Merton Miller

Last updated
Merton Miller
Merton Miller.jpg
Born(1923-05-16)May 16, 1923
DiedJune 3, 2000(2000-06-03) (aged 77)
Nationality United States
Institution Carnegie Mellon University
University of Chicago
London School of Economics
Field Economics
School or
tradition
Chicago School of Economics
Alma mater Harvard University (AB)
Johns Hopkins University (PhD)
Doctoral
advisor
Fritz Machlup
Doctoral
students
Eugene Fama
William Poole
Contributions Modigliani–Miller theorem
Awards Nobel Memorial Prize in Economic Sciences (1990)
Information at IDEAS / RePEc

Merton Howard Miller (May 16, 1923 – June 3, 2000) was an American economist, and the co-author of the Modigliani–Miller theorem (1958), which proposed the irrelevance of debt-equity structure. He shared the Nobel Memorial Prize in Economic Sciences in 1990, along with Harry Markowitz and William F. Sharpe. Miller spent most of his academic career at the University of Chicago's Booth School of Business.

Contents

Biography

Early years

Miller was born in Boston, Massachusetts to Jewish parents Sylvia and Joel Miller, [1] [2] a housewife and attorney. He worked during World War II as an economist in the division of tax research of the Treasury Department, and received a Ph.D. in economics from Johns Hopkins University, 1952. His first academic appointment after receiving his doctorate was Visiting Assistant Lecturer at the London School of Economics.

Career

In 1958, at Carnegie Institute of Technology (now Carnegie Mellon University), he collaborated with his colleague Franco Modigliani on the paper The Cost of Capital, Corporate Finance and the Theory of Investment. This paper urged a fundamental objection to the traditional view of corporate finance, according to which a corporation can reduce its cost of capital by finding the right debt-to-equity ratio. According to the Modigliani–Miller theorem, on the other hand, there is no right ratio, so corporate managers should seek to minimize tax liability and maximize corporate net wealth, letting the debt ratio chips fall where they will.

The way in which they arrived at this conclusion made use of the "no arbitrage" argument, i.e. the premise that any state of affairs that will allow traders of any market instrument to create a riskless money machine will almost immediately disappear. They set the pattern for many arguments based on that premise in subsequent years.

Miller wrote or co-authored eight books. He became a fellow of the Econometric Society in 1975 and was president of the American Finance Association in 1976. He was on the faculty of the University of Chicago's Booth School of Business from 1961 until his retirement in 1993, although he continued teaching at the school for several more years.

His works formed the basis of the "Modigliani-Miller Financial Theory".

He served as a public director on the Chicago Board of Trade 1983–85 and the Chicago Mercantile Exchange from 1990 until his death in Chicago on June 3, 2000. In 1993, Miller waded into the controversy surrounding $2 billion in trading losses by what was characterized as a rogue futures trader at a subsidiary of Metallgesellschaft, arguing in the Wall Street Journal that management of the subsidiary was to blame for panicking and liquidating the position too early. [3] In 1995, Miller was engaged by Nasdaq to rebut allegations of price fixing. [4]

Personal life

Miller was married to Eleanor Miller, who died in 1969. He was survived by his second wife, Katherine Miller, and by three children from his first marriage: Pamela (1952), Margot (1955), and Louise (1958), and two grandsons. [5]

Bibliography

See also

Related Research Articles

Financial economics is the branch of economics characterized by a "concentration on monetary activities", in which "money of one type or another is likely to appear on both sides of a trade". Its concern is thus the interrelation of financial variables, such as prices, interest rates and shares, as opposed to those concerning the real economy. It has two main areas of focus: asset pricing and corporate finance; the first being the perspective of providers of capital, i.e. investors, and the second of users of capital.

Franco Modigliani Italian-American economist

Franco Modigliani was an Italian-American economist and the recipient of the 1985 Nobel Memorial Prize in Economics. He was a professor at University of Illinois at Urbana–Champaign, Carnegie Mellon University, and MIT Sloan School of Management.

Robert Emerson Lucas Jr. is an American economist at the University of Chicago, where he is currently the John Dewey Distinguished Service Professor Emeritus in Economics and the College. Widely regarded as the central figure in the development of the new classical approach to macroeconomics, he received the Nobel Prize in Economics in 1995 "for having developed and applied the hypothesis of rational expectations, and thereby having transformed macroeconomic analysis and deepened our understanding of economic policy". He has been characterized by N. Gregory Mankiw as "the most influential macroeconomist of the last quarter of the 20th century."

Fischer Black American economist

Fischer Sheffey Black was an American economist, best known as one of the authors of the famous Black–Scholes equation.

Myron Scholes Canadian economist

Myron Samuel Scholes is a Canadian-American financial economist. Scholes is the Frank E. Buck Professor of Finance, Emeritus, at the Stanford Graduate School of Business, Nobel Laureate in Economic Sciences, and co-originator of the Black–Scholes options pricing model. Scholes is currently the chairman of the Board of Economic Advisers of Stamos Capital Partners. Previously he served as the chairman of Platinum Grove Asset Management and on the Dimensional Fund Advisors board of directors, American Century Mutual Fund board of directors and the Cutwater Advisory Board. He was a principal and limited partner at Long-Term Capital Management and a managing director at Salomon Brothers. Other positions Scholes held include the Edward Eagle Brown Professor of Finance at the University of Chicago, senior research fellow at the Hoover Institution, director of the Center for Research in Security Prices, and professor of finance at MIT's Sloan School of Management. Scholes earned his PhD at the University of Chicago.

The Modigliani–Miller theorem is an influential element of economic theory; it forms the basis for modern thinking on capital structure. The basic theorem states that in the absence of taxes, bankruptcy costs, agency costs, and asymmetric information, and in an efficient market, the value of a firm is unaffected by how that firm is financed. Since the value of the firm depends neither on its dividend policy nor its decision to raise capital by issuing stock or selling debt, the Modigliani–Miller theorem is often called the capital structure irrelevance principle.

William F. Sharpe American economist

William Forsyth Sharpe is an American economist. He is the STANCO 25 Professor of Finance, Emeritus at Stanford University's Graduate School of Business, and the winner of the 1990 Nobel Memorial Prize in Economic Sciences.

Chicago school of economics neoclassical school of economic thought associated with the work of the faculty at the University of Chicago, some of whom have constructed and popularized its principles

The Chicago school of economics is a neoclassical school of economic thought associated with the work of the faculty at the University of Chicago, some of whom have constructed and popularized its principles.

Capital structure

Capital structure in corporate finance is the way a corporation finances its assets through some combination of equity, debt, or hybrid securities.

John Burr Williams was an American economist, recognized as an important figure in the field of fundamental analysis, and for his analysis of stock prices as reflecting their "intrinsic value".

Lars Peter Hansen American economist

Lars Peter Hansen is an American economist. He is the David Rockefeller Distinguished Service Professor of economics at the University of Chicago and a 2013 recipient of the Nobel Memorial Prize in Economics.

The following outline is provided as an overview of and topical guide to finance:

Jack Lawrence Treynor was an American economist who served as the President of Treynor Capital Management in Palos Verdes Estates, California. He was a Senior Editor and Advisory Board member of the Journal of Investment Management, and was a Senior Fellow of the Institute for Quantitative Research in Finance. He served for many years as the editor of the CFA Institute's Financial Analysts Journal.

The Deutsche Bank Prize in Financial Economics honors renowned researchers who have made influential contributions to the fields of finance and money and macroeconomics, and whose work has led to practical and policy-relevant results. It is awarded biannually, since 2005, by the Center for Financial Studies (CFS), in partnership with Goethe University Frankfurt, and is sponsored by Deutsche Bank Donation Fund. The award carries an endowment of €50,000, which is donated by the Stiftungsfonds Deutsche Bank im Stifterverband für die Deutsche Wissenschaft.

Financial innovation is the act of creating new financial instruments as well as new financial technologies, institutions, and markets. Recent financial innovations include hedge funds, private equity, weather derivatives, retail-structured products, exchange-traded funds, multi-family offices, and Islamic bonds (Sukuk). The shadow banking system has spawned an array of financial innovations including mortgage-backed securities products and collateralized debt obligations (CDOs).

Quantitative analysis is the use of mathematical and statistical methods in finance. Those working in the field are quantitative analysts. Quants tend to specialize in specific areas which may include derivative structuring or pricing, risk management, algorithmic trading and investment management. The occupation is similar to those in industrial mathematics in other industries. The process usually consists of searching vast databases for patterns, such as correlations among liquid assets or price-movement patterns. The resulting strategies may involve high-frequency trading.

The Tepper School of Business is the business school of Carnegie Mellon University. It is located in the university’s 140-acre (0.57 km2) campus in Pittsburgh, Pennsylvania, US.

Mathematical finance, also known as quantitative finance and financial mathematics, is a field of applied mathematics, concerned with mathematical modeling of financial markets. Generally, mathematical finance will derive and extend the mathematical or numerical models without necessarily establishing a link to financial theory, taking observed market prices as input. Mathematical consistency is required, not compatibility with economic theory. Thus, for example, while a financial economist might study the structural reasons why a company may have a certain share price, a financial mathematician may take the share price as a given, and attempt to use stochastic calculus to obtain the corresponding value of derivatives of the stock. The fundamental theorem of arbitrage-free pricing is one of the key theorems in mathematical finance, while the Black–Scholes equation and formula are amongst the key results.

The term shareholder yield captures the three ways in which the management of a public company can distribute cash to shareholders: cash dividends, stock repurchases and debt reduction.

References

  1. "Merton H. Miller". The Notable Names Database. 2008. Retrieved 2008-09-18.
  2. Encyclopedia of American Jewish history. Norwood, Stephen H. (Stephen Harlan), 1951-, Pollack, Eunice G. Santa Barbara, Calif.: ABC-CLIO. 2008. ISBN   978-1851096381. OCLC   174966865.CS1 maint: others (link)
  3. Markham, Jerry W. (2006). A Financial History of Modern U.S. Corporate Scandals: From Enron to Reform. Armonk, N.Y.: M.E. Sharpe, Inc. p. 78. ISBN   0-7656-1583-5 . Retrieved 26 October 2017.
  4. "Nasdaq Hires Nobel Laureate to Help Fend Off Allegations". Los Angeles Times. Bloomberg Business News. March 14, 1995. Retrieved 26 October 2017.
  5. Louis Uchitelle (2000). "Merton H. Miller, 77, Dies; Economist Who Won Nobel," New York Times, June 5.
Awards
Preceded by
Trygve Haavelmo
Laureate of the Nobel Memorial Prize in Economics
1990
Served alongside: Harry M. Markowitz, William F. Sharpe
Succeeded by
Ronald H. Coase