William Forsyth Sharpe
Encyclopedia
William Forsyth Sharpe is the STANCO 25 Professor of Finance, Emeritus
at Stanford University
's Graduate School of Business and the winner of the 1990 Nobel Memorial Prize in Economic Sciences
.
He was one of the originators of the Capital Asset Pricing Model
, created the Sharpe ratio
for risk-adjusted investment performance analysis, contributed to the development of the binomial method for the valuation of option
s, the gradient method for asset allocation optimization, and returns-based style analysis for evaluating the style and performance of investment funds.
, the family moved several times during World War II
, until they finally settled in Riverside, California
. Sharpe spent the rest of his childhood and teenage in Riverside, also completing most of his pre-college education there. In 1951 he enrolled at the University of California at Berkeley planning to pursue a degree in medicine. However, in the first year he decided to change his focus and moved to the University of California at Los Angeles to study Business Administration. Finding that he was not interested in accounting, Sharpe had a further change in preferences, finally majoring in Economics. During his undergraduate studies, two professors had a large influence on him: Armen Alchian
, a professor of economics who became his mentor, and J. Fred Weston, a professor of finance who first introduced him to Harry Markowitz
's papers on portfolio theory. While at UCLA, Sharpe became a member of the Phi Beta Kappa Society
. He earned a B.A. from UCLA in 1955 and a M.A. in 1956.
After graduation, in 1956, Sharpe joined the RAND Corporation. While doing research at RAND, he also started work for a Ph.D. at UCLA under the supervision of Armen Alchian. While searching for a dissertation topic, J. Fred Weston suggested him to ask Harry Markowitz at RAND. Working closely with Markowitz, which in practice "filled a role similar to that of dissertation advisor", Sharpe earned his Ph.D. in 1961 with a thesis on a single factor model of security prices, also including an early version of the Security Market Line
.
In 1961, after finishing his graduate studies, Sharpe started teaching at the University of Washington
. He started research on generalizing the results in his dissertation to an equilibrium theory of asset pricing, work that yielded the Capital asset pricing model
. He submitted the paper describing CAPM to the Journal of Finance
in 1962. However, ironically, the paper which would become one of the foundations of financial economics was initially considered irrelevant and rejected from publication. Sharpe had to wait for the editorial staff to change until finally getting the paper published in 1964. At the same time, the CAPM was independently developed by John Lintner
, Jan Mossin
, and Jack Treynor.
In 1968, Sharpe moved to the University of California at Irvine but stayed there for only two years and, in 1970 he moved again, this time to Stanford University
. While teaching at Stanford, Sharpe continued research in the field of investments, in particular on portfolio allocation and pension funds. He also became directly involved in the investment process by offering consultance to Merrill Lynch
and to Wells Fargo
, thus having the opportunity to put in practice the prescriptions of financial theory. In 1986, in collaboration with the Frank Russell Company, he founded Sharpe-Russell Research, a firm specialized in providing research and consultancy on asset allocation to pension funds and foundations. In 1989 he retired from teaching, retaining the position of Professor Emeritus of Finance at Stanford, choosing to focus on his consulting firm, now named William F. Sharpe Associates.
Sharpe served as a President of the American Finance Association
and he is a trustee of the Economists for Peace and Security. He is also the recipient of a Doctor of Humane Letters, Honoris Causa from DePaul University
, a Doctor Honoris Causa from the University of Alicante
(Spain
), a Doctor Honoris Causa from the University of Vienna
and the UCLA Medal, UCLA's highest honor.
Books
Emeritus
Emeritus is a post-positive adjective that is used to designate a retired professor, bishop, or other professional or as a title. The female equivalent emerita is also sometimes used.-History:...
at Stanford University
Stanford University
The Leland Stanford Junior University, commonly referred to as Stanford University or Stanford, is a private research university on an campus located near Palo Alto, California. It is situated in the northwestern Santa Clara Valley on the San Francisco Peninsula, approximately northwest of San...
's Graduate School of Business and the winner of the 1990 Nobel Memorial Prize in Economic Sciences
Nobel Memorial Prize in Economic Sciences
The Nobel Memorial Prize in Economic Sciences, commonly referred to as the Nobel Prize in Economics, but officially the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel , is an award for outstanding contributions to the field of economics, generally regarded as one of the...
.
He was one of the originators of the Capital Asset Pricing Model
Capital asset pricing model
In finance, the capital asset pricing model is used to determine a theoretically appropriate required rate of return of an asset, if that asset is to be added to an already well-diversified portfolio, given that asset's non-diversifiable risk...
, created the Sharpe ratio
Sharpe ratio
The Sharpe ratio or Sharpe index or Sharpe measure or reward-to-variability ratio is a measure of the excess return per unit of deviation in an investment asset or a trading strategy, typically referred to as risk , named after William Forsyth Sharpe...
for risk-adjusted investment performance analysis, contributed to the development of the binomial method for the valuation of option
Option (finance)
In finance, an option is a derivative financial instrument that specifies a contract between two parties for a future transaction on an asset at a reference price. The buyer of the option gains the right, but not the obligation, to engage in that transaction, while the seller incurs the...
s, the gradient method for asset allocation optimization, and returns-based style analysis for evaluating the style and performance of investment funds.
Biography
William Sharpe was born on June 16, 1934 in Boston, Massachusetts. As his father was in the National GuardUnited States National Guard
The National Guard of the United States is a reserve military force composed of state National Guard militia members or units under federally recognized active or inactive armed force service for the United States. Militia members are citizen soldiers, meaning they work part time for the National...
, the family moved several times during World War II
World War II
World War II, or the Second World War , was a global conflict lasting from 1939 to 1945, involving most of the world's nations—including all of the great powers—eventually forming two opposing military alliances: the Allies and the Axis...
, until they finally settled in Riverside, California
Riverside, California
Riverside is a city in Riverside County, California, United States, and the county seat of the eponymous county. Named for its location beside the Santa Ana River, it is the largest city in the Riverside-San Bernardino-Ontario metropolitan area of Southern California, 4th largest inland California...
. Sharpe spent the rest of his childhood and teenage in Riverside, also completing most of his pre-college education there. In 1951 he enrolled at the University of California at Berkeley planning to pursue a degree in medicine. However, in the first year he decided to change his focus and moved to the University of California at Los Angeles to study Business Administration. Finding that he was not interested in accounting, Sharpe had a further change in preferences, finally majoring in Economics. During his undergraduate studies, two professors had a large influence on him: Armen Alchian
Armen Alchian
Armen Albert Alchian is an American economist and an emeritus professor of economics at the University of California, Los Angeles....
, a professor of economics who became his mentor, and J. Fred Weston, a professor of finance who first introduced him to Harry Markowitz
Harry Markowitz
Harry Max Markowitz is an American economist and a recipient of the John von Neumann Theory Prize and the Nobel Memorial Prize in Economic Sciences....
's papers on portfolio theory. While at UCLA, Sharpe became a member of the Phi Beta Kappa Society
Phi Beta Kappa Society
The Phi Beta Kappa Society is an academic honor society. Its mission is to "celebrate and advocate excellence in the liberal arts and sciences"; and induct "the most outstanding students of arts and sciences at America’s leading colleges and universities." Founded at The College of William and...
. He earned a B.A. from UCLA in 1955 and a M.A. in 1956.
After graduation, in 1956, Sharpe joined the RAND Corporation. While doing research at RAND, he also started work for a Ph.D. at UCLA under the supervision of Armen Alchian. While searching for a dissertation topic, J. Fred Weston suggested him to ask Harry Markowitz at RAND. Working closely with Markowitz, which in practice "filled a role similar to that of dissertation advisor", Sharpe earned his Ph.D. in 1961 with a thesis on a single factor model of security prices, also including an early version of the Security Market Line
Security market line
Security market line is the graphical representation of the Capital asset pricing model. It displays the expected rate of return of an individual security as a function of systematic, non-diversifiable risk .-See also:...
.
In 1961, after finishing his graduate studies, Sharpe started teaching at the University of Washington
University of Washington
University of Washington is a public research university, founded in 1861 in Seattle, Washington, United States. The UW is the largest university in the Northwest and the oldest public university on the West Coast. The university has three campuses, with its largest campus in the University...
. He started research on generalizing the results in his dissertation to an equilibrium theory of asset pricing, work that yielded the Capital asset pricing model
Capital asset pricing model
In finance, the capital asset pricing model is used to determine a theoretically appropriate required rate of return of an asset, if that asset is to be added to an already well-diversified portfolio, given that asset's non-diversifiable risk...
. He submitted the paper describing CAPM to the Journal of Finance
Journal of Finance
The Journal of Finance is a peer-reviewed academic journal published by Wiley-Blackwell on behalf of the American Finance Association. It was established in 1946. Its current editors are Campbell R. Harvey and John R. Graham...
in 1962. However, ironically, the paper which would become one of the foundations of financial economics was initially considered irrelevant and rejected from publication. Sharpe had to wait for the editorial staff to change until finally getting the paper published in 1964. At the same time, the CAPM was independently developed by John Lintner
John Lintner
John Virgil Lintner, Jr. was a professor at the Harvard Business School in the 1960s and one of the co-creators of the Capital Asset Pricing Model....
, Jan Mossin
Jan Mossin
Jan Mossin was a Norwegian economist. Born in Oslo, he graduated with a siv.øk. degree from the Norwegian School of Economics in 1959...
, and Jack Treynor.
In 1968, Sharpe moved to the University of California at Irvine but stayed there for only two years and, in 1970 he moved again, this time to Stanford University
Stanford University
The Leland Stanford Junior University, commonly referred to as Stanford University or Stanford, is a private research university on an campus located near Palo Alto, California. It is situated in the northwestern Santa Clara Valley on the San Francisco Peninsula, approximately northwest of San...
. While teaching at Stanford, Sharpe continued research in the field of investments, in particular on portfolio allocation and pension funds. He also became directly involved in the investment process by offering consultance to Merrill Lynch
Merrill Lynch
Merrill Lynch is the wealth management division of Bank of America. With over 15,000 financial advisors and $2.2 trillion in client assets it is the world's largest brokerage. Formerly known as Merrill Lynch & Co., Inc., prior to 2009 the firm was publicly owned and traded on the New York...
and to Wells Fargo
Wells Fargo
Wells Fargo & Company is an American multinational diversified financial services company with operations around the world. Wells Fargo is the fourth largest bank in the U.S. by assets and the largest bank by market capitalization. Wells Fargo is the second largest bank in deposits, home...
, thus having the opportunity to put in practice the prescriptions of financial theory. In 1986, in collaboration with the Frank Russell Company, he founded Sharpe-Russell Research, a firm specialized in providing research and consultancy on asset allocation to pension funds and foundations. In 1989 he retired from teaching, retaining the position of Professor Emeritus of Finance at Stanford, choosing to focus on his consulting firm, now named William F. Sharpe Associates.
Sharpe served as a President of the American Finance Association
American Finance Association
The American Finance Association is an academic organization whose focus is the study and promotion of knowledge of financial economics. It was formed in 1939...
and he is a trustee of the Economists for Peace and Security. He is also the recipient of a Doctor of Humane Letters, Honoris Causa from DePaul University
DePaul University
DePaul University is a private institution of higher education and research in Chicago, Illinois. Founded by the Vincentians in 1898, the university takes its name from the 17th century French priest Saint Vincent de Paul...
, a Doctor Honoris Causa from the University of Alicante
University of Alicante
The University of Alicante was established in 1979 on the basis of the Center for University Studies , which was founded in 1968. The University main campus is located in San Vicente del Raspeig/Sant Vicent del Raspeig, bordering the city of Alicante to the north...
(Spain
Spain
Spain , officially the Kingdom of Spain languages]] under the European Charter for Regional or Minority Languages. In each of these, Spain's official name is as follows:;;;;;;), is a country and member state of the European Union located in southwestern Europe on the Iberian Peninsula...
), a Doctor Honoris Causa from the University of Vienna
University of Vienna
The University of Vienna is a public university located in Vienna, Austria. It was founded by Duke Rudolph IV in 1365 and is the oldest university in the German-speaking world...
and the UCLA Medal, UCLA's highest honor.
Selected publications
PapersBooks
- Portfolio Theory and Capital Markets (McGraw-Hill, 1970 and 2000). ISBN 0071353208
- Asset Allocation Tools (Scientific Press, 1987)
- Fundamentals of Investments (with Gordon J. Alexander and Jeffrey Bailey, Prentice-Hall, 2000). ISBN 0132926172
- Investments (with Gordon J. Alexander and Jeffrey Bailey, Prentice-Hall, 1999). ISBN 0130101303