William Forsyth Sharpe (born June 16, 1934) is an American economist. He 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.

Sharpe was one of the originators of the capital asset pricing model (CAPM). He created the Sharpe ratio for risk-adjusted investment performance analysis, and he contributed to the development of the binomial method for the valuation of options, the gradient method for asset allocation optimization, and returns-based style analysis for evaluating the style and performance of investment funds.

Contributions to Finance

Sharpe's work on the capital asset pricing model established a mathematical framework for evaluating the relationship between risk and return. The model identifies that the expected return of an asset is equal to the risk-free rate plus a premium based on the asset's systematic risk, or beta.

The standard CAPM equation is:

:<math>E(R_i) = R_f + \beta_i(E(R_m) - R_f)</math>

where:

  • <math>E(R_i)</math> is the expected return on the capital asset;
  • <math>R_f</math> is the risk-free rate of interest;
  • <math>\beta_i</math> is the sensitivity of the expected excess asset returns to the expected excess market returns;
  • <math>E(R_m)</math> is the expected return of the market. He then enrolled at the University of California, Berkeley planning to pursue a degree in medicine. He earned a B.A. in 1955, an M.A. in 1956, and a Ph.D. in 1961, all from UCLA.

Academic training

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.

Professional career

In 1961 after finishing his graduate studies, Sharpe started teaching at the University of Washington. 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, Irvine but stayed there for only two years, and in 1970 he moved, this time to Stanford University. 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. His 1988 paper, 'Determining a Fund's Effective Asset Mix', established the model later referred to as returns-based style analysis.

Later career

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. Financial Engines uses technology to implement many of his financial theories in portfolio management.

Today, Financial Engines has over 200 employees and is the leader in automated retirement plan investment advice and management, with more than $200 Billion in managed retirement accounts, providing advice and managed account services to employees in over 1000 major corporations. In March 2018, Financial Engines was acquired for $3 Billion in cash. He is also the recipient of a Doctor of Humane Letters, Honoris Causa from DePaul University, a Doctor Honoris Causa from the University of Vienna and the UCLA Medal, UCLA's highest honor.

Since 2009, Sharpe has been an advocate of "adaptive asset allocation" strategies.

Political views

In June 2024, 16 Nobel Prize in Economics laureates, including Sharpe, signed an open letter regarding fiscal and trade policies.

Selected publications

Highly Cited Papers

  • Sharpe, William F. (1964). "Capital Asset Prices: A Theory of Market Equilibrium under Conditions of Risk". *Journal of Finance*. **19** (3): 425–442.
  • Sharpe, William F. (1966). "Mutual Fund Performance". *Journal of Business*. **39** (1): 119–138.
  • Sharpe, William F. (1963). "A Simplified Model for Portfolio Analysis". *Management Science*. **9** (2): 277–293.
  • Sharpe, William F. (1994). "The Sharpe Ratio". *Journal of Portfolio Management*. **21** (1): 49–58.
  • Sharpe, William F. (1992). "Asset Allocation: Management Style and Performance Measurement". *Journal of Portfolio Management*. **18** (2): 7–19.

Books

  • Portfolio Theory and Capital Markets (McGraw-Hill, 1970 and 2000).
  • Asset Allocation Tools (Scientific Press, 1987)
  • Fundamentals of Investments (with Gordon J. Alexander and Jeffrey Bailey, Prentice-Hall, 2000).
  • Investments (with Gordon J. Alexander and Jeffrey Bailey, Prentice-Hall, 1999).

See also

  • Modern portfolio theory

References

  • Personal web site of Dr. Sharpe
  • IDEAS/RePEc
  • including the Prize Lecture December 7, 1990 Capital Asset Prices with and without Negative Holding