Professor William Sharpe Shared 1990 Nobel Prize for Economics
Stanford GSB Preserve
Named for his work in developing models to aid investment decisions, Sharpe became the first Stanford GSB faculty member to receive the award.
William F. Sharpe, The STANCO 25 Professor of Finance, Emeritus, at Stanford Graduate School of Business, was named winner of the 1990 Nobel Prize for Economics for his work in developing models to aid investment decisions.
Sharpe shared the award with Harry Markowitz of the City University of New York, and Merton Miller of the University of Chicago.
At age 56, Sharpe was the ninth Nobel laureate on the Stanford faculty and the first member of the Stanford GSB faculty to win the prestigious award. He described being chosen for the prestigious award as “almost impossible to comprehend.”
All three winners worked in both the theoretical and practical world of corporate and investment finance. “Each of the three gave one building block” to the financial market theory, said Assar Lindbeck of the Swedish Academy of Science, which announced the award from Stockholm.
“The theory would have been incomplete if one of them had been missing. Together they created a complete picture of theory for the financial market which has had great importance in research and education,” Lindbeck said.
Sharpe’s theory, called the Capital Asset Pricing Model (CAPM), is a way of matching potential gain from an investment with the potential risk. The theory is based on the earlier work of Markowitz, who with Sharpe derived the theory from Stanford’s Kenneth Arrow, winner of the 1972 Nobel in economics.
Sharpe’s model is considered a standard for the investment industry and is used by corporate, institutional, and pension fund managers to plan and judge their investments.
Read the full, original story about Sharpe’s pioneering work in finance and investment theory — models still in use today, decades later.
