Normal Investors, Then and Now

Abstract

Investors were “normal” in 1945 when the first issue of the Financial Analysts Journal was published, and they remain normal today, 60 years later. But in between was a long period, starting in the late 1950s, when investors were described as “rational.” The portrait of investors as rational is the first foundation block of standard finance. Other foundation blocks are market efficiency, mean–variance portfolio theory, and the capital asset pricing model. This article provides descriptions of normal investors as they were portrayed in the FAJ and other finance journals before standard finance was introduced and as they have emerged recently in behavioral finance.