William F. Sharpe facts for kids
Quick facts for kids
William F. Sharpe
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Sharpe in 2007
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| Born | June 16, 1934 Boston, Massachusetts, U.S.
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| Alma mater | University of California, Los Angeles (BA, MA, PhD) |
| Known for | Capital asset pricing model Sharpe ratio |
| Awards | Nobel Memorial Prize in Economic Sciences (1990) |
| Scientific career | |
| Fields | Economics |
| Institutions | William F. Sharpe Associates Stanford University University of California, Irvine University of Washington 1961–68 RAND Corporation |
| Doctoral advisor | Armen Alchian Harry Markowitz (unofficial) |
| Doctoral students | Howard Sosin |
William Forsyth Sharpe, born on June 16, 1934, is a famous American economist. He taught at Stanford University and won the Nobel Memorial Prize in Economic Sciences in 1990. This prize is one of the highest honors for economists.
Sharpe helped create important ideas like the Capital asset pricing model (CAPM). This model helps people understand how to price investments and manage risk. He also invented the Sharpe ratio, a tool that helps investors see how much return they get for the risk they take. His work also helped develop ways to value options (like a choice to buy or sell something later) and to figure out the best way to spread out investments.
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William Sharpe's Early Life
William Sharpe was born on June 16, 1934, in Boston, Massachusetts. His father was in the National Guard, so his family moved often during World War II. They finally settled in Riverside, California. William spent his childhood and teenage years there.
He finished high school in Riverside in 1951. He first went to the University of California, Berkeley to study medicine. However, in his first year, he decided to change his path. He moved to the University of California, Los Angeles (UCLA) to study business.
Changing His Mind About Studies
William found that he was not interested in accounting. So, he changed his mind again and decided to major in economics. Two professors at UCLA greatly influenced him. Armen Alchian, an economics professor, became his mentor. J. Fred Weston, a finance professor, introduced him to ideas about how to manage investments.
While at UCLA, Sharpe joined the Theta Xi Fraternity. He also became a member of the Phi Beta Kappa Society, which recognizes excellent students. He earned three degrees from UCLA: a bachelor's degree in 1955, a master's degree in 1956, and a Ph.D. in 1961.
Sharpe's Academic Journey
After graduating in 1956, Sharpe joined the RAND Corporation. This is a place where people do research to help solve problems. While working at RAND, he also started his Ph.D. studies at UCLA. His advisor was Armen Alchian.
Working with Harry Markowitz
When William was looking for a topic for his Ph.D. paper, J. Fred Weston suggested he talk to Harry Markowitz. Markowitz was also at RAND and was a very important person in finance. Sharpe worked closely with Markowitz, who helped him a lot with his Ph.D. paper.
In 1961, Sharpe earned his Ph.D. His paper was about a simple way to understand stock prices. It also included an early version of an idea called the "security market line."
Sharpe's Professional Career
In 1961, after finishing his studies, Sharpe started teaching at the University of Washington. There, he began to expand on his Ph.D. work. This research led to the creation of the Capital asset pricing model (CAPM).
The Capital Asset Pricing Model (CAPM)
Sharpe sent his paper about CAPM to a journal called Journal of Finance in 1962. Surprisingly, the paper was first rejected! The editors thought it was not important. But this paper later became one of the most important ideas in finance. Sharpe had to wait for new editors to take over before his paper was finally published in 1964. At the same time, other economists like John Lintner, Jan Mossin, and Jack Treynor also developed similar ideas about CAPM.
In 1968, Sharpe moved to the University of California, Irvine. He stayed there for only two years. Then, in 1970, he moved to Stanford University.
Helping Investors and Companies
While teaching at Stanford, Sharpe continued his research on investments. He focused on how to best divide investments and how to manage money for retirement funds. He also worked as a consultant for companies like Merrill Lynch and Wells Fargo. This allowed him to use his financial ideas in the real world.
In 1986, he started a research firm called Sharpe-Russell Research with the Frank Russell Company. This firm helped retirement funds and other organizations decide how to invest their money. In 1988, he wrote a paper that introduced a new way to analyze investment funds. This method is now called returns-based style analysis.
Sharpe's Later Career
In 1989, William Sharpe retired from teaching. He became a Professor Emeritus at Stanford, which means he kept his title but focused on his consulting firm. His firm was renamed William F. Sharpe Associates.
In 1996, he helped start a company called Financial Engines. He co-founded it with Joseph Grundfest and Craig W. Johnson. Financial Engines uses technology to put many of Sharpe's financial ideas into practice. It helps people manage their investment portfolios.
Financial Engines Today
Financial Engines grew to have over 200 employees. It became a leader in giving advice and managing retirement accounts. It helped employees in more than 1000 large companies. In March 2018, Financial Engines was bought by another company for $3 billion.
Sharpe also served as the President of the American Finance Association. He is also a trustee for Economists for Peace and Security. He has received many honorary degrees from different universities around the world, including DePaul University, the University of Alicante in Spain, and the University of Vienna. He also received the UCLA Medal, which is UCLA's highest honor.
Since 2009, Sharpe has supported "adaptive asset allocation" strategies. These strategies try to use recent market behavior to make the best investment choices. The goal is to get the most returns and reduce how much investments go up and down.
Sharpe's Views on Economic Policy
In June 2024, William Sharpe was one of 16 Nobel Prize winners in Economics who signed an open letter. This letter discussed economic policies in the United States. The economists argued that certain policies could cause prices to rise too quickly.
Selected Books by William Sharpe
- Portfolio Theory and Capital Markets (1970 and 2000)
- Asset Allocation Tools (1987)
- Fundamentals of Investments (with Gordon J. Alexander and Jeffrey Bailey, 2000)
- Investments (with Gordon J. Alexander and Jeffrey Bailey, 1999)
See also
In Spanish: William Sharpe para niños
- Modern portfolio theory
