CREATOR OF THE CAPITAL ASSET PRICING MODEL

Heri M. Markovic, Merton H. Miler i Vilijam F. Šarp nagrađeni su Nobelovom nagradom iz ekonomije 1990. godine za svoj pionirski rad u oblasti teorije finansijske ekonomije. Heri Markovic je dao najznačajniji doprinos u selekciji portfolija, Vilijam Šarp u postavljanju ravnotežne teorije vrednovanja kapitala (CAPM), a Merton Miler u korporativnim finansijama. Njihov rad je revolucionalizovao finansije uvođenjem i primenom kvantitativnih metoda u finansijskoj analizi. Šarp je rođen 1934. godine u Bostonu, Masačusets. Diplomirao je 1955. godine, magistrirao 1956, a doktorirao 1961. godine na Ekonomskom fakultetu Univerziteta CLA. U doktorskoj disertaciji istraživao je niz aspekata analize portfolija na osnovu modela koji je predložio Markovic. Svoj radni vek proveo je kao predavač i profesor aktivno učestvujući u brojnim istraživačkim projektima. Napisao je brojne stručne radove i knjige, dobitnik je više priznanja i član mnogih institucija. Svoju firmu za finansijski konsalting osnovao je 1989. godine.


Biography
William Sharpe was born in June 1934 in Boston, Massachusetts.The majority of his precollege education was completed in the public schools of California, where he benefitted from teachers who knew how to stimulate their pupils' work, mostly through solid and challenging curricula.In 1951 he enrolled at the University of California at Berkeley, with a plan to major in science en route to a medical degree.However, several courses he attended at the University convinced him that his preferences lay elsewhere.Therefore, he transferred to the University of California at Los Angeles.During his undergraduate studies he majored in accounting and economics.He received the Bachelor of Arts degree in 1955, the Master of Arts degree in 1956.In his autobiography written for the Nobel Foundation, he underlined that two professors had a profound influence on his future career.Those are Armen Achian and J. Fred Weston.As a research assistant Sharpe cooperated with Professor Weston in the Business School, who introduced him to the work of Harry Markowitz.Alchian served as chairman of Sharpe's dissertation committee.He taught his students to always begin their work with an analysis, to concentrate on essential elements and to play devil's advocate with one's own ideas.In his classes the students were able to watch a brilliant method of work, used to solve different problems during research.Sharpe accepted that approach to research, and emulated it ever since.
After the Army, Sharpe joined the RAND Corporation in 1956 as an economist.RAND was an almost ideal place for anyone interested in performing research.In this Corporation Sharpe had a chance to train himself in computer science, game theory, linear programming, dynamic programming and applied economics.
A member of the faculty suggested to Sharpe to choose a different topic than the one he had originally selected for his doctoral dissertation.It was Markowitz who helped him settle on the new topic Portfolio Analysis Based on a Simplified Model of the Relationships Among Securities.Although Harry was not on his committee, Markowitz filled a role similar to that of dissertation advisor, which Sharpe commented upon by saying: "My debt to him is truly enormous."He gained his PhD degree in Economics in 1961 at the UCLA.In his doctoral dissertation he explored a series of aspects of portfolio analysis, based on a model proposed by Markowitz.
In 1961 he moved to Seattle to take a position at the School of Business at the University of Washington.He spent seven extremely productive years there.After that, he moved to the University of California at Irvine to participate in an experiment involving the creation of a School of Social Sciences with an interdisciplinary curriculum.For various reasons this experiment was never completed.Already in 1970 he went to the Stanford University Graduate School of Business, where he was a lecturer on doctoral seminars in a team with Alan Kraus and Bob Litzenberger.As underlined by Sharpe, the three of them shared not only the experience and knowledge but also an interest in sailing.In this period he achieved wonderful cooperation with his colleagues Alex Robichek and Paul Cootnern, from whom he learned a lot.
Oženjen je ostvarenom slikarkom Ketrin koja je njegova velika podrška i ohrabrenje.Ćerka Debora i sin Džonatan su fakultetski obrazovani i poseduju, takođe, ljubav prema učenju i prenošenju znanja drugima, što je očigledno nešto što se prenosi iz porodice generacijama.He spent the 1976-1977 academic year at the National Bureau of Economic Research as a member of a team studying issues of bank capital adequacy under the direction of Sherman Maisel.His focus was on the relationship between deposit insurance and default risk.

Naučni rad
In 1980 William Sharpe was elected President of the American Finance Association.In the 1980s he continued to work on issues relating to pension plan investment policy.In 1986, he took a two-year leave from Stanford to found Sharpe-Russell Research, a firm chartered to perform research and to develop procedures to help pensions, endowments and foundations select asset allocations appropriate to their circumstances and objectives.
In order to devote more of his time to research and consulting activities, after establishing his own financial consulting firm in 1989, he chose to change status, becoming Timken Professor Emeritus of Finance at Stanford.
Throughout his fruitful scientific career, Sharpe served as a member of numerous institutions and funds, including: the College Retirement Equities Fund, the Research Foundation of the Institute of Chartered Financial Analysts, the Institute of Quantitative Research in Finance, and the Council on Education and Research of the Institute of Chartered Financial Analysts.
Sharpe received the American Assembly of Collegiate Schools of Business Award and the Financial Analysts' Federation Award.He authored numerous papers and published several books.He explains his working energy and achieved results by referring to the way his parents raised him: "They taught me by example the joys associated with learning and with communicating the results of that learning to others."Sharpe's parents retired from high positions, his father as a college president, and his mother as an elementary school principal.
He is married to Kathryn, an accomplished painter, who has been his great support and encouragement.His daughter Deborah and son Jonathan have college education, and both share a love of learning and of communicating knowledge to others, which is obviously something to be transferred from generation to generation.

Scientific Work
When in 1952 Markowitz published his Portfolio Selection, it was obvious that his model was rather demanding from the aspect of databases and calculation volume.The challenge of reducing this complexity inspired William Sharpe to develop a risk measurement model based on a factor which is in the basis of CAPM.This model further elaborates on Tobin's theory of separation, claiming that the investment process takes place in two stages: construction of an efficient portfolio according to Markowitz and combination of the efficient portfolio with risk-free assets.
The Capital Asset Pricing Model is based on a situation in which an efficient set is formed with the allowed purchase and sale of risk-free assets.It is then that a linear set of investment possibilities (Market Capital Line) is generated, which is the efficient set for the given situation.
The process of finding the optimal portfolio combination, given the unlimited availability of risk-free assets, substantially simplifies the
Osnovni Šarpov zaključak je da su na efikasnom tržištu investitori kompenzirani samo za podnošenje sistemskog rizika koji se ne može otkloniti diversifikacijom, i da je očekivana stopa prinosa na hartiju u linearnoj zavisnosti sa njenim nivoom sistematskog rizika.problem of portfolio selection, because the investor is in the position to decide how much risk-free assets he will lend or borrow.Moreover, the decision on purchasing a portfolio can be viewed as an investment decision, whereas the decision on lending or borrowing risk-free assets can be viewed as a financial decision.
Sharpe reached the conclusion that all investors would be in the position of the same portfolio of risky assets, which would, in an equilibrium state, represent the market portfolio, as the portfolio containing all available securities on the market.The condition for this is that there is a uniform interest rate at which one can lend or borrow without any limitations, and that the investment horizons of the investors are homogenous.
A potential absence of a security from the portfolio in which all investors have invested would cause a drop of prices, and a growth of expected rate of return on the concerned security, to the extent when the ratio between its risk and expected return is such as to allow it to be included in the portfolio.This is the reason why this represents an efficient market portfolio.
According to Sharpe, risk can be treated as total risk and systemic risk.Total risk refers to the overall variability of rates of return on the observed asset, measured by the standard deviation of the rate of return.Systemic risk is measured by means of a coefficient -relative index of the observed security's or portfolio's sensitivity to market risk -and this risk cannot be mitigated through diversification.A segment of risk representing the difference between the total and systemic risk is called non-systemic risk.Price movements in respect of this risk segment are statistically autonomous and, through different combinations of assets, can be reduced to zero on average.
The basic Sharpe's conclusion is that in an efficient market investors are compensated only for taking the systemic risk that cannot be mitigated through diversification, and that the expected rate of return on a security is linearly correlated to the systemic risk level it entails.
1973 he was named the Timken Professor of Finance at Stanford.During this period he also served as a consultant in many reputable institutions, such as: Merrill Lynch, Pierce, Fenner and Smith, Wells Fargo Investment Advisors.Working as a consultant in these firms, he learned much about the real world of investment.In countless ways Sharpe successfully applied the acquired knowledge in his lectures and research.studije na Stenford univerzitetu, gde je predavač na doktorskim seminarima u timu sa Alanom Krausom i Bobom Ucenbergerom.Kako ističe, Šarp njih troje nisu samo delili iskustva i znanja već i zajedničko interesovanje prema jedrenju.