Prize Worthy

 Fama-Nobel-Prize_Public-Site_v2op1cbFor the main, Nobel Prize winners elicit little response. One of the winners this week in economics is a noteworthy exception. Professor Eugene Fama of the University of Chicago, father of the Efficient Market Hypothesis, was one of three U.S. economists to share in the award this year.

Markets are informational exchanges and Dr. Fama pioneered the “informationally efficient” nature of markets. His empirical work showed us that complex trading rules, systems, and analysis have no power beyond luck on stock prices. The fact that major Wall Street firms ignore this reality says something about the power of marketing more than the truth of his ideas.

Professor Fama has long been associated with Dimensional Fund Advisors and is a key contributor to the structure and content of their funds. The funds mostly mirror his empirical work and have been a vehicle for good among a crowded universe of investment products.

Fama’s most enduring work to date may actually be on the topic of expected returns from various asset classes and how their risk premiums vary over time. Since financial economics is first and foremost about risk, this active research will have long lasting implications.

For those of us in the finance and economics world, the Nobel Committee got this one right. Congratulations Professor Fama!

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