Foundations of Portfolio Theory

Prize Lecture to the memory of Alfred Nobel, December 7, 1990.Portfolio Theory;

Risk and Lack of Diversification under Employee Ownership and Shared Capitalism

Some analysts view risk as the Achilles Heel of employee ownership and to some extent variable pay plans such as profit sharing and gainsharing. Workers in such "shared capitalist" firms may invest too much of their wealth in the firm, contrary to the principle of diversification. This paper addresses whether the risk in shared capitalism makes it unwise for most workers or whether the risk can be managed to limit much of the loss of utility from holding the extra risk. We create an index of financial security based on worker pay and wealth, and find that workers who feel financially insecure exhibit fewer of the positive outcomes associated with shared capitalism, and are less interested than other workers in receiving more employee ownership or even more profit sharing in their workplaces. This response is substantially lessened, however, when accounting for worker empowerment, good employee relations, and high-performance work bundles that appear to buffer worker response toward risk and increase interest in shared capitalism plans. We also discuss portfolio theory which suggests that any risky investment -- including stock in one's company -- can be part of an efficient portfolio as long as the overall portfolio is properly diversified. We show that given estimates of risk aversion parameters, workers could prudently hold reasonable proportions of their assets in employee stock ownership of their firm with only a modest loss in utility due to risk. A good strategy for firms is to personalize individual portfolios on the basis of worker characteristics and preferences, developing investment strategies that would diversify each worker's entire portfolio in ways consistent with individual risk preferences.

A Cryogenic Silicon Interferometer for Gravitational-wave Detection

The detection of gravitational waves from compact binary mergers by LIGO has opened the era of gravitational wave astronomy, revealing a previously hidden side of the cosmos. To maximize the reach of the existing LIGO observatory facilities, we have designed a new instrument that will have 5 times the range of Advanced LIGO, or greater than 100 times the event rate. Observations with this new instrument will make possible dramatic steps toward understanding the physics of the nearby universe, as well as observing the universe out to cosmological distances by the detection of binary black hole coalescences. This article presents the instrument design and a quantitative analysis of the anticipated noise floor

First LIGO search for gravitational wave bursts from cosmic (super)strings

We report on a matched-filter search for gravitational wave bursts from cosmic string cusps using LIGO data from the fourth science run (S4) which took place in February and March 2005. No gravitational waves were detected in 14.9 days of data from times when all three LIGO detectors were operating. We interpret the result in terms of a frequentist upper limit on the rate of gravitational wave bursts and use the limits on the rate to constrain the parameter space (string tension, reconnection probability, and loop sizes) of cosmic string models.Comment: 11 pages, 3 figures. Replaced with version submitted to PR

A Joint Search for Gravitational Wave Bursts with AURIGA and LIGO

The first simultaneous operation of the AURIGA detector and the LIGO observatory was an opportunity to explore real data, joint analysis methods between two very different types of gravitational wave detectors: resonant bars and interferometers. This paper describes a coincident gravitational wave burst search, where data from the LIGO interferometers are cross-correlated at the time of AURIGA candidate events to identify coherent transients. The analysis pipeline is tuned with two thresholds, on the signal-to-noise ratio of AURIGA candidate events and on the significance of the cross-correlation test in LIGO. The false alarm rate is estimated by introducing time shifts between data sets and the network detection efficiency is measured with simulated signals with power in the narrower AURIGA band. In the absence of a detection, we discuss how to set an upper limit on the rate of gravitational waves and to interpret it according to different source models. Due to the short amount of analyzed data and to the high rate of non-Gaussian transients in the detectors noise at the time, the relevance of this study is methodological: this was the first joint search for gravitational wave bursts among detectors with such different spectral sensitivity and the first opportunity for the resonant and interferometric communities to unify languages and techniques in the pursuit of their common goal.Comment: 18 pages, IOP, 12 EPS figure