Who is William F. Sharpe
William Forsyth Sharpe is an American economist who won the 1990 Nobel Prize in Economic Sciences, along with Harry Markowitz and Merton Miller, for developing models to assist with investment decision making.
Sharpe is well known for developing the capital asset pricing model (CAPM) in the 1960s. The CAPM describes the relationship between systematic risk and expected returns, and states that taking on more risk is necessary to earn a higher return. He is also known for creating the Sharpe ratio, a figure used to measure the risk-to-reward ratio of an investment.
BREAKING DOWN William F. Sharpe
William Forsyth Sharpe was born in Boston on June 6, 1934. He and his family eventually settled in California, and he graduated from Riverside Polytechnic High School in 1951. After several false starts in deciding what to study at college, including abandoned plans to pursue medicine and business administration, Sharpe decided to study economics. He graduated form the University of California at Berkley with a Bachelor of Arts degree in 1955 and a Master of Arts degree in 1956. In 1961, he earned a Ph.D. in economics from the University of California at Los Angeles.
Sharpe has taught at the University of Washington, the University of California at Irvine and Stanford University. He has also held several positions in his professional career outside of academia. Notably, he was an economist at RAND Corporation, consultant at Merrill Lynch and Wells Fargo, founder of Sharpe-Russell Research in conjunction with Frank Russell Company and founder of the consulting firm William F. Sharpe Associates. Sharpe received many awards for his contribution to the field of finance and business, including the American Assembly of Collegiate Schools of Business award for outstanding contribution to the field of business education in 1980 and the Financial Analysts Federated Nicholas Molodovsky Award for outstanding contribution to the [finance] profession in 1989, though the Nobel Prize award he won in 1990 is the most prestigious.
Contributions to Financial Economics
Sharpe is most well-known for his role in developing CAPM, which has become a foundational concept in financial economics and portfolio management. This theory has origins in his doctoral dissertation. Sharpe submitted a paper summarizing the basis for CAPM to the Journal of Finance in 1962. Although it is now a cornerstone theory in finance, it originally received negative feedback from the publication, but was later published in 1964 following a change in editorship. Sharpe also created the oft-referenced Sharpe ratio. The Sharpe ratio measures the excess return earned over the risk free rate per unit of volatility. In addition, Sharpe's 1998 paper, Determining a Fund's Effective Mix, receives credit as the foundation of returns-based style analysis models, which analyze historical investment returns in order to determine an investment's style classification.