About his life
Harry Max Markowitz was born in August 24, 1927 and is an American economist. Harry Markowitz was born to a Jewish family, the son of Morris and Mildred Markowitz. 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.
His way to winning the Prize
The first pioneering contribution in the field of financial economics was made in the 1950s by Harry Markowitz who developed a theory for households’ and firms’ allocation of financial assets under uncertainty, the so-called theory of portfolio choice. This theory analyzes how wealth can be optimally invested in assets which differ in regard to their expected return and risk, and thereby also how risks can be reduced.
His work
The contribution for which Harry Markowitz now receives his award was first published in an essay entitled “Portfolio Selection” (1952), and later, more extensively, in his book, Portfolio Selection: Efficient Diversification (1959). The so-called theory of portfolio selection that was developed in this early work was originally a normative theory for investment managers, i.e., a theory for optimal investment of wealth in assets which differ in regard to their expected return and risk.
Harry Markowitz is awarded the Prize for having developed the theory of portfolio choice. He won the 1990 Nobel Memorial Prize in Economic Sciences together with Professor Merton Miller, University of Chicago, USA and Professor William Sharpe, Stanford University, USA.
The theory
To this day, it is the standard tool in the construction of investment portfolios among investors worldwide. The theory, which deals with practically the core of asset allocation (portfolio structuring), maps not only the future expected prospects for returns, but also the risk measure of a financial investment. Even today, Markowitz's portfolio theory is still considered revolutionary, because he was one of the first in this field to pursue the goal of an optimal return through diversification (risk spreading) and thus the best possible exclusion of detrimental correlations or even total loss within the invested portfolio on the capital market.
In brief, the portfolio theory according to Markowitz states that the investment of money should achieve the highest possible return for the investor with the highest possible risk that appears appropriate for him personally. It therefore serves as the basis for an optimal asset allocation according to the individual needs and possibilities of the investor.
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