Fama, Eugene Francis (1939–…), an American economist, won the 2013 Nobel Prize in economic sciences. He shared the award with the American economists Lars Peter Hansen and Robert J. Shiller. The men received the award for their research into how financial markets work and how prices for such assets as stocks (representing shares in ownership of a company) and houses are set. Their research suggests that changes in the prices of assets are difficult to predict in the short term. However, movements of asset prices can be more easily predicted over longer periods, such as three to five years. In some areas of research, their individual theories have conflicted.
Fama based much of his research on the theory that markets are efficient—that is, they are good at quickly incorporating new information into the price of an asset. If markets are efficient, investors have little opportunity to beat the market average because the current price of an asset reflects all available information about the future price. Fama’s work has influenced both economic theory and the practices of investors. The implications of his ideas can be seen in the rise of index funds, which try to match the performance of a targeted group of securities, such as stocks, by purchasing a sample of the securities in the group. Such funds require little management, charge relatively low fees, and are popular among investors who understand the difficulty of attempting to choose individual stocks that will perform better than others.
Fama was born on Feb. 14, 1939, in Boston. He received a bachelor’s degree in Romance languages from Tufts University in 1960. He received a master’s degree in business administration in 1963 and a doctorate in economics and finance in 1964. Both degrees were from the University of Chicago. Fama became a faculty member of the University of Chicago in 1963. He has published more than 100 articles and several books on such subjects as asset pricing, finance, portfolio theory, and stock markets.
