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Nobel Laureates

 

Three Nobel Laureates

A. Michael Spence, Myron S. Scholes, and William F. Sharpe - all members of the Stanford Graduate School of Business faculty - have been awarded the Nobel Prize in Economic Science.

A. Michael Spence
Philip H. Knight Professor, Emeritus and Dean Emeritus

In 2001, Spence shared the prize with George A. Akerlof of University of California, Berkeley, and Joseph Stiglitz of Columbia University. The three were honored for their work on signaling theory and credited by the Swedish Academy with creating the field of information economics.

In the 1970s, the three laid the groundwork for a theory about markets with so-called "asymmetric information." Their work explained how agents with differing amounts of information affect various markets. Their work has led to applications in areas ranging from agriculture to modern financial markets.

Myron S. Scholes
Frank E. Buck Professor of Finance, Emeritus

With Robert C. Merton of Harvard Business School, Scholes shared the 1997 Prize. The Royal Swedish Academy of Sciences honored the pair along with the late Fischer Black for "a new method to determine the value of derivatives." The research was first published by Scholes and Black in the Journal of Political Economy in 1973, shortly after the first options exchange opened in Chicago. What has become known as the Black-Scholes options pricing model, a benchmark formula for the valuation of stock options, put a fledgling options market on its feet.

William F. Sharpe
The STANCO 25 Professor of Finance, Emeritus

The 1990 prize was shared by Sharpe, Harry Markowitz, of City University of New York, and Merton Miller, University of Chicago, for their pioneering work in the theory of financial economics.

Sharpe's pioneering achievement - the Capital Asset Pricing Model (CAPM) - was contained in his essay entitled, Capital Asset Prices: A Theory of Market Equilibrium under Conditions of Risk (1964).

The basis of the CAPM is that an individual investor can choose exposure to risk through a combination of lending-borrowing and a suitably composed (optimal) portfolio of risky securities. According to the CAPM, the composition of this optimal risk portfolio depends on the investor's assessment of the future prospects of different securities, and not on the investors' own attitudes towards risk. The "beta value" of a specific share indicates its marginal contribution to the risk of the entire market portfolio of risky securities. Shares with a beta coefficient greater than 1 have an above-average effect on the risk of the aggregate portfolio, whereas shares with a beta coefficient of less than 1 have a lower than average effect .