Who Invented Alpha and Beta in Finance?

Explore the origins of alpha and beta in finance, concepts developed by Harry Markowitz and William Sharpe.

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Alpha and beta were terms first coined by Harry Markowitz in 1952 in his groundbreaking work on portfolio theory and extended by William Sharpe in 1964 in the Capital Asset Pricing Model (CAPM). These concepts are now integral in finance to measure risk (beta) and performance (alpha).

FAQs & Answers

  1. What is alpha in finance? Alpha is a measure of an investment's performance relative to a benchmark index, often used to gauge the value added by active management.
  2. What does beta represent in investment? Beta measures the volatility of an investment in relation to its benchmark, indicating the level of risk associated with it.
  3. How did Harry Markowitz contribute to finance? Harry Markowitz introduced portfolio theory, which emphasizes the importance of diversification and risk management in investment portfolios.
  4. What is the Capital Asset Pricing Model? The Capital Asset Pricing Model (CAPM) is a finance theory that establishes a linear relationship between risk and expected return, founded by William Sharpe.

Watch More

For more insights into financial theories and investment strategies, check out our videos on the Capital Asset Pricing Model and the fundamentals of portfolio management.

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