Harry Markowitz

Last updated

Harry Markowitz
Born
Harry Max Markowitz

(1927-08-24) August 24, 1927 (age 94)
InstitutionHarry Markowitz Company
Rady School of Management at the University of California, San Diego
Baruch College
RAND Corporation
Cowles Commission
Field Financial economics
School or
tradition
Chicago School of Economics
Alma mater University of Chicago (Ph.B., A.M, and Ph.D.) [1]
Doctoral
advisor
Milton Friedman
Jacob Marschak
Influences Tjalling Koopmans
Leonard Savage
Contributions Modern portfolio theory
Efficient frontier
Sparse matrix methods
SIMSCRIPT
Awards John von Neumann Theory Prize (1989)
The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel (1990)
Information at IDEAS / RePEc

Harry Max Markowitz (born August 24, 1927) is an American economist who received the 1989 John von Neumann Theory Prize and the 1990 Nobel Memorial Prize in Economic Sciences.

Contents

Markowitz is a professor of finance at the Rady School of Management at the University of California, San Diego (UCSD). He is best known for his pioneering work in modern portfolio theory, studying the effects of asset risk, return, correlation and diversification on probable investment portfolio returns.

Biography

Harry Markowitz was born to a Jewish family, the son of Morris and Mildred Markowitz. [2] During high school, Markowitz developed an interest in physics and philosophy, in particular the ideas of David Hume, an interest he continued to follow during his undergraduate years at the University of Chicago. After receiving his Ph.B. in Liberal Arts, [1] Markowitz decided to continue his studies at the University of Chicago, choosing to specialize in economics. There he had the opportunity to study under important economists, including Milton Friedman, Tjalling Koopmans, Jacob Marschak and Leonard Savage. While still a student, he was invited to become a member of the Cowles Commission for Research in Economics, which was in Chicago at the time. He completed his A.M. in Economics from the university in 1950. [1]

Markowitz chose to apply mathematics to the analysis of the stock market as the topic for his dissertation. Jacob Marschak, who was the thesis advisor, encouraged him to pursue the topic, noting that it had also been a favorite interest of Alfred Cowles, the founder of the Cowles Commission. While researching the then current understanding of stock prices, which at the time consisted in the present value model of John Burr Williams, Markowitz realized that the theory lacks an analysis of the impact of risk. This insight led to the development of his seminal theory of portfolio allocation under uncertainty, published in 1952 by the Journal of Finance . [3]

In 1952, Harry Markowitz went to work for the RAND Corporation, where he met George Dantzig. With Dantzig's help, Markowitz continued to research optimization techniques, further developing the critical line algorithm for the identification of the optimal mean-variance portfolios, relying on what was later named the Markowitz frontier. In 1954, he received a PhD in Economics from the University of Chicago [1] with a thesis on the portfolio theory. The topic was so novel that, while Markowitz was defending his dissertation, Milton Friedman argued his contribution was not economics. [4] During 1955–1956 Markowitz spent a year at the Cowles Foundation, [2] which had moved to Yale University, at the invitation of James Tobin. He published the critical line algorithm in a 1956 paper and used this time at the foundation to write a book on portfolio allocation which was published in 1959. [5]

Markowitz won the Nobel Memorial Prize in Economic Sciences in 1990 while a professor of finance at Baruch College of the City University of New York. In the preceding year, he received the John von Neumann Theory Prize from the Operations Research Society of America (now Institute for Operations Research and the Management Sciences, INFORMS) for his contributions in the theory of three fields: portfolio theory; sparse matrix methods; and simulation language programming (SIMSCRIPT). Sparse matrix methods are now widely used to solve very large systems of simultaneous equations whose coefficients are mostly zero. SIMSCRIPT has been widely used to program computer simulations of manufacturing, transportation, and computer systems as well as war games. SIMSCRIPT (I) included the Buddy memory allocation method, which was also developed by Markowitz. He was elected to the 2002 class of Fellows of the Institute for Operations Research and the Management Sciences. [6]

CACI

The company that would become CACI International was founded by Herb Karr and Harry Markowitz on July 17, 1962 as California Analysis Center, Inc. They helped develop SIMSCRIPT, the first simulation programming language, at RAND and after it was released to the public domain, CACI was founded to provide support and training for SIMSCRIPT. [7]

In 1968, Markowitz joined Arbitrage Management company founded by Michael Goodkin. Working with Paul Samuelson and Robert Merton he created a hedge fund that represents the first known attempt at computerized arbitrage trading. He took over as chief executive in 1970. After a successful run as a private hedge fund, AMC was sold to Stuart & Co. in 1971. A year later, Markowitz left the company. [8]

Years later, he was involved with CACI's SIMSCRIPT addition of Object-oriented features. [9]

Post-CACI

Markowitz divides his time between teaching (he is an adjunct professor at the Rady School of Management at the University of California at San Diego, UCSD); video casting lectures; and consulting (out of his Harry Markowitz Company offices). He currently serves on the Advisory Board of SkyView Investment Advisors, a traditional and alternative investment advisory firm. Markowitz also serves on the Investment Committee of LWI Financial Inc. ("Loring Ward"), a San Jose, California-based investment advisor; on the advisory panel of Robert D. Arnott's Newport Beach, California based investment management firm, Research Affiliates; on the Advisory Board of Mark Hebner's Irvine, California and internet based investment advisory firm, Index Fund Advisors; and as an advisor to the Investment Committee of 1st Global, a Dallas, Texas-based wealth management and investment advisory firm. Markowitz advises and serves on the board of ProbabilityManagement.org, a 501(c)(3) non-profit founded by Dr. Sam L. Savage to reshape the communication and calculation of uncertainty. [10]

Markowitz is co-founder and Chief Architect of GuidedChoice, a 401(k) managed accounts provider and investment advisor. [11] Markowitz's more recent work has included designing the backbone software analytics for the GuidedChoice investment solution and heading the GuidedChoice Investment Committee. He is actively involved in designing the next step in the retirement process: assisting retirees with wealth distribution through GuidedSpending.

Research

A Markowitz-efficient portfolio is one where diversification can lower the portfolio's risk for a given return expectation (alternately, no additional expected return can be gained without increasing the risk of the portfolio). The Markowitz Efficient Frontier is the set of all portfolios that will give the highest expected return for each given level of risk. These concepts of efficiency were essential to the development of the capital asset pricing model.

Markowitz also co-edited the textbook The Theory and Practice of Investment Management with Frank J. Fabozzi of Yale School of Management. In the same line, Markowitz is part of the Editorial Board of AESTIMATIO, [12] the IEB International Journal of Finance. [13]

Selected publications

See also

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References

  1. 1 2 3 4 "Curriculum Vitae (Harry M. Markowitz)". hmarkowitz.com. Retrieved December 12, 2017.
  2. 1 2 Harry M. Markowitz Autobiography, The Nobel Prizes 1990, Editor Tore Frängsmyr, [Nobel Foundation], Stockholm, 1991
  3. Markowitz, H.M. (March 1952). "Portfolio Selection". The Journal of Finance . 7 (1): 77–91. doi:10.2307/2975974. JSTOR   2975974.
  4. Harry M. Markowitz Nobel Prize Lecture: Foundations of Portfolio Theory, December 7, 1990 (PDF format)
  5. Markowitz, H.M. (1959). Portfolio Selection: Efficient Diversification of Investments. New York: John Wiley & Sons. (reprinted by Yale University Press, 1970, ISBN   978-0-300-01372-6; 2nd ed. Basil Blackwell, 1991, ISBN   978-1-55786-108-5)
  6. Fellows: Alphabetical List, Institute for Operations Research and the Management Sciences, archived from the original on May 10, 2019, retrieved October 9, 2019
  7. William G. Shepherd Jr. (September 1988). "Market Value - PCs on Wall Street". PC Computing. pp. 150–157.
  8. Goodkin, Michael. The Wrong Answer Faster: The Inside Story of Making the Machine that Trades Trillions. John Wiley & Sons, 2012
  9. Harry M. Markowitz (2009). Selected Works. p. 152. ISBN   978-9814470216. I told Ana Marjanski, who headed the SIMSCRIPT III project, that SIMSCRIPT already has entities, attributes plus sets. She explained that the clients want object ...
  10. "Probability Management".
  11. GuidedChoice, "Harry Markowitz’s Modern Portfolio Theory: The Efficient Frontier"
  12. "Editorial Board of AESTIMATIO - IEB Instituto de Estudios Bursátiles".
  13. "AESTIMATIO, the IEB International Journal of Finance".
Awards
Preceded by
Trygve Haavelmo
Laureate of the Nobel Memorial Prize in Economics
1990
Served alongside: Merton H. Miller, William F. Sharpe
Succeeded by
Ronald H. Coase