Tufts Alum Shares Nobel Prize in Economics

Tufts alumnus Eugene Fama, A60, shared the 2013 Nobel Prize in Economics with two other American economists for his pioneering work in understanding how financial assets such as stocks and homes are priced.

Fama, who received an honorary degree from Tufts in 2002, is the Robert R. McCormick Distinguished Service Professor of Finance at the University of Chicago. He shared the Nobel Prize with Lars Peter Hansen, also of the University of Chicago, and Robert J. Shiller, a Yale economist.

While an undergraduate at Tufts, Fama majored in Romance languages. But in his junior year, he told an interviewer from the Nobel Prize committee shortly after receiving news of the award, “I was getting tired of French, and I took an economics course and loved it. The next two years in college I spent in economics.”

Fama graduated from Tufts with a bachelor’s degree magna cum laude with honors in Romance languages, and went on to receive an M.B.A. and a Ph.D. from the Booth School of Business at the University of Chicago in 1964; he has taught there ever since.

Fama’s work led to the “efficient markets hypothesis,” which suggests that information about pricing of assets such as stocks and bonds is nearly instantaneous, and that it is therefore nearly impossible to accurately predict the movement of stock prices in the short term. He was the first to show empirically how this worked, as essentially a series of “random walks” that could not be anticipated.

One consequence of his work has been the huge growth of stock and bond index funds, which seek to track market indices rather than try to outguess the market by trading individual stocks.

“The laureates have laid the foundation for the current understanding of asset prices,” the Nobel committee said in its announcement of the prize. “It relies in part on fluctuations in risk and risk attitudes, and in part on behavioral biases and market frictions."

Fama’s doctoral thesis, The Behavior of Stock Market Prices, took up an entire issue of the University of Chicago’s Journal of Business. A simplified version of the paper, titled “Random Walks in Stock Market Prices,” was later published in Institutional Investor.

Among his many honors, Fama was the first recipient of three important prizes for finance research: the Deutsche Bank Prize in Financial Economics in 2005; the Morgan Stanley American Finance Association Award for Excellence in Finance in 2007; and the Onassis Prize in Finance in 2009.

This is Tufts’ third Nobel Prize. Roderick MacKinnon, M82, H02, won for chemistry in 2003 and Professor Allan Cormack won for physiology or medicine in 1979.