Introduction to special issue: studies in mathematical and empirical finance

Asset management as we know it today is a relatively recent discipline. Until the eighteenth century, wealth was essentially physical wealth associated with land ownership or privileges. Throughout the Middle Ages in Western Europe, lending money to realize a return was considered usury and condemned by the Church. Nevertheless, the same period saw the development of important international banks. The first exchange for trading financial contracts opened in Antwerp in the sixteenth century, but it was the opening of the stock exchange in Paris in 1720, followed by that in London in 1792, and New York in 1801 that ushered in the era of financial trading and investment as we know it today. Financial markets and their ability to create and destroy wealth fascinated people and created two opposing views of financial trading. On the one hand, investing in financial assets was associated with gambling and speculation. Even a profoundly rational economic thinker like John Maynard Keynes had an essentially speculative view of financial markets. On the other hand, there was the view that markets are perfectly rational, transparent vehicles that serve to channel savings to the most productive destinations. People were truly fascinated by the fact that the independent action of myriads of individual investors led to the discovery of the “true value” of a financial instrument. This view led to concentrating analytical efforts on analyzing the financial well being of companies.