Eugene Francis "Gene" Fama (born February 14, 1939) is an American economist, known for his work on portfolio theory and asset pricing, both theoretical and empirical. He is currently Robert R. McCormick Distinguished Service Professor of Finance at the University of Chicago Booth School of Business.
His Ph.D. thesis, which concluded that stock price movements are unpredictable and follow a random walk, was published in January, 1965 issue of the Journal of Business, entitled "The Behavior of Stock Market Prices". That work was subsequently rewritten into a less technical article, "Random Walks In Stock Market Prices",[2] which was published in the Financial Analysts Journal in 1965 and Institutional Investor in 1968.
His article "The Adjustment of Stock Prices to New Information" in the International Economic Review, 1969 (with several co-authors) was the first event study that sought to analyze how stock prices respond to an event, using price data from the newly available CRSP database. This was the first of literally hundreds of such published studies.[citation needed]
Fama is most often thought of as the father of efficient market hypothesis, beginning with his Ph.D. thesis. In a ground-breaking 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 crucial concepts that have defined the conversation on efficient markets ever since. First, Fama proposed three types of efficiency: (i) strong-form; (ii) semi-strong form; and (iii) weak efficiency. Second, Fama demonstrated that the notion of market efficiency could not be rejected without an accompanying rejection of the model of market equilibrium (e.g. the price setting mechanism). This concept, known as the "joint hypothesis problem," has ever since vexed researchers.
In recent years, Fama has become controversial again, for a series of papers, co-written with Kenneth French, that cast doubt on the validity of the Capital Asset Pricing Model (CAPM), which posits that a stock's beta alone should explain its average return. These papers describe two factors above and beyond a stock's market beta which can explain differences in stock returns: market capitalization and "value". They also offer evidence that a variety of patterns in average returns, often labeled as "anomalies" in past work, can be explained with their 3 factor model.[3]
Other work
Additionally, Fama co-authored the textbook The Theory of Finance with Nobel Memorial Prize in Economics winner Merton H. Miller. He is also the director of research of Dimensional Fund Advisors, Inc., an investment advising firm with $126 billion under management (as of 2006[update]). One of his children, Eugene F. Fama Jr., is a vice president of the company.
Fama and his wife, Sally, have been married for over 50 years. They have four children and ten grandchildren. His daughter Elizabeth, who was born in 1965, is an award-winning children's book author. Fama windsurfs, plays golf and tennis, bikes, and swims.
Fama, Eugene F. (1963). "Mandelbrot and the stable Paretian Hypothesis". Journal of Business. 36 (4): 420–429. doi:10.1086/294633. ((cite journal)): Cite has empty unknown parameter: |coauthors= (help); Unknown parameter |month= ignored (help) Reprinted Cootner, Paul (ed.), ed. (1964). The Random Character of Stock Prices. Cambridge: MIT Press. ((cite book)): |editor= has generic name (help)
Fama, Eugene F. (1965). "The Behavior of Stock Market Prices". Journal of Business. 38 (1): 34–105. doi:10.1086/294743. ((cite journal)): Cite has empty unknown parameter: |coauthors= (help); Unknown parameter |month= ignored (help)
"Portfolio Analysis in a Stable Paretian Market". Management Science. 1965. ((cite journal)): Cite has empty unknown parameter: |coauthors= (help); Unknown parameter |month= ignored (help)
Fama, Eugene F. (1965). "Tomorrow on the New York Stock Exchange". Journal of Business. 38 (3): 285–299. doi:10.1086/294788. ((cite journal)): Cite has empty unknown parameter: |coauthors= (help); Unknown parameter |month= ignored (help)
Fama (1968). "Dividend Policy: An Empirical Analysis". Journal of the American Statistical Association. 63 (324): 1132–1161. doi:10.2307/2285874. ((cite journal)): Unknown parameter |coauthors= ignored (|author= suggested) (help); Unknown parameter |month= ignored (help)
Risk and the Evaluation of Pension Fund Portfolio Performance. Park Ridge, IL: Bank Administration Institute. 1968. ((cite book)): Cite has empty unknown parameter: |coauthors= (help)
Fama (1969). "The Adjustment of Stock Prices to New Information". International Economic Review. 10 (1): 1–21. doi:10.2307/2525569. ((cite journal)): Unknown parameter |coauthors= ignored (|author= suggested) (help); Unknown parameter |month= ignored (help)
Fama (1970). "Efficient Capital Markets: A Review of Theory and Empirical Work". Journal of Finance. 25 (2): 383–417. doi:10.2307/2325486. ((cite journal)): Cite has empty unknown parameter: |coauthors= (help); Unknown parameter |month= ignored (help)
16. "Three Asset Cash Balance and Dynamic Portfolio Problems" (with Gary Eppen), Management Science (January 1971).
20. The Theory of Finance (with Merton Miller). (Holt, Rinehart and Winston, 1972). These hyperlinks are available directly from Eugene Fama's home page.
56. "Commodity Future Prices" Evidence on Forecast Power and Premiums," (with Kenneth R. French), Journal of Business, (January 1987).
57. "The Information in Long-Maturity Forward Rates," (with Robert R. Bliss), American Economic Review, (September 1987).
58. "Permanent and Temporary Components of Stock Prices," (with Kenneth R. French), Journal of Political Economy ,(April 1988).
59. "Dividend Yields and Expected Stock Returns," (with Kenneth R. French), Journal of Financial Economics, 22 (October 1988), 3-25.
60. "Business Cycles and the Behaviour of Metals Prices," (with Kenneth R. French), Journal of Finance , (December 1988).
61. "Perspective on October 1987, or, What Did we learn from the Crash?" in Black Monday and the Future of Financial Markets, edited by R.W. Kamphuis, Jr.,R.C. Kormendi, and J.W.H. Watson (Homewood: Dow-Jones-Irwin, Inc.), 1989.
62. "Business Conditions and Expected Returns on Stocks and Bonds," (with Kenneth R. French), [1]Journal of Financial Economics], 25 (November 1989), 23-49.
63. "Contract Costs and Financing Decisions," Journal of Business, 63 (January 1990), S71-91.
64. "Term Structure Forecasts of Interest Rates, Inflation, and Real Returns," Journal of Monetary Economics, 25 (January 1990), 59-76.
65. "Stock Returns, Expected Returns, and Real Activity," Journal of Finance , 45 (September 1990), 1089-1109.
66. "Time, Salary, and Incentive Payoffs in Labor Contracts," Journal of Labor Economics, 9 (January 1991), 25-44.
68. "The Cross-Section of Expected Stock Returns," (with Kenneth R. French), Journal of Finance, 47 (June 1992), 427-465. Winner of the Smeith Breeden Prize for the best paper in the journal during 1992.
69. "Diversification Returns and Asset Contributions, "with David G. Booth), Financial Analysts Journal, (May/June 1992), 26-32.
70. "Transitory Variation in Investment and GNP," Journal of Monetary Economics, 30 (December 1992), 467-480.
71. "Differences in the Risks and Returns of NYSE and NASD Stocks," (with Kenneth R. French, David G. Booth, and Rex Sinquefield), Financial Analyst Journal, (January/February 1993).
72. "Common Risk Factors in the Returns on Stocks and Bonds," (with Kenneth R. French), Journal of Financial Economics, 33 (February 1993), 3-56.