Featured Research

from universities, journals, and other organizations

2013 Nobel Prize in Economics: Trendspotting in asset markets

Date:
October 14, 2013
Source:
Nobel Foundation
Summary:
The Royal Swedish Academy of Sciences has decided to award The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel for 2013 to Eugene F. Fama of the University of Chicago, IL, USA; Lars Peter Hansen of the University of Chicago, IL, USA; and Robert J. Shiller of Yale University, New Haven, CT, USA "for their empirical analysis of asset prices."

There is no way to predict the price of stocks and bonds over the next few days or weeks. But it is quite possible to foresee the broad course of these prices over longer periods, such as the next three to five years. These findings, which might seem both surprising and contradictory, were made and analyzed by this year's Laureates, Eugene Fama, Lars Peter Hansen and Robert Shiller.
Credit: Illustration (c) Johan Jamestad / The Royal Swedish Academy of Sciences

The Royal Swedish Academy of Sciences has decided to award The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel for 2013 to Eugene F. Fama of the University of Chicago, IL, USA; Lars Peter Hansen of the University of Chicago, IL, USA; and Robert J. Shiller of Yale University, New Haven, CT, USA "for their empirical analysis of asset prices."

Related Articles


There is no way to predict the price of stocks and bonds over the next few days or weeks. But it is quite possible to foresee the broad course of these prices over longer periods, such as the next three to five years. These findings, which might seem both surprising and contradictory, were made and analyzed by this year's Laureates, Eugene Fama, Lars Peter Hansen and Robert Shiller.

Beginning in the 1960s, 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.

If prices are nearly impossible to predict over days or weeks, then shouldn't they be even harder to predict over several years? The answer is no, as Robert Shiller discovered in the early 1980s. He 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.

One approach interprets these findings in terms of the response by rational investors to uncertainty in prices. High future returns are then viewed as compensation for holding risky assets during unusually risky times. 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.

Another approach focuses on departures from rational investor behavior. So-called behavioral finance takes into account institutional restrictions, such as borrowing limits, which prevent smart investors from trading against any mispricing in the market.

The Laureates have laid the foundation for the current understanding of asset prices. It relies in part on fluctuations in risk and risk attitudes, and in part on behavioral biases and market frictions.

Eugene F. Fama, U.S. citizen. Born 1939 in Boston, MA, USA. Ph.D. 1964 from University of Chicago, IL, USA. Robert R. McCormick Distinguished Service Professor of Finance at University of Chicago, IL, USA. www.chicagobooth.edu/faculty/directory/f/eugene-f-fama

Lars Peter Hansen, U.S. citizen. Born 1952 in USA. Ph.D. 1978 from University of Minnesota, Minneapolis, MN, USA. David Rockefeller Distinguished Service Professor in Economics & Statistics at University of Chicago, IL, USA. http://larspeterhansen.org

Robert J. Shiller, U.S. citizen. Born 1946 in Detroit, MI, USA. Ph.D. 1972 from Massachusetts Institute of Technology (MIT), Boston, MA, USA. Sterling Professor of Economics at Yale University, New Haven, CT, USA. www.econ.yale.edu/~shiller

The Prize amount: SEK 8 million, to be shared equally between the Laureates.


Story Source:

The above story is based on materials provided by Nobel Foundation. Note: Materials may be edited for content and length.


Cite This Page:

Nobel Foundation. "2013 Nobel Prize in Economics: Trendspotting in asset markets." ScienceDaily. ScienceDaily, 14 October 2013. <www.sciencedaily.com/releases/2013/10/131014082140.htm>.
Nobel Foundation. (2013, October 14). 2013 Nobel Prize in Economics: Trendspotting in asset markets. ScienceDaily. Retrieved November 23, 2014 from www.sciencedaily.com/releases/2013/10/131014082140.htm
Nobel Foundation. "2013 Nobel Prize in Economics: Trendspotting in asset markets." ScienceDaily. www.sciencedaily.com/releases/2013/10/131014082140.htm (accessed November 23, 2014).

Share This


More From ScienceDaily



More Computers & Math News

Sunday, November 23, 2014

Featured Research

from universities, journals, and other organizations


Featured Videos

from AP, Reuters, AFP, and other news services

European Parliament Might Call For Google's Break-Up

European Parliament Might Call For Google's Break-Up

Newsy (Nov. 22, 2014) — This is the latest development in an antitrust investigation accusing Google of unfairly prioritizing own products and services in search results. Video provided by Newsy
Powered by NewsLook.com
Google Announces Improvements To Balloon-Borne Wi-Fi Project

Google Announces Improvements To Balloon-Borne Wi-Fi Project

Newsy (Nov. 21, 2014) — In a blog post, Google said its balloons have traveled 3 million kilometers since the start of Project Loon. Video provided by Newsy
Powered by NewsLook.com
Is Nintendo Making A Comeback With 'Super Smash Bros.'?

Is Nintendo Making A Comeback With 'Super Smash Bros.'?

Newsy (Nov. 21, 2014) — Nintendo released new "Super Smash Bros." Friday, and it's getting great reviews. Could this mean a comeback for the gaming company? Video provided by Newsy
Powered by NewsLook.com
NSA Director: China Can Damage US Power Grid

NSA Director: China Can Damage US Power Grid

AP (Nov. 20, 2014) — China and "one or two" other countries are capable of mounting cyberattacks that would shut down the electric grid and other critical systems in parts of the United States, according to Adm. Michael Rogers, director of the National Security Agency and hea Video provided by AP
Powered by NewsLook.com

Search ScienceDaily

Number of stories in archives: 140,361

Find with keyword(s):
 
Enter a keyword or phrase to search ScienceDaily for related topics and research stories.

Save/Print:
Share:  

Breaking News:

Strange & Offbeat Stories

 

Space & Time

Matter & Energy

Computers & Math

In Other News

... from NewsDaily.com

Science News

Health News

Environment News

Technology News



Save/Print:
Share:  

Free Subscriptions


Get the latest science news with ScienceDaily's free email newsletters, updated daily and weekly. Or view hourly updated newsfeeds in your RSS reader:

Get Social & Mobile


Keep up to date with the latest news from ScienceDaily via social networks and mobile apps:

Have Feedback?


Tell us what you think of ScienceDaily -- we welcome both positive and negative comments. Have any problems using the site? Questions?
Mobile iPhone Android Web
Follow Facebook Twitter Google+
Subscribe RSS Feeds Email Newsletters
Latest Headlines Health & Medicine Mind & Brain Space & Time Matter & Energy Computers & Math Plants & Animals Earth & Climate Fossils & Ruins