Harry Markowitz

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.

Markowitz was 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.Harry M. Markowitz â€
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, an interest he continued to follow during his undergraduate years at the University of Chicago. 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, 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.

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''.

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

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.

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.

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 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 SIMSCRIPT addition of Object-oriented 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 based investment management firm, Research Affiliates; 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 due to complications from pneumonia and sepsis.

Research

A ''Markowitz-efficient portfolio'' is one where diversification cannot 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 was part of the editorial board of AESTIMATIO, the IEB International Journal of Finance.

Selected publications

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

* List of economists
* List of Jewish Nobel laureates
* Risk management tools

References

External links

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


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


Oral history interview with Markowitz
Charles Babbage Institute, University of Minnesota â€“ Markowitz discusses his development of portfolio theory, sparse matrices, and his work at the RAND Corporation and elsewhere on simulation software development (including computer language SIMSCRIPT), modeling, and operations research.

History of Finance, interviews
The American Finance Association

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
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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