Fama, Hansen, Shiller Share Nobel Economics Prize, Academy Says

Fama, Hansen, Shiller Share Nobel Economics Prize, Academy Says

Eugene F. Fama, Lars Peter Hansen and Robert J. Shiller shared the 2013 Nobel Prize in Economic Sciences for their work toward deepening an understanding of how asset prices move. The prize was awarded for “their empirical analysis of asset prices,” the Royal Swedish Academy of Sciences, which selects the winner, said in a statement today in Stockholm.The prize helps laureates achieve recognition for their theories outside academic circles, often bringing them closer to policy making. Past winners include Milton Friedman, Amartya Sen, James Tobin, Paul Krugman, Robert Solow and Friedrich August von Hayek.

Last year’s prize was awarded to U.S. economists Alvin E. Roth and Lloyd S. Shapley for their exploration of how to make markets work more efficiently by better matching supply with demand. In 2009, Elinor Ostrom became the first woman to win when she received the prize together with Oliver Williamson for investigating the limits of markets and how organizations work.

Annual prizes for achievements in physics, chemistry, medicine, peace and literature were established in the will of Alfred Nobel, the Swedish inventor of dynamite who died in 1896, and the first prizes were handed out in 1901. The economics award was set up by Sweden’s central bank in 1968.

Prize Money

The official name is The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel. The money, 8 million kronor ($1.2 million), a gold medal and a diploma, will be presented to the laureates at a ceremony in Stockholm on Dec. 10, the anniversary of Nobel’s death.

Last week, Martin Karplus, Michael Levitt and Arieh Warshel were awarded the Nobel in chemistry. Francois Englert and Peter W. Higgs shared the physics honor, while James E. Rothman, Randy W. Schekman and Thomas C. Sudhof were awarded the 2013 Nobel Prize in Physiology or Medicine. The literature prize went to Alice Munro.

This year’s peace prize, awarded Oct. 11 in Oslo, went to the Organisation for the Prohibition of Chemical Weapons.

Since 2012, laureates have had to make do with 20 percent less in prize money than previous winners, a move the Nobel Foundation said in June last year was necessary to preserve its capital.

Today’s announcement of the economics prize marks the final award for this year.

To contact the reporter on this story: Niklas Magnusson in Hamburg at nmagnusson1@bloomberg.net

 

October 14, 2013

3 American Professors Awarded Nobel in Economic Science

By BINYAMIN APPELBAUM

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.

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.

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. 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.” 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, 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.

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.

“Disbelief,” he said. “That’s the only way to put it.”

 

Updated October 14, 2013, 8:40 a.m. ET

U.S. Trio Wins Nobel Economics Prize

American Economists Fama, Hansen and Shiller Honored

By

BRENDA CRONIN

And

NICLAS ROLANDER

Three American scholars swept the Nobel Prize in economics Monday, for pioneering research in the workings of financial markets, asset prices and behavioral economics.

The Royal Swedish Academy of Sciences in Stockholm on Monday honored Eugene Fama and Lars Peter Hansen of the University of Chicago and Robert Shiller of Yale, citing the trio’s “empirical analysis of asset prices.”

Messrs. Fama, Shiller and Hansen, who have researched separately how stocks and bonds are priced and why, won for advances that have reshaped portfolio management, given rise to the index fund and created a fundamental tool used in econometric analysis.

Mr. Fama, the senior member of the trio, is seen by many as the father of modern finance, for his 1960s-era work on the theory of efficient markets. Mr. Fama—after meeting with little success in stock-picking—found that when markets work well, asset prices reflect all the latest information. Hence, attempts to profit by picking stocks or timing the market were often fruitless. Those findings helped spark an industry of index funds.

However, two decades later, Robert Shiller found that markets’ short-term efficiency was less enduring over time. Instead, asset prices appeared to be much too volatile to be justified by fundamental information, such as dividends. In short, Mr. Shiller learned that prices moved for a host of reasons, many of them not necessarily rational.

Mr. Hansen, in trying to test for market predictability, developed a widely used econometric tool. His Generalized Method of Moments is used for running regression analyses, which economists tap to uncover relationships among variables.

Speaking Monday to reporters in Stockholm by telephone from New Haven, Mr. Shiller expressed his reaction to the award as “disbelief.”

“I was attracted to economics because it deals with really important problems,” he said. “Finance drew me in because it’s so fundamental to human activity. It follows precise mathematical relations but there’s an element of imprecision that reflects human nature.”

Monday’s recognitions add three more U.S.-based experts to the group of 2013 Nobel recipients honored for the fruits of their research. Three U.S.-based scientists were awarded the Nobel Prize in medicine last Monday, and three more U.S.-based scientists won the Nobel Prize in chemistry two days later.

The economics award, which comes on the heels of a week of Nobel honors in physics, medicine, chemistry, literature and peace, isn’t one of the original prizes, which have been conferred since 1901. The economics award, initiated by Sweden’s central bank in 1968, is known as the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel.

The prize tallies about 8 million Swedish kroner ($1.2 million), which will be divided among the winners.

Rival Economists Share Nobel—Bubbles, Anyone?

By Peter Coy October 14, 2013

Robert Shiller, author of Irrational Exuberance, is one of the world’s leading expositors of the theory that financial markets are prone to bubbles. Eugene Fama says he doesn’t even know what bubbles are.

The people who give out Nobel prizes apparently couldn’t decide which side to take this year so they gave the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel to both of them. Lars Hansen, who is an expert in statistical techniques for analyzing asset prices, shared the prize with them.

Splitting the prize between Shiller and Fama is “like giving a prize to the Yankees and the Red Sox,” Robert Solow, a Nobel prize-winning economist at Massachusetts Institute of Technology, told Bloomberg.

In its polite, circumspect language, the Nobel committee played down the differences between Shiller and Fama, saying those two plus Hansen “have laid the foundation for the current understanding of asset prices.”

That’s true, but it misses the big point: Fama came first, establishing important principles about market efficiency. Shiller came next, harnessing Hansen’s techniques to demonstrate that while markets are efficient in theory, they are far from efficient in reality.

Shiller, a Yale University economist who was already respected in academic circles, vaulted onto the public stage with the publication of Irrational Exuberance. It came out fortuitously in 2000, just as the Internet bubble in the stock market was bursting. Later Shiller warned about bubbles in the housing market and was right again.

Fama, meanwhile, who is a finance professor at the University of Chicago, has never bought into the idea that stocks and bonds can be affected systematically and for long periods by such base factors as human emotions.

In a 2010 interview with the New Yorker’s John Cassidy, Fama said, “I don’t even know what a bubble means. These words have become popular. I don’t think they have any meaning.”

Hansen, the third recipient, is a colleague of Fama in Chicago. All three recipients are Americans.

 

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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