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3 American Professors Awarded Nobel in Economic Science 3 American Professors Awarded Nobel in Economic Science
(35 minutes later)
WASHINGTON — Three American professors — Eugene F. Fama, Lars Peter Hansen and Robert J. Shiller — were awarded the Nobel Memorial Prize in Economic Science on Monday for showing that stock prices, while unpredictable in the short term, tend to follow established rules in the long term. WASHINGTON — Three American professors — Eugene F. Fama, Lars Peter Hansen and Robert J. Shiller — were awarded the Nobel Memorial Prize in Economic Science on Monday for showing that asset prices move unpredictably in the short term but with greater predictability over longer periods.
Their findings have influenced the way many people invest, encouraging the rise of index funds that buy broad baskets of equities and other assets. At the same time, sophisticated investors have sought to profit from the evidence of long-range patterns. The three men, who worked independently and whose findings are contradictory in some respects, together painted a picture of stock and bond markets that are moved by a mix of rational and irrational considerations.
Their work, done individually rather than in cooperation, “laid the foundation for the current understanding of asset prices,” according to a statement from the Royal Swedish Academy of Sciences, which awards the annual prize. The findings have influenced the way many people invest, discouraging attempts to anticipate price movements and contributing to the popularity of index funds that buy broad, diversified baskets of equities and other assets.
Mr. Fama and Mr. Hansen are professors at the University of Chicago; Mr. Shiller is a professor at Yale University. Mr. Fama and Mr. Hansen are professors at the University of Chicago; Mr. Shiller is a professor at Yale University. Their work “laid the foundation for the current understanding of asset prices,” according to a statement from the Royal Swedish Academy of Sciences, which awards the annual prize.
Mr. Fama, 74, was honored for showing that asset prices are “extremely hard to predict over short horizons.” Mr. Fama, 74, was honored for showing that asset prices are “extremely hard to predict over short horizons.” His work, beginning in the 1960s, showed that asset prices moved efficiently in the short term, quickly incorporating new information and leaving little opportunity for predictable profits.
Mr. Shiller, 67, found that prices show greater predictability over the longer term. He determined that stock prices were more volatile than corporate dividends, but that the ratio of prices to dividends tended to correct when it was too high or too low. Mr. Shiller, 67, would later introduce an important caveat to the idea that markets operate efficiently, finding that stock and bond prices show greater predictability over longer periods. Mr. Shiller and other economists see evidence that these movements cannot be entirely explained by rational decision-making, and instead reflect the irrational behavior of market participants.
Mr. Hansen, 60, was honored for developing a statistical method for testing and refining theories about the movement of asset prices. The committee noted this view, but it also honored Mr. Hansen, 60, for his work in developing a statistical method for testing rational theories of asset price movements, pushing back against behavioral accounts. In essence, he found evidence that risk measures can help to explain these longer-term patterns.
The committee, in honoring the three men together, said their findings “greatly improved our understanding of how financial markets work, when they seem to work well and when they seem to work otherwise.”
Mr. Shiller, reached by phone during the news conference announcing the award, described his reaction to the news.Mr. Shiller, reached by phone during the news conference announcing the award, described his reaction to the news.
“Disbelief,” he said. “That’s the only way to put it.”“Disbelief,” he said. “That’s the only way to put it.”