Finance theory developed cumulatively like a technological cascade from Markowitz to trading room practice

Evidence

Often technology develops in a cascade. An initial success provides a basis for further improvements and new developments, and those improvements and developments are in their turn built on. Soon, the technology has outstripped potential rivals and seems to have a momentum of its own. … The emergence of finance theory also has something of the character of a cascade. Markowitz provided Sharpe with his basic model; Modigliani and Miller inspired Treynor; Sharpe and Treynor gave Black and Scholes their crucial intellectual resource; Merton rebuilt Black and Scholes’s model on new foundations; Cox, Ross, Rubinstein, Harrison, and Kreps built on Black, Scholes, and Merton; Wall Street’s “quants” translated what the academics had done into forms more suited to the exigencies of practice; and so onward into trading rooms. — Donald MacKenzie, An Engine, Not a Camera, 1090

Categorization

• XREF: The cascade framing echoes Latour’s actor-network approach and serves as the explanatory skeleton for how models migrated from academia to markets. — connects to: Credit-risk regulation imports market-finance models developed for traded securities. — Ève Chiapello, Financialisation of Valuation, 60; Accumulating anomalies pointed toward a Kuhnian revolution in finance — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 426; Finance theory altered its own empirical object of study — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 388 (+2 more)

Broader Connections

• The finance theory cascade advanced through both published texts and personal contact between researchers #expands (0.85) — Donald MacKenzie, An Engine, Not a Camera, 1092
• Finance theorists moved fluidly between academia and market practice #corroborates (0.80) — Donald MacKenzie, An Engine, Not a Camera, 1096