Great Moments in Financial Economics: Ii. Modigliani-Miller Theorem

Journal Of Investment Management, Vol. 1, No. 2, Second Quarter 2003

Posted: 1 Apr 2004

See all articles by Mark Rubinstein

Mark Rubinstein

University of California, Berkeley - Haas School of Business

Abstract

Franco Modigliani and Merton Miller are almost universally credited with the theorem that bears their name. In fact, the theorem was stated and proven 20 years earlier by John Burr Williams, to which he gave the name: the Law of the Conservation of Investment Value. However, Modigliani-Miller deserve credit for clearly laying out a formal arbitrage proof and popularizing the subsequent use of arbitrage arguments in financial economics. Even after their work (1958) and subsequent simplified proof (1969), there were still issues that needed to be clarified which lead finally to more modern proof of the theorem based on state-prices.

Keywords: Modigliani-Miller Theorem

JEL Classification: G00

Suggested Citation

Rubinstein, Mark E., Great Moments in Financial Economics: Ii. Modigliani-Miller Theorem. Journal Of Investment Management, Vol. 1, No. 2, Second Quarter 2003, Available at SSRN: https://ssrn.com/abstract=495823

Mark E. Rubinstein (Contact Author)

University of California, Berkeley - Haas School of Business ( email )

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