Timeline
- 1934
- Born in Boston, Massachusetts.
- 1955
- Received BA in Economics from the University of California, Los Angeles.
- 1956
- Received MA in Economics from the University of California.
- 1956
- Appointed as an economist at the Rand Corporation.
- 1961
- Received PhD in Economics from the University of California.
- 1961
- Appointed Associate Professor at the University of Washington.
- 1968
- Appointed Professor at the University of California at Irvine.
- 1970
- Appointed Professor at Stanford University.
- 1970
- Publication of Portfolio Theory and Capital Markets.
- 1971
- Appointed Professor of Finance at Stanford University.
- 1978
- Publication of Investments.
- 1980
- Appointed President of the American Finance Association.
- 1986
- Co-founded and became President of Sharpe-Russell Research.
- 1987
- Publication of Asset Allocation Tools.
- 1989
- Became Professor Emeritus of Finance at Stanford University.
- 1990
- Received the Nobel Memorial Prize in Economic Sciences.
- 1990
- Became Chairman of William F Sharpe Associates.
- 1993
- Appointed Professor of Finance at Stanford University.
- 1996
- Co-founded Financial Engines.
- 2007
- Publication of Investors and Markets.
Life and Career
William Sharpe is Professor of Finance, Emeritus at Stanford University’s Graduate School of Business, a Nobel Prize-winning economist, and a key figure in the development of investment theory. He joined the Stanford faculty in 1970, having previously taught at the University of Washington and the University of California at Irvine. He has worked at the National Bureau of Economic Research, studying issues of bank capital adequacy, and has published renowned research articles in a number of professional journals. He has also been a consultant to Merrill Lynch and Wells Fargo, and co-founded Financial Engines in 1996, to provide investment management advice, especially for those in employer-sponsored retirement plans.
Key Thinking
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Sharpe received the Nobel Prize for his research on the capital asset pricing model (CAPM), where he structured a portfolio’s risk into systematic or non-specific risk, and non-systematic or specific risk.
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The research was based on his search for an equilibrium theory of asset pricing and Harry Markowitz’s portfolio theory, and is now a foundation for financial economics.
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His research into equilibrium in capital markets focused on its implications for investment portfolio decision-making.
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The model shows how every investment carries two distinct risks––the risk of being in the market, or systematic risk, which cannot be diversified away, and unsystematic risk, which is specific to a company’s fortunes.
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One implication of Sharpe’s work is that the expected return on a portfolio in excess of a riskless return should be beta times the excess return of the market.
In Perspective
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Sharpe, Harry Markowitz and Merton Miller all shared the Nobel Prize for their contributions to financial economics, which helped establish it as a separate field of study.
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Sharpe showed how CAPM implies a single mix of risky assets fits in every investor’s portfolio––those who want a high return should hold a portfolio heavily weighted with the risky asset, while those who want a low return hold a portfolio heavily weighted with a riskless asset.
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He produced a number of innovations in investment analysis, including the Sharpe Ratio for risk-adjusted investment performance analysis––the ratio evaluates the level of risk a fund accepts against the return it delivers.
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He also contributed to the development of the binomial method for the valuation of options, as well as the gradient method for optimizing asset allocation, and returns-based analysis for evaluating the style and performance of investment funds.
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He developed a method for finding approximate solutions to a class of portfolio analysis problems, which has been widely implemented.
Quotation
“Some investments do have higher expected returns than others. Which ones? Well, by and large they’re the ones that will do the worst in bad times.”
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