Eugene Fama facts for kids
Quick facts for kids
Eugene Fama
|
|
|---|---|
Fama in Stockholm, December 2013
|
|
| Born | February 14, 1939 Boston, Massachusetts, U.S.
|
| Nationality | American |
| Institution | University of Chicago |
| Field | Financial economics, Organizational economics, Macroeconomics |
| School or tradition |
Chicago School of Economics |
| Doctoral advisor |
Merton Miller Harry V. Roberts |
| Doctoral students |
Cliff Asness, Myron Scholes, Mark Carhart |
| Contributions | Fama–French three-factor model Efficient-market hypothesis |
| Awards | 2005 Deutsche Bank Prize in Financial Economics 2008 Morgan Stanley-American Finance Association Award Nobel Memorial Prize in Economics (2013) |
| Information at IDEAS / RePEc | |
Eugene Francis "Gene" Fama (born February 14, 1939) is an American economist. He is famous for his work on how financial markets work. Many people call him the "father of modern finance."
Fama currently teaches at the University of Chicago Booth School of Business. In 2013, he won the Nobel Memorial Prize in Economic Sciences. He shared this award with Robert J. Shiller and Lars Peter Hansen. His ideas have helped shape how we understand stock markets and investing today.
Contents
Early Life and Education
Eugene Fama was born in Boston, Massachusetts. His family came from Italy. He went to Malden Catholic High School. Fama was a great student and athlete there.
In 1960, he graduated from Tufts University. He studied Romance Languages and was a top student.
Career Highlights
Fama earned his master's degree (MBA) and PhD from the University of Chicago. His main teachers were Merton Miller, who also won a Nobel Prize, and Harry V. Roberts. He has taught at the University of Chicago his entire career.
His PhD paper looked at how stock prices change. He found that short-term stock movements are hard to predict. This idea was published in 1965. Later, he wrote simpler articles about it for a wider audience.
In 2013, he received the Nobel Memorial Prize in Economic Sciences. This was for his important work on financial markets.
In 2019, the University of Chicago named a student house after him. This shows how much he has contributed to the university.
Understanding Market Efficiency
Fama is best known for his idea called the efficient-market hypothesis. This idea started with his PhD paper. In 1965, he wrote about how stock market prices behave. He noticed that very big price changes happened more often than expected.
In 1970, Fama explained three types of market efficiency:
- Weak-form efficiency: This means you can't predict future stock prices just by looking at past prices. All past price information is already in the current price.
- Semi-strong form efficiency: This means all public information is already reflected in stock prices. This includes news about companies or their earnings. So, you can't make extra money using public information.
- Strong-form efficiency: This is the strongest idea. It means even private information is already in stock prices. This would mean that even people with "insider" information can't make a profit.
Fama also pointed out something important called the "joint hypothesis problem." This means that when you test if a market is efficient, you are also testing your model of how prices are set. If your test doesn't work, you can't be sure if the market is truly inefficient or if your model is simply wrong.
The Fama–French Model
Later in his career, Fama worked with Kenneth French. They created a new model called the Fama–French three-factor model. This model helps explain why some stocks have higher average returns than others.
The older model, called the Capital Asset Pricing Model (CAPM), said that a stock's risk (called "beta") was the only thing that explained its return. But Fama and French found two more factors that matter:
- Market capitalization: This is the total value of a company's shares. Smaller companies often have higher returns.
- Relative price: This looks at whether a stock is cheap or expensive compared to its value. Stocks that are considered "value stocks" (cheaper ones) often have higher returns.
Their model helped explain many patterns in stock returns that were previously a mystery.
See also
In Spanish: Eugene Fama para niños
