EDITORIAL

Vale Steve Ross

There are many great things about working as a finance journalist for a global publication. One that certainly features highly is the access I have to incredible people.

The world lost one such incredible person last week. Steve Ross, the Franco Modigliani Professor of Financial Economics at the Massachusetts Institute of Technology and a professor of finance at the MIT Sloan School of Management, unexpectedly passed away on Friday, March 3, at the age of 73.

I had the privilege of working with Steve over the past few months in preparation for our Fiduciary Investors Symposium, which will be held at MIT in October. As with many academic institutions, we need faculty support to be on campus. Steve was introduced to me by John Skjervem, chief investment officer of the Oregon State Treasury, and I had the privilege of working with him in securing event space and academic speakers for our event.

Steve didn’t know me and didn’t have to help us, but he was generous and thoughtful with his time and contacts and was interested and engaged with what we were trying to achieve.

Steve was an intellectual and a gentleman, and I am grateful for the short period of time I knew him.

In recognition of his work, and life, I wanted to share the communications from MIT and the California Institute of Technology (Caltech), where Steve was a trustee and alumnus, which beautifully describes his many contributions.

 

To the members of the MIT Sloan community

MIT’s motto of “Mens et Manus” [Mind and hand] purposefully combines rigorous academic thought with practical applications to address the world’s greatest challenges and opportunities. For illustration and inspiration in this regard, during the last two decades we have needed to look no further than to our colleague, Professor Steve Ross. The hallmark of Steve’s scholarship was a rare combination of deep insight, academic rigor, intellectual elegance, and a keen sense of practical relevance, which has made his contributions equally central to the theory and practice of finance. Steve was a discoverer of the first order. He was also a master practitioner. Indeed, as Steve once put it, “There is no other way of doing it.”

Steve Ross passed away on Friday, March 3, at the age of 73. His passing was unexpected and much too early for all who knew him. He leaves behind his beloved wife Carol, his two children, and two granddaughters, whom he adored. Steve also leaves distinct contributions to the field of financial economics, to MIT and to his many students. Trained in mathematics and economics first at Caltech and then at Harvard, Steve joined the MIT community in 1997 as the first Fischer Black Visiting Professor, after serving many years on the faculties of the University of Pennsylvania’s Wharton School [of business] and Yale. In 1998, he decided to join the MIT Sloan faculty on an ongoing basis – and we have been so much the better for it.

Steve Ross will be remembered as an intellectual giant. What is known today about the science of finance and its application owes much to Steve’s pioneering work, ranging from asset pricing to investment management and corporate finance. Steve did not believe in narrow specialisation and intellectual boundaries. It is difficult to imagine the discipline of modern finance without Steve’s contributions.

Steve made seminal contributions to the theory and practice of option pricing. His work on the risk-neutral method and the binomial model in option pricing provided a powerful tool in the modelling and valuation of financial derivatives, widely used in the financial industry. Steve’s work on the term structure of interest rates has had an equally profound impact on fixed-income markets. It has laid the theoretical foundation for the modeling and pricing of bonds and their derivatives. It has also inspired the development of dynamic equilibrium models of asset prices and the real economy. Steve pioneered the use of signaling theory and agency models in corporate finance. These models have become a cornerstone in our analysis of corporations, organisations and economic relationships.

Steve may be best known for his Arbitrage Pricing Theory, commonly known by its acronym, APT. This theory provides a general framework for analysing risk and return in financial markets. In addition to its immense influence on the theory and practice of asset pricing, the APT is ubiquitous in investment management and performance evaluation.

In addition to all his achievements in science, Steve is probably the single most influential mentor and teacher in all of financial economics today. His Socratic approach to teaching encouraged students’ ideas and enthusiasm, assisted them in developing an independent analytical mind as a scholar, and helped them find their own voice. His former students can be found in almost all major finance departments.

In this time of sadness, let us remember his leadership and what a tremendous privilege it was to count him among our ranks. We will always remember the generous and cheerful friend and colleague whose talents were so immense that he never needed to prove anything to anyone. Plans for a celebration of Steve’s life are forthcoming. In the meantime, please join me in offering our deepest sympathies to Steve’s friends in our community, and to his family.

Sincerely,

David Schmittlein | John C Head III Dean

MIT Sloan School of Management

 

 

Caltech mourns the passing of trustee Stephen Ross

Alumnus and senior trustee Stephen A. Ross (bachelor of science, 1965), whose work helped shape the development of the field of financial economics, passed away on March 3, 2017. He was 73 years old.

Ross was perhaps best known for his arbitrage pricing theory and agency theory. The first –considered a cornerstone of modern asset pricing theory – holds that price changes of all assets are driven by a limited number of underlying influences, such as gross domestic product, inflation and investor confidence.

Agency theory applies to situations that involve a principal – for example, an investor or a stockholder – who has employed an agent to make decisions on their behalf. Since the agent might be motivated to make different decisions than the principal would, the theory involves creating incentives that make it more likely that the agent will make decisions that are desirable from the principal’s perspective. This theory is particularly appropriate for large corporations, where executives often make decisions on behalf of shareholders.

Ross also helped develop techniques for pricing derivatives that are widely used on Wall Street and in other financial centres for determining the value of complex financial instruments.

“Steve Ross unstintingly applied his deep knowledge of financial economics and complex organisations to help guide Caltech,” says Caltech president Thomas Rosenbaum, the Sonja and William Davidow Presidential Chair and professor of physics. “We will sorely miss his keen insights, his generous spirit, and his infectious sense of humour.”

Ross was first appointed to the Caltech Board of Trustees in 1993. At the time of his death, he was a member of the investment committee, which he had formerly chaired. He also served on the Executive Compensation Committee and was on visiting committees for the Division of the Humanities and Social Sciences.

“As Steve was the chair of the Investment Committee when I arrived at Caltech, I had the honour and privilege of working closely with him,” says Scott H. Richland, Caltech chief investment officer. “Steve had a rare combination of brilliance, kindness and humour. His devotion to Caltech and his contributions to guiding the endowment will be greatly missed.”

For his contributions to finance and economics, Ross was the recipient of the 2015 Deutsche Bank Prize, given [every two years] to “internationally renowned economic researchers whose work has a marked influence on research concerning questions of financial economics and macroeconomics, and has led to fundamental advances in economic theory and practice,” according to the Center for Financial Studies, which awards the prize in partnership with Goethe University Frankfurt, in Germany.

Ross was born on February 3, 1944, in Boston, Massachusetts. He received his bachelor’s degree in physics, with honours, from Caltech in 1965 and his PhD in economics from Harvard University in 1970.

At the time of his passing, he was the Franco Modigliani Professor of Financial Economics at MIT and a professor of finance at the MIT Sloan School of Management. He previously held faculty positions at Yale University and the Wharton School at the University of Pennsylvania.

In addition to his academic positions, Ross worked as an adviser to various government departments – including the US Treasury, the Commerce Department, and the Internal Revenue Service, as well as the EXIM Bank. He was also a consultant to a number of investment banks and major corporations. He was a former chairman of the American Express Advisory Panel and served previously as director of General Reinsurance, the Federal Home Loan Mortgage Corporation (Freddie Mac), and the College Retirement Equities Fund.

Ross was a cofounder and principal of Ross, Jeffrey & Antle LLC, an investment advisory firm specialising in using options to enhance the performance of institutional portfolios.

Ross was the president of the American Finance Association in 1988. He was widely published, authoring more than 100 articles and co-authoring an introductory textbook on finance. He was also an associate editor of several of the field’s journals.

In addition to the Deutsche Bank Prize, Ross was the recipient of the Morgan Stanley Prize (2014), first prize in the Roger F. Murray Prize Competition (2013), the Onassis Prize for Finance (2012), and the Jean-Jacques Laffont Prize (2007), among other honours. He was a fellow of the Econometric Society and of the American Academy of Arts and Sciences.

He is survived by his wife of 49 years, Carol Ross, his children Katherine Ross and Jonathan Ross, and other family members.

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