Economics professors Eugene Fama (M.B.A. ’63, Ph.D. ’64) and Lars Peter Hansen won the 2013 Nobel Prize in Economics for their research into the predictability of asset prices.
In announcing the award Monday morning, the Royal Swedish Academy of Sciences said in a press release that their findings “greatly improved our understanding of how financial markets work, when they seem to work well and when they seem to work otherwise.”
With Fama and Hansen’s wins, they become the 27th and 28th University affiliates to win the Nobel Prize in Economics and bring the total number of University-affiliated Nobel laureates to 89.
Fama and Hansen share the prize with Yale University professor Robert J. Shiller. All three worked independently on their work, but taken as a whole, their findings paint a complex picture of the ways in which both market and behavioral forces drive asset prices.
Fama, the Robert R. McCormick Distinguished Service Professor of Finance at the Booth School of Business, discovered that, in the short term, asset prices are difficult to predict because markets quickly and efficiently incorporate all information about an asset.
Schiller, an economics professor at Yale and a specialist in behavioral economics, found that stock prices take on patterns over several years and that irrational, human choices can greatly alter market conditions.
Hansen, the David Rockefeller Distinguished Service Professor in Economics and research director of the Becker Friedman Institute at the University, developed and utilized statistical methods to test observations about asset prices. His model is widely used by other researchers.
The Nobel committee noted that Fama’s and Schiller’s research is “surprising and contradictory,” but together, the three men’s findings “have laid the foundation for the current understanding of asset prices.” They explain, for example, how housing prices became exorbitantly high in the late ’90s and early 2000s, leading to the housing bubble, which significantly contributed to the most recent financial crisis.
In addition to to the Economics Nobel, UChicago scientists also contributed to the discovery of the Higgs boson, which won the 2013 Nobel Prize in Physics.
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