Missing Persons Found: Jensen Coined Alpha & Beta But Tito Cashed Out
Jan 12th, 2007 | Filed under: CAPM / Alpha Theory, Institutional InvestingBy: John Ilkiw, SVP Portfolio Design & Risk Management, Canada Pension Plan Investment Board
Published: Winter 2006 Canadian Investment Review
Yes, you read the title of this article right. It was Michael Jensen, not William Sharpe, whom actually used the terms “alpha” and “beta” for the first time in 1967’s now famous paper with the catchy title, ”The Performance of Mutual Funds in the Period 1945-1964“. According John Ilkiw of the US$90 billion Canadian Pension Plan, Sharpe actually used the terms ”A” and “B” instead of “alpha” and “beta”. Thank goodness for Michael Jensen, since if it weren’t for him, you would be reading AllAboutA.com right now.
But Ilkiw’s historical findings don’t end there. He reports that one of the first people to make serious money off the more-marketing-friendly term “beta” was Dennis Tito who in 1970 published a “beta book” for an LA brokerage firm and soon after founded Wilshire Associates to package and sell beta. Thirty years later (in 2001) Tito became the first-ever civilian to visit the International Space Station (yes, that Dennis Tito), proving that in the long-run Beta will go to the moon – or at least part way.
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