Eugene Francis "Gene" Fama (; born February 14, 1939) is an American economist and Nobel Laureate. He is best known for his empirical work on portfolio theory, asset pricing, and the efficient-market hypothesis.

He is Robert R. McCormick Distinguished Service Professor of Finance at the University of Chicago Booth School of Business. In 2013, he shared the Nobel Memorial Prize in Economic Sciences jointly with Robert J. Shiller and Lars Peter Hansen. The Research Papers in Economics project ranked him as the 9th-most influential economist of all time based on his academic contributions as of 2019. He is regarded as "the father of modern finance", as his works built the foundation of financial economics.

Early life

Fama was born in Boston, Massachusetts, the son of Angelina (née Sarraceno) and Francis Fama. All of his grandparents were immigrants from Italy. Fama is a Malden Catholic High School Athletic Hall of Fame honoree. He earned his undergraduate degree in Romance Languages magna cum laude in 1960 from Tufts University, where he was also selected as the school's outstanding student–athlete.

Graduate studies, career, and research

Fama's MBA and PhD came from the University of Chicago Booth School of Business in economics and finance. His doctoral supervisors were Nobel prize winner Merton Miller and Harry V. Roberts, but Benoit Mandelbrot was also an important influence. He has spent the entirety of his teaching career at the University of Chicago. This work was published in the January 1965 issue of the Journal of Business, entitled "The Behavior of Stock Market Prices". Later work with Kenneth French showed that predictability in expected stock returns can be explained by time-varying discount rates. For example, higher average returns during recessions can be explained by a systematic increase in risk aversion, which lowers prices and increases average returns. This study sought to analyze how stock prices respond to an event using price data from the newly available CRSP database. As of the end of 2024, DFA had $786 billion of assets under management. In 2013, Fama was awarded the Nobel Memorial Prize in Economic Sciences.

Efficient market hypothesis

Fama is most often thought of as the father of the efficient-market hypothesis, which began with his PhD thesis. In 1965 he published an analysis showing that stock prices exhibit fat tail distribution properties, implying extreme movements were more common than predicted on the assumption of normality.

In an article in the May 1970 issue of the Journal of Finance, entitled "Efficient Capital Markets: A Review of Theory and Empirical Work", Fama proposed two concepts that have been used on efficient markets ever since. This concept, known as the "joint hypothesis problem", has ever since vexed researchers. These papers describe two factors in addition to a stock's market beta which can explain differences in stock returns: market capitalization and relative price. They argued that the three-factor model was incomplete because it ignored much of the variation in average returns related to profitability and investment. He argues that for something to be a bubble, its ending needs to be predicted in real time, not just after the fact. Fama has also been skeptical about the long-term viability of bitcoin, citing its extreme volatility, lack of intrinsic value, and violation of basic monetary principles.

Bibliography

  • The Theory of Finance, Dryden Press, 1972
  • Foundations of Finance: Portfolio Decisions and Securities Prices, Basic Books, 1976
  • The Fama Portfolio: Selected Papers of Eugene F. Fama, edited by John H. Cochrane and Toby Moskowitz, University of Chicago Press, 2017

References

  • Faculty profile at the University of Chicago
  • List of published works
  • Biography on Dimensional Fund Advisors website
  • The Fama/French Forum – Observations, opinion, research and links from financial economists Eugene Fama and Kenneth French.
  • Eugene Fama, 2005 winner of the Deutsche Bank Prize in Financial Economics
  • Schwert, G. William and Stulz, René M. "Gene Fama’s Impact: A Quantitative Analysis." Sept. 2014, i + 30 pp.