HARRY MAX MARKOWITZ

Harry Markowitz (1927- )

In 1990, U.S. economists Harry Markowitz, William F. Sharpe, and Merton H.

Miller shared the Nobel Prize for their contributions to financial economics.

Their contributions, in fact, were what started financial economics as a

separate field of study. In the early fifties Markowitz developed portfolio

theory, which looks at how investment returns can be optimized. Economists had

long understood the common sense of diversifying a portfolio; the expression "don't

put all your eggs in one basket" has been around for a long time. But Markowitz

showed how to measure the risk of various securities and how to combine them in

a portfolio to get the maximum return for a given risk.

Say, for example, shares in Exxon and in General Motors have a high risk and a

high return, but one share tends to go up when the other falls. This could

happen because when OPEC raises the price of oil and, therefore, of gasoline,

the prices of gasoline producers' shares rise and the prices of auto producers'

shares fall. Then a portfolio that includes both Exxon and GM shares could earn

a high return and have a lower risk than either share alone. Portfolio managers

now routinely use techniques that are based on Markowitz's original insight.

Markowitz earned his Ph.D. at the University of Chicago. He has taught at Baruch

College of the City University of New York since 1982.

Harry Markowitz (1927- )

In 1990, U.S. economists Harry Markowitz, William F. Sharpe, and Merton H.

Miller shared the Nobel Prize for their contributions to financial economics.

Their contributions, in fact, were what started financial economics as a

separate field of study. In the early fifties Markowitz developed portfolio

theory, which looks at how investment returns can be optimized. Economists had

long understood the common sense of diversifying a portfolio; the expression "don't

put all your eggs in one basket" has been around for a long time. But Markowitz

showed how to measure the risk of various securities and how to combine them in

a portfolio to get the maximum return for a given risk.

Say, for example, shares in Exxon and in General Motors have a high risk and a

high return, but one share tends to go up when the other falls. This could

happen because when OPEC raises the price of oil and, therefore, of gasoline,

the prices of gasoline producers' shares rise and the prices of auto producers'

shares fall. Then a portfolio that includes both Exxon and GM shares could earn

a high return and have a lower risk than either share alone. Portfolio managers

now routinely use techniques that are based on Markowitz's original insight.

Markowitz earned his Ph.D. at the University of Chicago. He has taught at Baruch

College of the City University of New York since 1982.