Nobel Prize Winners in Economics 2013 and Their Work

This Monday, October 14th, Eugene F. Fama
 and Lars Peter Hansen
 (University of Chicago, USA) and Robert J. Shiller (
Yale University, USA) won the Nobel Prize in Economics. The Royal Swedish Academy of Sciences awarded them “for their empirical analysis of asset prices”.

Fama proved that markets were only efficient in the short run and that share prices were very difficult to predict. That conclusion led to the development of stock-index funds, which reflect the assets market.

Shiller found that markets’ short-term efficiency was less enduring over longer periods and that stock prices fluctuate much more than corporate dividends. His research also showed that investors can be irrational and that any assets, ranging from stocks to housing, can develop into bubbles.

Hansen was working on questions about market predictability and developed the Generalized Method of Moments – an econometric/statistical tool to test theories on asset pricing that is applicable in different fields of economics and not just financial markets.

All three economists examine asset pricing from different points of view and their conclusions could be said in many ways to be contrasting. The famous economist Robert Solow, who won the Nobel Prize in Economics in 1987, said in his interview that this year’s Nobel laureates are “a very interesting collection because Fama is the founder of the efficient-market theory and Shiller at least is one of the critics of it… What it suggests is there really isn’t a settled doctrine” in finance.

To read more about the research done by Fama, Hansen and Schiller check out “Trendspotting in asset markets” (popular science background by nobelprize.org).

To remind yourself about last year’s winners have a look at our article about the Nobel Prize Winners in Economics in 2012: Alvin A. Roth, Lloyd S. Shapley, who were recognized for their work in the field of market design.

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