the foundation of modern portfolio theory as set forth by
Nobel Prize-winning economist Harry Markowitz in a 1952 Journal
of Finance paper. In a sense, diversification is also
a central tenet of the modern Finance
Department at the Kellogg School.
than half a century, the investment world has taken to heart
Markowitz's insights about risk and return—particularly
his ideas about evaluating risk not based on an individual
asset, but rather on how an entire portfolio of assets interacts.
of course, seek to minimize risk while maximizing return.
Putting all your proverbial eggs in a single basket is precisely
the wrong way to construct a viable portfolio, according to
Markowitz. And it's also not the best way to build a cutting
edge academic department, according to the Kellogg School.
say that in building its Finance Department Kellogg also diversified
its portfolio of scholars by deliberately seeking out brilliant
thinkers in many other areas of finance and economics. The
Kellogg strategy was to recruit individuals whose research
demonstrated innovation and intellectual rigor, and whose
insights could be applied within the context of finance.
was the case with Professor Artur
Raviv, hired in 1981 to revitalize the Kellogg Finance
Department and transform it into a research-based center of
academic excellence. (See related story:
Financial Catalyst.) Raviv, an economist by training,
arrived with colleague Milton Harris, and together they quickly
assembled an academic team that includes such longstanding
Kellogg faculty as Robert
Hagerty and Robert
challenge in building an academic department lies principally
in the ability to hire an initial set of scholars who act
as magnets in attracting other scholars," says Dean
Dipak C. Jain. "Kellogg was fortunate to have Art Raviv
and others who helped build critical mass in the department."
recruiting strategy was novel for its time, setting the tone
for what has become the norm in other finance departments.
Equally important was the way these scholars approached their
of these people were empirically oriented, but also displayed
a heavy analytical focus," says Korajczyk, senior associate
dean: curriculum and teaching. "That was a change not only
from what had been happening here, but also a change from
what was industry practice."
is a broad area that needs methodologies from everywhere,"
Hagerty notes. "We never hire for a specific area; we hire
people who are doing the most interesting work. Fundamentally,
we believe that finance is inherently compelling enough that
scholars will want to adapt their research to work on those
also recalls the role the Kellogg School Managerial
Economics and Decision Sciences (MEDS) Department played
in attracting faculty to the Finance Department.
MEDS Department was incredibly successful and it was the proximity
to that department that initially drew many of our finance
faculty," she says.
the formative stage of the modern Finance Department, Professor
Breen served as its chair. It was his "collaborative leadership
model" that Korajczyk credits for helping establish what became
an increasingly collegial part of the Kellogg School.
a tradition that continues today, says Michael Fishman, the
current chair. "My colleagues are a pleasure to work with,"
he says. "Everybody pitches in to get the job done. All the
members of the Kellogg community—faculty, administration,
students, staff—are reasonable, nice people. This cultural
advantage is the result of our recruiting strategy which brings
people on board early in their careers so that everyone develops
within the Kellogg environment."
collegiality has encouraged scholarship to flourish in the
department. But as important as the shift toward research
has been for the department's success, says Dean
Emeritus Donald P. Jacobs, its commitment in the classroom
remains strong too.
to remain strong in teaching, otherwise the students wouldn't
accept it," says Jacobs. "But you also need people who can
work as a team and who have inclusive, caring natures. That's
important around here."
the last quarter century of finance at Kellogg, Dean Jain
evaluates the department's success with pride.
story of finance at the Kellogg School is one steeped in bold
innovation, vision and a willingness to break with the past
to blaze a new path," he says.