History of the Theory and Evidence on the Efficient Markets Hypothesis

Myron Scholes Global Markets Forum

October 10, 2008 10–11:30 A.M., Harper Center

The IGM teamed up with the American Finance Association to host a talk by Eugene Fama, who described how the efficient markets theory, for which he is famous, was developed. In addition to laying out the ideas of the theory, Fama described the atmosphere and interactions that took place among University of Chicago finance researchers between the 1950s and 1970s. “Basically, finance didn’t exist in the middle of the 1950s,” said Fama. Not until Nobel laureate Harry Markowitz provided “the first really rigorous definition of risk of securities in terms of portfolios” did modern finance exist. Nor had asset-pricing models really evolved when research on efficient markets began. Fama explained the links between his research on efficient markets and the breakthroughs made in these other areas, and described some of his interactions with colleagues during the period.

Speaker Profile


Eugene F. Fama is widely recognized as the "father of modern finance." Fama's financial research is well known in both the economics and investment community. He is strongly identified with research on markets, particularly with regard to the efficient market hypothesis. Through his research he has brought an empirical and scientific rigor to the field of investment management, transforming the way finance is viewed and conducted.

He is a prolific author and researcher, having written two books and published more than 100 articles in academic journals. Fama is among the most cited of America's researchers. He focuses much of his study on the relation between risk and return and implications for portfolio management.

Fama has received numerous awards and honors. He was the 2007 recipient of the Fred Arditti Innovation Award given by the CME Center for Innovation. In announcing this year's award, Myron S. Scholes, Nobel Prize-winning economist and chairman of CME's Competitive Markets Advisory Council said, "Eugene Fama has had pathbreaking insights into the functioning of markets, asset pricing theory, and corporate finance that have benefited market participants worldwide. He has written extensively on the efficiency of markets, setting the backdrop for the transfer of risks through futures contracts such as those traded on the CME. His innovative research has resulted in his participation in the development of many new finance products and in the development of new futures contracts for hedging risks."

Other awards he has received include the 1982 Chaire Francqui (Belgian National Science Prize), the first Deutsche Bank Prize in Financial Economics in 2005, and the 2006 Nicholas Molodovsky Award from the CFA Institute recognizing his work in portfolio theory and asset pricing.

Fama's paper "The Cross-Section of Expected Stock Returns" with Kenneth R. French was the winner of the 1992 Smith Breeden Prize for the best paper in the Journal of Finance. His paper "Market Efficiency Long-Term Returns and Behavioral Finance" won the 1998 Fama-DFA Prize for the best paper published in the Journal of Financial Economics in the areas of capital markets and asset pricing.

He was the first elected fellow of the American Finance Association in 2001 and is also a fellow of the Econometric Society and the American Academy of Arts and Sciences. Fama is an advisory editor of the Journal of Financial Economics.

Fama is also chairman of the Center for Research in Security Prices at the GSB, which was founded 40 years ago to create the finest tools for tracking, measuring, and analyzing securities data. He is director of research at Dimensional Fund Advisors, an investment advising firm with more than $150 billion under management.

He earned a bachelor's degree from Tufts University in 1960, followed by an MBA and PhD from Chicago Booth in 1964. He also has been awarded a doctor of law degree from the University of Rochester, a doctor of law degree from DePaul University, a doctor honoris causa from the Catholic University of Leuven, Belgium, and a doctor of science honoris causa from Tufts University. He joined the Chicago Booth faculty in 1963.

Fama is a father of four and a grandfather of 10. He is an avid windsurfer and golfer, an opera buff, and a fading tennis player. He is a member of Malden Catholic High School's athletic hall of fame.

Sponsorship

This event is part of the Initiative on Global Markets and is generously sponsored by Myron Scholes.