the public sector in the real economy has increased scrutiny of private sector behavior and economic activity. This has led to the rise of a responsible investing movement.² However, a significant focus of that scrutiny, though certainly not all, is explicitly or implicitly normative (i.e. a private sector entity "should" act in a certain manner) and pays minimal attention to portfolio and investment theory.

The IRRC Institute Research Award seeks to encourage thought leadership that integrates analysis of private sector behavior with investment theory. Because the judges seek to allow for a broad interpretation of this research goal, the award does not require specific areas such as specific asset classes or a requirement to study specific real economy issues.

¹$10,000 is awarded for each winning paper. If there are multiple authors, the award will be divided evenly between each author. Each award recipient is fully responsible for all applicable taxes.

²Responsible investment, for this purpose, includes various rubrics across both the financial and real economies, such as socially responsible investing, corporate social responsibility and sustainability.