Fama, Eugene Francis

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Eugene Francis Fama, 1939–, 1939–, U.S. economist, b. Boston, Mass., grad. Univ. of Chicago (M.B.A. 1963, Ph.D. 1964). He has taught at the Univ. of Chicago's Graduate School of Business since 1963, and has been Robert R. McCormick Distinguished Service Professor of Finance since 1993. In work on stock market prices, popularized in "Random Walks in Stock Market Prices" (1965), Fama concluded that short-term price movements are not predictable; he later also concluded that past prices and returns are not reliable predictors of future prices and returns. This work led to the development of market-index mutual funds, which reflect the performance of stock and bond markets rather than try to outperform them. The efficient market hypothesis, for which he is best known, proposes that prices in a market reflect all available information; Fama showed that the efficient market hypothesis could not be tested without a model of market equilibrium (an approximation of how and why a market arrives at prices), and that the two were necessarily interdependent. The notion of efficient markets was influential in financial deregulation in the late 20th-century United States, but it has criticized by behaviorial economists, such as Robert Shiller, for failing to take the effects of human psychology into account. In 2013, Fama shared the Nobel Memorial Prize in Economic Science with Shiller and Lars Peter Hansen for his work showing that asset prices are hard to predict in the short term.