Risk needs new clothes
It is not often the financial markets are compared to fairytales but that is how economist Roger Nightingale sees the way risk has been sold over the past few decades.
Nightingale says economists William Sharpe, creator of the Sharpe ratio for risk-adjusted analysis, and his collaborator Harry Markowitz have conned the markets by equating risk to volatility. He compares Sharpe and Markowitz, who jointly won the Nobel Prize for Economics in 1990, to the tailors who created the emperor’s new, invisible clothes in the Hans Christian Andersen story.
“I think they should have got Nobel prizes for taking the Michael, not Nobel prizes for economics,” says Nightingale
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