Jan Mossin

Jan Mossin

Jan Mossin’s exciting research scores highly both on quality and originality, as evidenced by his many innovative articles in top economic journals. A huge and still increasing number of citations demonstrate his lasting impact on academic research, and his important works continue influencing practitioners all over the world.

In contrast, Mossin’s publication list is fairly short, with the major part being published during the brief period from 1966 through 1969. This was after he returned to NHH in 1964 from his doctoral studies at Carnegie, and clearly reflects the beneficial influence of his NHH mentor and later colleague, Professor Karl Henrik Borch (1919-1986).

During these intensively productive four years, Mossin made highly seminal contributions not only to financial economics and the theory of finance, but also to the economics of uncertainty in general, including areas of operations research and non-finance areas of economics.

His international standing is illustrated by serving as a president of the European Finance Association and being an elected Fellow of the Econometric Society.

The Capital Asset Pricing Model CAPM

Mossin may be particularly well known as one of the co-developers (along with Sharpe, Lintner, Treynor, and others) of the capital asset pricing model CAPM. Under particular assumptions all rational investors divide their wealth between a riskless asset and portfolio with the same mix of risky assets, and a corresponding CAPM pricing equation holds for all the component risky assets.

Mossin’s clear, elegant and precise derivation in his Econometrica (1966) article extended and formalized the CAPM ideas into an economic equilibrium setting with explicit market clearing constraints. The scientific value and significance of Mossin’s CAPM contribution is no less than that of Sharpe’s Journal of Finance (1964) CAPM article, which was the principal basis for Sharpe being awarded the 1990 Nobel Prize in Economic Sciences.

Simplifying multiperiod asset allocation

Going from a single period context to a multiperiod setting, Mossin’s Journal of Business (1968) optimal portfolio paper studied myopic asset allocation policies, where an investor may make his current portfolio composition decisions as if the next period were the last one.

Assuming independence between risky returns in different periods, Mossin showed that constant relative risk aversion implies the myopic property. Then, each period’s asset allocation problem may be handled separately, such that the investment time horizon and investment opportunities after the current period do not matter.

With stationary returns, each investor would rebalance at each date to the same portfolio proportions. Knowledge of the riskless rate and the remaining time to the horizon extends the myopic property to the more general HARA class of preferences.

Additional contributions in his doctoral dissertation

Mossin’s doctoral dissertation also contained two additional and important papers. An Economica (1968) taxation article examined the effect on optimal risk taking of increased tax rates, with and without tax loss offset provisions. Loss offset means a symmetric taxation, with a negative tax in case of losses. Mossin showed that if the tax system allows full tax loss offset, then an increased tax rate will push the investor further into stocks.

He also applied expected utility tools to insurance problems in a Journal of Political Economy (1968) article. There he showed that it will usually not be optimal to cover or hedge all risks, unless the insurance contract offers an actuarially fair deal, with a zero expected return. He also showed that the reservation price is decreasing in wealth if the insurance customer has decreasing absolute risk aversion. This result is central in the economics of insurance.

Further works on the international research frontier

Mossin had also the ability, interest and time to publish articles on topics outside traditional financial economics. His Swedish Journal of Economics (1968) article on optimal lay-up policies for ships pioneered the more current “real options” literature on generalized entry and exit decisions models under price uncertainty.

A Journal of Business (1968) article applied game-theoretic concepts and tools to merger agreements, illustrated by using Shapley values.  A Management Science (1966) article addressed optimal stock depletion policies for a monopolist exposed to sales and inventory cost uncertainty.

Another article in Quarterly Journal of Economics (1966) is a contribution to growth theory. Mossin also has a Southern Economic Journal (1967) article, coauthored with Bronfenbrenner, on a shorter work week and labor supply.

In 1969 Mossin published two papers in the American Economic Review. In one article he returned to the CAPM and studied its implications for investment criteria and capital budgeting, with a subsequent 1972 AER reply. His note on temporal risk gave an early and important warning about possible pitfalls in using expected utility in an intertemporal context.

Mossin’s outburst of significant works on the international research frontier culminated with his 1973 book The Theory of Finance, which summarized the state of the art at that time and became a centerpiece in most Ph.D. reading lists for the following decennium. This book is also typical of his masterly writing style: sparse, clear, precise, and with stints of humor.

Subsequent works

His 1977 follow-up book The Economic Efficiency of Financial Markets had a more narrow focus and did not attract similar attention. Here he examined the role of markets for efficient allocation of investment capital among investing-producing units, as well as efficient allocation of the resulting output among consuming units.

In a related article in Erhvervsøkonomisk Tidsskrift (1978) he suggested that stock price movements per se represent insufficient information for decision-making purposes. During 1972 through 1986 he also published basic textbooks in Norwegian, three on finance topics and one on operations research.

NHH contributions

Jan Mossin was associated with the School in various positions throughout most of his professional career, becoming a tenured Full Professor already at the age of 32. Together with Professor Borch, Mossin was a driving force in establishing NHH as a serious research institution. Here he was a source of stimulation for younger colleagues and an inspiring teacher. He also served NHH in various leadership positions, including department chairman and deputy rector.

Long before his untimely early death in 1987, Jan Mossin was a recognized pillar at NHH, and his legacy remains strong. He has been honored posthumously by being one of the few professors to have a NHH auditorium named after him. “The Jan Mossin Memorial Symposium” (1996, 2006, and 2011) is a tribute to Jan Mossin and his essential contributions to modern finance, by bringing together academics and practitioners for an exchange of ideas on investments, asset allocation, and asset pricing.

Jan Mossin

Jan Mossin was born in 1936 and graduated from NHH (Norwegian School of Economics and Business Administration) in 1959. After a couple of years of work experience, he pursued Ph.D.-studies at Carnegie Institute of Technology (now Carnegie-Mellon University), obtaining a MS in 1964, and was awarded the Ph.D. in 1968.