William F. Sharpe

William F. Sharpe is an American economist who developed the capital asset pricing model and the Sharpe ratio. He received the 1990 Nobel Memorial Prize in Economic Sciences.

Capital asset pricing model: A model relating an asset’s expected return to its systematic risk relative to the market. Sharpe’s best-known theoretical contribution connects market risk to expected returns.
Capital market line: A line showing the best expected return available for each level of portfolio volatility when a risk-free asset is available. It expresses the portfolio opportunity Sharpe’s equilibrium argument gives investors.
Harry Markowitz: An American economist whose portfolio-selection theory formalized the trade-off between risk and expected return. Markowitz’s portfolio framework supplied a foundation for Sharpe’s asset-pricing work.
Portfolio management: The selection and oversight of investments to meet financial objectives under constraints. Sharpe’s portfolio theory informs how managers balance expected performance and risk.
Sharpe ratio: A measure of investment return relative to its volatility, usually expressed as excess return per unit of risk. Sharpe introduced this measure to compare risk-adjusted investment performance.
Market portfolio: A portfolio containing all risky assets, weighted by their market values. In the CAPM, investors hold the same risky market portfolio in different proportions.
Merton Miller: An American economist known for foundational work on corporate finance and the irrelevance propositions. Miller shared the 1990 economics prize with Sharpe and Harry Markowitz.
Performance attribution: The analysis of how investment decisions and market exposures contributed to portfolio returns. Risk-adjusted measures help distinguish skill from returns earned by taking market risk.
Modern portfolio theory: A framework for choosing portfolios by balancing expected return against risk through diversification. Sharpe extended portfolio theory by deriving implications for asset prices.
Beta (finance): A measure of an asset’s sensitivity to movements in a market benchmark. Beta quantifies the systematic risk that determines an asset’s CAPM expected return.

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