William Forsyth Sharpe

William Forsyth Sharpe
(1934)

American economist who shared the Nobel Prize for Economics in 1990 with Harry M. Markowitz and Merton H. Miller.
Sharpe was educated at the University of California at Los Angeles, receiving his Ph.D. in economics there in 1961. He met Markowitz while working at the Rand Corporation (1957-61) and was influenced by the latter's theories. Sharpe subsequently taught economics at the University of Washington in Seattle (1961-68) and at Stanford University (from 1970) until he retired from teaching to head his own investment consultants' firm.

Sharpe received the Nobel Prize for his "capital asset pricing model," a financial model that can explain how securities prices reflect risks and potential returns. Sharpe's theory stressed how the market pricing of risky assets enables them to fit into an investor's portfolio because they can be made to blend with less risky investments. Sharpe's theories led to the concept of "beta," a measurement of portfolio risk not overturned by clever diversifying of investments. Investment analysts frequently use "beta" to compare the risk of holding one mix of stocks with that of stocks in general.