The 2013 Nobel Prize in Economics

The 2013 Nobel Prize in Economics was awarded to three professors for their research in asset pricing and financial economics.

15.10.2013 - Red.

Eugene Fama has been instrumental in formulating and testing the so-called "efficient market hypotheses," which holds that a competitive stock market quickly and accurately incorporates new information in prices and, as a result, successive price changes are unpredictable (a "random walk"). A central implication of this research is that active fund management is unlikely to cover its costs. In practice, this has led to the growth of index funds and other passive investment management products.

Robert Shiller questioned the efficient market hypothesis in a 1981 paper, where he conjectured that the observed volatility of stock prices is too large to be justified by purely rational asset pricing models. This created a vigorous debate, which is still unsettled, but which has contributed to the emergence of the field of behavioral finance. Shiller also was at the forefront of the housing pricing debate in the early to mid-2000s, and famously predicted the subsequent housing market crash in the U.S. He is a co-creator of the Case-Shiller Home Prices Indices, which have become a useful practical tool for investors and government regulators alike.

Lars Peter Hansen is one of the pioneers responsible for developing econometric techniques required to test the predictions of complex dynamic asset pricing systems. In many ways, he is one of the fathers of modern financial econometrics.

Fama has been nominated for the Nobel Prize for years and few will be surprised to see him win it, says Karin Thorburn. The choice of Shiller and Hansen should also be uncontroversial, perhaps surprising only for their young age. Interestingly, while the Nobel Prize is normally awarded for one or two notable research papers, this year's award represents more of a recognition of their overall contributions to our empirical understanding of how financial markets work.