William sharpe 1934 was born in Cambridge, Massachusetts, USA in June. Founder of capital asset pricing model. Because of his contribution to financial economics, he and merton miller and Harry Markowitz won the 13 Nobel Prize in Economics in 1990.

William sharpe's main contribution

Sharp's main contribution to economics is the normative analysis of financial decisions under uncertainty according to securities theory and the empirical equilibrium of financial markets characterized by capital market theory. Theory.

In the1960s, he further developed Markowitz's analytical method into a famous "capital asset pricing model" to explain how to determine the securities price that reflects the potential and potential returns of financial markets. In the model, Sharp further divides the asset risk in markowitz's choice theory into "systematic" (market) risk and "unsystematic" risk. The former is the asset price change caused by the overall stock price change, and the latter is the asset price change caused by some special factors that affect the stock price. Sharp put forward an important theory, that is, investment diversification can only eliminate unsystematic risks, but not systemic risks. Investing in any kind of securities must bear systemic risks.

Suppose there are two securities portfolios with the same beta coefficient, one consisting of non-systematic risk stocks and the other consisting of non-systematic risk stocks. Is the portfolio of "high risk" securities more profitable than "safe" securities? Sharp's capital pricing model gives a negative answer. The systematic risk (that is, the inevitable risk) of the two securities portfolios is the same, and the stocks with higher risks have no influence on rational investors.

From the practical application of the capital asset pricing model, Sharp's research has been the focus of intense debate as early as 65438+early 1960s. Recently, people's attention has shifted from systematic risk measurement method to more complex risk division method. However, the importance of capital asset pricing model in financial economics can not be ignored.

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William Sharp: Putting asset allocation theory into practice.

From 65438 to 0990, markowitz, william sharpe and merton miller were awarded the 22nd Nobel Prize in Economics in recognition of their outstanding contributions to the study of capital market theory. Among them, if Markowitz opens the door to asset allocation, the achievement of his student william sharpe marks the maturity of the theory in this field.

William sharpe often said, "I owe markowitz too much", mainly because markowitz helped him stand at a high starting point of research. He studied at the Medical College of the University of California, Berkeley, and lost interest in studying economics and finance at UCLA one year later. After graduating from master's degree, he engaged in economic research in RAND Corporation and obtained a doctorate. When writing his doctoral thesis, his tutor advised him to consult Mark witters of RAND Corporation, so he became a student in markowitz. Markowitz encouraged Sharp to simplify the calculation based on his theory, because his theory provided investors with a way to allocate the optimal portfolio, but it was not put into practice because of the high calculation cost. Mark Weitz's guidance not only helped him establish his interest in the thesis, but also put him on the shoulders of giants.

One of Sharp's main contributions is to put forward a single-factor model, which improves the portfolio theory and improves its practicability. He assumes that the return of each asset fluctuates with the fluctuation of general factors, which may be political factors, such as Britain's withdrawal from the EU. It can also be economic, such as a shortage of funds; Of course it can be international. Factors such as the reduction of production by the Organization of Petroleum Exporting Countries. Drawing lessons from Mark Weitz's theory, he divided the mechanisms that affect securities returns into two categories. The first is the influence of micro factors on securities returns. For example, changes in company management lead to stock price fluctuations. In this regard, he believes that similar factors have no universal influence, only one influence. The second mechanism is the influence of macro-environmental changes on securities returns. His discovery is that when the market index goes up, the prices of most stocks in the market will go up. Conversely, when the index falls, the stock price is in a downward trend. When the correlation between market index and securities yield is greater than 1, securities will be more unstable than market index; When the correlation is equal to 1, the risk degree of securities is synchronous with the market index; When the correlation is less than 1, these securities are more stable than the market. Although the theoretical model simplifies the uncertain factors that affect the return rate of securities in the real world, it provides investors with an intuitive reference on the elasticity of the return rate of securities, and also lays a foundation for future generations' research.

Sharp's contribution is to establish CAPM model and Sharp ratio. On this basis, the Sharp ratio answers how to determine the asset risk and potential return price, while the latter effectively measures the financing. It is famous for its performance.

According to markowitz's theory, unsystematic risks can be dispersed through asset allocation, so investors only face market risks. CAPM model further analyzes the relationship between return on assets and market risk. The return of assets depends on the sensitivity of assets to the market. Sharp uses beta coefficient to measure the market risk of a single asset. When the beta coefficient is 0, the assets are risk-free assets and the income is risk-free interest rate, such as national debt; When the beta coefficient is 1, the expected return of assets is the average expected return of market portfolio; A coefficient greater than 1 means that the risk of investing in such assets is higher than the market risk, so investors should get corresponding high returns; Conversely, when the beta coefficient is less than 1, the return on asset investment will be less than. The return rate of portfolio in the investment market shows that high risk and high return rate are reasonable. This discovery not only focuses the attention of investors (especially fund managers) on systemic risks, but also improves investment management. It also provides an action guide for investors to evaluate whether the asset pricing is correct and formulate a fixed investment financing strategy.

Sharp ratio comes from CAPM model, which can be understood as risk price, that is, investors can bear multiple risk units for each risk unit. It is a classic index to measure portfolio performance, and it also provides investors with different choices. Provide a comparison standard for assets.

Despite many achievements in the academic field, Sharp has not stopped there. During his tenure at Stanford University, he served as an investment consultant for Merrill Lynch and Wells Fargo, and put his theory into practice. 65438-0986 Sharp-Russell Institute was established to provide research and consulting services for pension funds and foundations. 1996 Established Financial Engine Company (listed on 20 10, stock code: FNGN), dedicated to providing portfolio management services for customers and helping investors adjust their pensions according to their personalized investment plans. Pension income demand. As he said: "I have been working hard in the academic and practical fields, hoping that these two fields can complement each other and maintain a balance."

William sharpe put the asset allocation theory into practice, and the Sharp ratio named after him is one of the most commonly used quantitative indicators in fund investment. In the process of formulating and evaluating southern fund's FOF investment strategy, we have widely used this indicator-william sharpe Profile, in order to seek a better return on investment on the basis of tolerable risks.