Harry Max Markowitz (August 24, 1927 – June 22, 2023) was an American economist who received the 1989 John von Neumann Theory Prize and the 1990

Nobel Memorial Prize in Economic Sciences The Nobel Memorial Prize in Economic Sciences, officially the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel (), commonly referred to as the Nobel Prize in Economics(), is an award in the field of economic sciences adminis ...

. Markowitz was a professor of finance at the

Rady School of Management The Rady School of Management is the Postgraduate education, graduate business school of the University of California, San Diego, a public university in San Diego, California, United States. The school was established as the University of Califor ...

at the

University of California, San Diego The University of California, San Diego (UC San Diego in communications material, formerly and colloquially UCSD) is a public university, public Land-grant university, land-grant research university in San Diego, California, United States. Es ...

(UCSD). He is best known for his pioneering work in

modern portfolio theory Modern portfolio theory (MPT), or mean-variance analysis, is a mathematical framework for assembling a portfolio of assets such that the expected return is maximized for a given level of risk. It is a formalization and extension of Diversificatio ...

, studying the effects of asset

risk In simple terms, risk is the possibility of something bad happening. Risk involves uncertainty about the effects/implications of an activity with respect to something that humans value (such as health, well-being, wealth, property or the environ ...

return Return may refer to: In business, economics, and finance * Return on investment (ROI), the financial gain after an expense. * Rate of return, the financial term for the profit or loss derived from an investment * Tax return, a blank document or t ...

correlation In statistics, correlation or dependence is any statistical relationship, whether causal or not, between two random variables or bivariate data. Although in the broadest sense, "correlation" may indicate any type of association, in statistics ...

and diversification on probable investment portfolio returns.

Biography

Harry Markowitz was born to a

Jewish Jews (, , ), or the Jewish people, are an ethnoreligious group and nation, originating from the Israelites of History of ancient Israel and Judah, ancient Israel and Judah. They also traditionally adhere to Judaism. Jewish ethnicity, rel ...

family, the son of Morris and Mildred Markowitz.Harry M. Markowitz �
Autobiography
The Nobel Prizes 1990, Editor Tore Frängsmyr, obel Foundation Stockholm, 1991 During high school, Markowitz developed an interest in physics and philosophy, in particular the ideas of

David Hume David Hume (; born David Home; – 25 August 1776) was a Scottish philosopher, historian, economist, and essayist who was best known for his highly influential system of empiricism, philosophical scepticism and metaphysical naturalism. Beg ...

, an interest he continued to follow during his undergraduate years at the

University of Chicago The University of Chicago (UChicago, Chicago, or UChi) is a Private university, private research university in Chicago, Illinois, United States. Its main campus is in the Hyde Park, Chicago, Hyde Park neighborhood on Chicago's South Side, Chic ...

. After receiving his Ph.B. in Liberal Arts, 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 Milton Friedman (; July 31, 1912 – November 16, 2006) was an American economist and statistician who received the 1976 Nobel Memorial Prize in Economic Sciences for his research on consumption analysis, monetary history and theory and ...

Tjalling Koopmans Tjalling Charles Koopmans (August 28, 1910 – February 26, 1985) was a Dutch-American mathematician and economist. He was the joint winner with Leonid Kantorovich of the 1975 Nobel Memorial Prize in Economic Sciences for his work on the theory ...

Jacob Marschak Jacob Marschak (23 July 1898 – 27 July 1977) was an American economist. Life Born in a Jewish family of Kyiv, Jacob Marschak (until 1933 ''Jakob'') was the son of a jeweler. During his studies, he joined the social democratic Menshevik P ...

and

Leonard Savage Leonard Jimmie Savage (born Leonard Ogashevitz; 1917 – 1971) was an American mathematician and statistician. Economist Milton Friedman said Savage was "one of the few people I have met whom I would unhesitatingly call a genius." Education and ...

. While still a student, he was invited to become a member of the

Cowles Commission for Research in Economics The Cowles Foundation for Research in Economics is an economic research institute at Yale University. History It was created as the Cowles Commission for Research in Economics at Colorado Springs in 1932 by businessman and economist Alfred Cow ...

, which was in Chicago at the time. He completed his A.M. in Economics from the university in 1950. Markowitz chose to apply mathematics to the analysis of the

stock market A stock market, equity market, or share market is the aggregation of buyers and sellers of stocks (also called shares), which represent ownership claims on businesses; these may include ''securities'' listed on a public stock exchange a ...

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 Alfred Cowles III (September 15, 1891 – December 28, 1984) was an American economist, businessman, and founder of the Cowles Commission for Research in Economics, an influential research institute which advanced the field of econometrics in t ...

, the founder of the Cowles Commission. While researching the then current understanding of stock prices, which at the time consisted in the

present value In economics and finance, present value (PV), also known as present discounted value (PDV), is the value of an expected income stream determined as of the date of valuation. The present value is usually less than the future value because money ha ...

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 Portfolio may refer to: Objects * Portfolio (briefcase), a type of briefcase Collections * Portfolio (finance), a collection of assets held by an institution or a private individual * Artist's portfolio, a sample of an artist's work or a ...

allocation under uncertainty, published in 1952 by ''the

Journal of Finance ''The Journal of Finance'' is a peer-reviewed academic journal published by Wiley-Blackwell on behalf of the American Finance Association. It was established in 1946. The editor-in-chief is Antoinette Schoar. According to the ''Journal Citation R ...

''. In 1952, Harry Markowitz went to work for the

RAND Corporation The RAND Corporation, doing business as RAND, is an American nonprofit global policy think tank, research institute, and public sector consulting firm. RAND engages in research and development (R&D) in several fields and industries. Since the ...

, where he met George Dantzig. With Dantzig's help, Markowitz continued to research

optimization Mathematical optimization (alternatively spelled ''optimisation'') or mathematical programming is the selection of a best element, with regard to some criteria, from some set of available alternatives. It is generally divided into two subfiel ...

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 Markowitz is a Germanized/Yiddish version of Slavic name Markovich. Notable people with the surname include: * Deborah Markowitz, Vermont secretary of state * Gerald Markowitz, American historian * Harry Markowitz, a financial economist and Nobel L ...

. It was also in 1952 that Markowitz published ''Portfolio Selection'', his first paper dissecting investment portfolio strategy. In 1954, he received a PhD in economics from the University of Chicago 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.Harry M. Markowitz �
Nobel Prize Lecture: Foundations of Portfolio Theory
December 7, 1990
PDF format
During 1955–1956 Markowitz spent a year at the Cowles Foundation, which had moved to

Yale University Yale University is a Private university, private Ivy League research university in New Haven, Connecticut, United States. Founded in 1701, Yale is the List of Colonial Colleges, third-oldest institution of higher education in the United Stat ...

, at the invitation of

James Tobin James Tobin (March 5, 1918 – March 11, 2002) was an American economist who served on the Council of Economic Advisers and consulted with the Board of Governors of the Federal Reserve System, and taught at Harvard University, Harvard and Yale Uni ...

. 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. (reprinted by Yale University Press, 1970, ; 2nd ed. Basil Blackwell, 1991, ) Markowitz won the

in 1990 while a professor of finance at

Baruch College Baruch College (officially the Bernard M. Baruch College) is a public college in New York City, United States. It is a constituent college of the City University of New York system. Named for financier and statesman Bernard M. Baruch, the colle ...

of the

City University of New York The City University of New York (CUNY, pronounced , ) is the Public university, public university system of Education in New York City, New York City. It is the largest urban university system in the United States, comprising 25 campuses: eleven ...

. 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 The Institute for Operations Research and the Management Sciences (INFORMS) is an international society for practitioners in the fields of operations research Operations research () (U.S. Air Force Specialty Code: Operations Analysis), often s ...

INFORMS The Institute for Operations Research and the Management Sciences (INFORMS) is an international society for practitioners in the fields of operations research Operations research () (U.S. Air Force Specialty Code: Operations Analysis), often s ...

) for his contributions in the theory of three fields: portfolio theory; sparse matrix methods; and simulation language programming (

SIMSCRIPT SIMSCRIPT is a free-form, English-like general-purpose simulation language conceived by Harry Markowitz and Bernard Hausner at the RAND Corporation in 1962. It was implemented as a Fortran preprocessor on the IBM 7090 and was designed for large ...

). 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 The buddy memory allocation technique is a memory allocation algorithm that divides memory into partitions to try to satisfy a memory request as suitably as possible. This system makes use of splitting memory into halves to try to give a best fit. ...

method, which was also developed by Markowitz. He was elected to the 2002 class of

Fellow A fellow is a title and form of address for distinguished, learned, or skilled individuals in academia, medicine, research, and industry. The exact meaning of the term differs in each field. In learned society, learned or professional society, p ...

s of the

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

, 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. In 1968, Markowitz joined Arbitrage Management company founded by

Michael Goodkin Michael Goodkin (August 12, 1942 - June 6, 2022) was a quantitative finance entrepreneur and author. Biography Goodkin was born in Chicago. He holds a BA from the University of Illinois, a JD from Northwestern University and an MBA from Columbia ...

. Working with

Paul Samuelson Paul Anthony Samuelson (May 15, 1915 – December 13, 2009) was an American economist who was the first American to win the Nobel Memorial Prize in Economic Sciences. When awarding the prize in 1970, the Swedish Royal Academies stated that he "h ...

and Robert Merton he created a hedge fund that represents one of the first known attempts 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. Years later, he was involved with CACI's

addition of

Object-oriented Object-oriented programming (OOP) is a programming paradigm based on the concept of '' objects''. Objects can contain data (called fields, attributes or properties) and have actions they can perform (called procedures or methods and impleme ...

features.

Post-CACI

Markowitz divided his time between teaching (he was 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 served on the advisory board of SkyView Investment Advisors, a traditional and alternative investment advisory firm. Markowitz also served 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 Newport Beach is a coastal city of about 85,000 in southern Orange County, California, United States. Located about southeast of downtown Los Angeles, Newport Beach is known for its sandy beaches. The city's harbor once supported maritime indu ...

based investment management firm,

Research Affiliates Robert D. Arnott (born June 29, 1954) is an American businessman, investor, and writer who focuses on articles about quantitative investing. He is the founder and chairman of the board of Research Affiliates, an asset management firm. Research ...

; on the advisory board of Mark T. Hebner's Irvine, California and internet based wealth management and taxes 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 advised and served on the board of ProbabilityManagement.org, a 501(c)(3) non-profit that aims "to reshape the communication and calculation of uncertainty." Markowitz was co-founder and Chief Architect of GuidedChoice, a 401(k) managed accounts provider and investment advisor. Markowitz's more recent work included designing the backbone software analytics for the GuidedChoice investment solution and heading the GuidedChoice Investment Committee. He was actively involved in designing the next step in the retirement process: assisting retirees with wealth distribution through GuidedSpending. Markowitz died on June 22, 2023, at the age of 95. He died in a hospital in

San Diego, California San Diego ( , ) is a city on the Pacific coast of Southern California, adjacent to the Mexico–United States border. With a population of over 1.4 million, it is the List of United States cities by population, eighth-most populous city in t ...

due to complications from pneumonia and sepsis.

Research

A ''Markowitz-efficient portfolio'' is one where diversification cannot lower the portfolio's

for a given return expectation (alternately, no additional expected return can be gained without increasing the risk of the portfolio). The Markowitz

Efficient Frontier In modern portfolio theory, the efficient frontier (or portfolio frontier) is an investment portfolio which occupies the "efficient" parts of the risk–return spectrum. Formally, it is the set of portfolios which satisfy the condition that n ...

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 In finance, the capital asset pricing model (CAPM) is a model used to determine a theoretically appropriate required rate of return of an asset, to make decisions about adding assets to a Diversification (finance), well-diversified Portfolio (f ...

. Markowitz also co-edited the textbook ''The Theory and Practice of Investment Management'' with Frank J. Fabozzi of

Yale School of Management The Yale School of Management (also known as Yale SOM) is the graduate school, graduate business school of Yale University, a Private university, private research university in New Haven, Connecticut. The school awards the Master of Business Admi ...

. In the same line, Markowitz was part of the editorial board of AESTIMATIO, the IEB International Journal of Finance.

Selected publications

* * * * (reprinted by Yale University Press, 1970, ; 2nd ed. Basil Blackwell, 1991, ) * * * *

References

External links

*
Markowitz: Videos of Interviews by M. Hebner and W. Wellington and Presentations by Markowitz

** ** ttp://nobelprize.org/nobel_prizes/economics/laureates/1990/markowitz-speech.html Banquet Speech December 10, 1990 *
Nobel Prize Lecture: Foundations of Portfolio Theory
December 7, 1990
PDF format

Oral history interview with Markowitz

Charles Babbage Institute The IT History Society (ITHS) is an organization that supports the history and scholarship of information technology by encouraging, fostering, and facilitating archival and historical research. Formerly known as the Charles Babbage Foundation, ...

, University of Minnesota – Markowitz discusses his development of

portfolio theory Modern portfolio theory (MPT), or mean-variance analysis, is a mathematical framework for assembling a portfolio of assets such that the expected return is maximized for a given level of risk. It is a formalization and extension of Diversificatio ...

sparse matrices In numerical analysis and scientific computing, a sparse matrix or sparse array is a matrix (mathematics), matrix in which most of the elements are zero. There is no strict definition regarding the proportion of zero-value elements for a matrix ...

, and his work at the

and elsewhere on simulation software development (including computer language

), modeling, and operations research.
History of Finance, interviews
The

American Finance Association The American Finance Association (AFA) is an academic organization whose focus is the study and promotion of knowledge of financial economics. It was formed in 1939. Its main publication, the ''Journal of Finance'', was first published in 1946. ...

Guide to the Harry M. Markowitz Papers 1963, 1965, 1967

Adjunct Professor of Finance, bio
Rady School of Management, University of California at San Diego
1st Global Engages Dr. Harry M. Markowitz
1st Global *
Markowitz’s Mean-Variance Portfolio Selection with Regime Switching: From Discrete-time Models to Their Continuous-time Limits

Problems with the Markowitz mean-variance model

Biography
from the Institute for Operations Research and the Management Sciences {{DEFAULTSORT:Markowitz, Harry 1927 births 2023 deaths Nobel laureates in Economics American Nobel laureates Economists from California Baruch College faculty University of California, San Diego faculty Jewish American scientists University of Chicago alumni Fellows of the Econometric Society John von Neumann Theory Prize winners RAND Corporation people Jewish American economists American financial economists Fellows of the American Academy of Arts and Sciences Fellows of the Institute for Operations Research and the Management Sciences Presidents of the American Finance Association Deaths from sepsis in the United States Deaths from pneumonia in California