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Barry Ritholtz

William Sharpe on Pricing and Risk

The inventor of one of the most famous concepts in finance discusses smart beta, retirement income and the ratio that bears his name.

This week on our Masters in Business radio podcast, we sit down with William Sharpe, winner of the 1990 Sveriges Riksbank Prize in Economic Sciences (aka Nobel Prize for economics) and creator of the capital-asset pricing model.

Among other things, Sharpe helped Wells Fargo & Co. develop the first index fund. Then, he came up with a way to calculate returns based on investment risk -- he called it the reward-to-variability-ratio portfolio, but the rest of us know it as the Sharpe ratio. It tells you what a portfolio returns relative to the amount of risk an investor assumes versus risk-free Treasuries.