Three U.S. Economists Win Nobel Prize
Americans Eugene Fama, Lars Peter Hansen and Robert Shiller won the Nobel prize for economics on Monday for developing new methods to study trends in asset markets.
The Royal Swedish Academy of Sciences said the three had laid the foundation of the current understanding of asset prices.
While it's hard to predict whether stock or bond prices will go up or down in the short term, it's possible to foresee movements over periods of three years or longer, the academy said.
"These findings, which might seem surprising and contradictory, were made and analyzed by this year's laureates," the academy said.
Fama, 74, and Hansen, 60, are associated with the University of Chicago. Shiller, 67, is a professor at Yale University.
American researchers have dominated the economics awards in recent years; the last time there was no American among the winners was in 1999.
The Nobel committees have now announced all six of the annual $1.2 million awards for 2013.
The economics award is not a Nobel Prize in the same sense as the medicine, chemistry, physics, literature and peace prizes, which were created by Swedish industrialist Alfred Nobel in 1895. Sweden's central bank added the economics prize in 1968 as a memorial to Nobel.
http://www.npr.org/blogs/thetwo-way/2013/10/14/233934871/americans-win-economics-nobel-for-interpreting-stock-prices?ft=1&f=1017
Claudio Bresciani/AP
http://www.npr.org/blogs/thetwo-way/2013/10/14/233934871/americans-win-economics-nobel-for-interpreting-stock-prices?ft=1&f=1017
Americans Win Economics Nobel For Interpreting Stock Prices
Three American professors have won the 2013 Nobel Prize for Economics for their work in identifying long-term trends in the prices of stocks and bonds, based in part on analyzing the role of risk.
Professors Robert J. Shiller of Yale University and Eugene F. Fama and Lars Peter Hansen, both of the University of Chicago, won "for their empirical analysis of asset prices," the Royal Swedish Academysaid in announcing the honor Monday.
"The Laureates have laid the foundation for the current understanding of asset prices," the academy said. "It relies in part on fluctuations in risk and risk attitudes, and in part on behavioral biases and market frictions."
The economists' research spans decades, stretching back to the 1960s. They pursued their theories independent of one another, laying the groundwork for the rise of index funds and "behavioral finance," which takes investors' motivations and limitations into account.
Here's how the academy summarized their contributions:
"Eugene Fama and several collaborators demonstrated that stock prices are extremely difficult to predict in the short run, and that new information is very quickly incorporated into prices. These findings not only had a profound impact on subsequent research but also changed market practice. The emergence of so-called index funds in stock markets all over the world is a prominent example."
"Lars Peter Hansen developed a statistical method that is particularly well suited to testing rational theories of asset pricing. Using this method, Hansen and other researchers have found that modifications of these theories go a long way toward explaining asset prices."
"Robert Shiller ...found that stock prices fluctuate much more than corporate dividends, and that the ratio of prices to dividends tends to fall when it is high, and to increase when it is low. This pattern holds not only for stocks, but also for bonds and other assets."
Fama, 74, began his work in the mid-1960s; as Bloomberg notes, he is often called the "father of modern finance."
In an interview with the academy conducted minutes after the phone call informing him of his win, Fama explained that he might not have embarked on his legendary career, if he hadn't lost his passion for studying French.
"In my junior year in college, I was getting kind of tired of French. So, I took an economics course, and I loved it," he said. "The rest of my two years in college I spent in economics."
In winning the Nobel, they will split a cash award of 8 million Swedish kroner, a bit more than $1.2 million.
http://www.npr.org/blogs/money/2013/10/14/233936819/economics-nobel-nobody-knows-what-stocks-are-going-to-do-today?ft=1&f=1017
The Nobel Foundation
http://www.npr.org/blogs/money/2013/10/14/234234987/how-do-we-know-what-we-know-three-nobel-winning-approaches
Claudio Bresciani/AP
Pietra Rivoli is Professor at the McDonough School of Business at Georgetown University.
http://www.npr.org/2013/10/14/233930030/3-american-economists-win-nobel-prize?ft=1&f=1017
http://www.npr.org/blogs/money/2013/10/14/233936819/economics-nobel-nobody-knows-what-stocks-are-going-to-do-today?ft=1&f=1017
Economics Nobel: Nobody Knows What Stocks Are Going To Do Today
If you want to honor today's Nobel laureates in economics, turn off CNBC and ignore everyone who says they know what the stock market is going to do today, tomorrow, or next week.
The award went to three economists — Eugene F. Fama, Lars Peter Hansen and Robert J. Shiller — for their work studying asset prices.
One key finding in Fama's research is that nobody knows whether the stock market is going to go up or down in the short run. Shiller found that, over the long run (years), the stock market as a whole does tend to follow a predictable pattern.
A fun detail about today's award: Fama and Shiller have a long-running debate over bubbles. Shiller is perhaps the most famous contemporary chronicler of bubles (he wrote a book called Irrational Exuberance). Fama thinks the term bubble is used too often and too sloppily.
In a 2010 interview with the New Yorker, Fama brought up Shiller, suggesting he was always saying things were bubbly:
Shiller cited that Q&A with Fama in a column he wrote earlier this year:
http://www.npr.org/blogs/money/2013/10/14/234234987/how-do-we-know-what-we-know-three-nobel-winning-approaches
How Do We Know What We Know? Three Nobel-Winning Approaches
Eugene Fama, Lars Peter Hansen, and Robert Shiller were awarded the Nobel Prize in economics today for their efforts to answer to a key question: How do the prices of assets like stocks and real estate behave over time?
They came to rather different answers to that question. The markets are rational and efficient, Fama has argued; not so much, has been Shiller's reply. This difference has been widely discussed today.
But it's also worth pointing out how differently these three economists study the world, which points to a much bigger question: How do we know what we know in economics, or indeed in any social science? The three winners of today's Nobel Prize in economics differ not only in their conclusions, but also in their ways of knowing.
Fama is an empiricist, and studies the world of asset prices from his computer screen. For nearly 50 years he has been examining price movements, minute by minute year by year. Perusing the 105 research papers on Fama's CV makes clear his way of knowing: Millions of "observations" that is, price data points — examined with exactitude. From these millions of data points – consistently observed — Fama has discerned what is. In this way of knowing, one need not venture out. The beauty of staying inside is the consistency of the weather: it is possible, in empirical testing, to control for much of the messiness outside. A "clean" empirical test a good one.
Shiller, on the other hand, is nothing if not out. Though his early methods were similar to Fama's, Shiller's recent work begins with the premise that the world cannot be understood through data points alone. His work pioneered the use of psychology in understanding market behavior, inviting the messiness of the human mind into the conversation. While Fama watched price behavior, Shiller watched human behavior, and then developed ideas about the mechanisms by which one influenced the other.
Hansen is a scientist's scientist, the quantitative heavyweight of the three. Unlike Fama or Shiller, he has no position to defend. Instead he has made his mark designing ways to statistically ask and answer questions about how prices behave. His contribution is in accurate and creative measurement. Advances in measurement advance our ability to incorporate the messiness of the world into clean empirical tests, in fact, to bring Shiller and Fama into one another's orbit.
How do we know what we know? We examine data, we study people, and then we measure everything as best we can. We need all three.
http://www.npr.org/2013/10/14/233930030/3-american-economists-win-nobel-prize?ft=1&f=1017
3 American Economists Win Nobel Prize
Eugene Fama, Lars Peter Hansen and Robert Shiller won the 2013 economics prize for their work on developing new methods to study trends in asset markets. They will share the $1.25 million prize.
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