Eugene Fama

Eugene Francis Fama was born on February 14, 1939, in Boston, Massachusetts. He is an American economist and Nobel laureate in Economics, known for his empirical work on portfolio theory, asset pricing, and the efficient market hypothesis. Fama's work has had a profound impact on financial economics, shaping the way financial markets are understood.

Eugene Fama published his doctoral thesis 'The Behavior of Stock-Market Prices' in 1965, in which he presented evidence supporting the efficient market hypothesis. His work suggested that stock markets are efficient and that it is impossible to consistently achieve higher returns than the overall market average through expert stock selection or market timing. This work laid the foundation for much of his future research.

In 1969, Eugene Fama collaborated with economist Robert Merton on research related to efficient markets and capital theory. Their joint work provided crucial insights into how information is processed in financial markets and the implications of information efficiency on asset pricing models. This collaboration further solidified Fama's reputation as a leading thinker in financial economics and laid the groundwork for future research.

In 1970, Eugene Fama published a seminal paper titled 'Efficient Capital Markets: A Review of Theory and Empirical Work', which outlined the Efficient Market Hypothesis (EMH). The hypothesis asserts that financial markets are 'informationally efficient', meaning that prices fully reflect all available information. This paper has been one of the most cited works in financial economics, greatly influencing the field.

In 1976, Eugene Fama published 'Foundations of Finance', a comprehensive work that outlines the key principles of modern financial economics. This book covers topics such as efficient markets, capital theory, and investment analysis. It has been highly influential in shaping the curriculum for finance education and research, serving as a foundational text for students and professionals alike.

Eugene Fama, along with Kenneth French, developed the Fama-French Three-Factor Model in 1992, which expanded on the capital asset pricing model (CAPM). This model describes stock returns with three factors: market risk, the outperformance of small-cap companies over large-cap companies, and high book-to-market value stocks outperforming growth stocks. It provided a more comprehensive tool for understanding market anomalies.

In 2005, Eugene Fama revisited the Efficient Market Hypothesis in the light of new data and evidence. He addressed the criticisms and challenges posed by behavioral economists and emerging market anomalies. Fama reaffirmed the core principle that markets are efficient overall, despite acknowledging that anomalies do exist and can persist temporarily. This work reinforced the ongoing debate over market efficiency.

In response to further research and market developments, Eugene Fama and Kenneth French introduced the Fama-French Five-Factor Model in 2008. This model adds two more factors to the original three-factor model: profitability and investment patterns. The inclusion of these factors helps in better explaining asset returns and capturing market imperfections that were not accounted for by previous models.

Eugene Fama became the inaugural winner of the Onassis Prize in Finance in 2010, awarded by the Onassis Foundation and Cass Business School to recognize outstanding contributions to the field of finance. The prize acknowledged Fama's pioneering work on asset pricing and financial markets, celebrating his significant influence over the discipline and his dedication to advancing financial research.

Eugene Fama was awarded the 2013 Nobel Prize in Economic Sciences, along with Robert J. Shiller and Lars Peter Hansen, for their empirical analysis of asset prices. Fama's work on the efficient market hypothesis was particularly recognized for showing that stock prices are extremely difficult to predict in the short run, further cementing his influence on finance and the study of economics.