THE BEGINNINGS OF A ‘COMMON-SENSE’ APPROACH TO PORTFOLIO THEORY BY NINETEENTH-CENTURY FRENCH FINANCIAL ANALYSTS PAUL LEROY-BEAULIEU AND ALFRED NEYMARCK

Abstract

This article is an addition to the revisited history of financial economics. While Markowitz (1952, 1959), Roy (1952), and Tobin (1958) are recognized as the founding fathers of Modern Portfolio Theory, we recall that its origins should be traced prior to 1914. We consider two, turn-of-the-century, French, financial analysts and suggest that notions such as risk aversion and risk premium, international diversification and correlation, specific and systematic risks and arbitrage were common sense for Leroy-Beaulieu (1906) and Neymarck (1913). The contribution of these authors to the development of Modern Portfolio Theory—long before the 1950s—should not be underestimated.