Investors can profit from the insights of this year’s Nobel prizewinners in economics. Though each award winner’s viewpoint seemingly contradicts the other’s viewpoint, together they provide insight into how securities markets are valued.
Eugene Fama of the University of Chicago is father of the Efficient Markets Hypothesis (EMH); Robert Shiller of Yale University shot down his theory. Both were awarded the Nobel Prize in economics last month.
This week we examine three articles on the contribution each man has made in our understanding of how securities markets work. The first article is a basic introduction to the viewpoints of each. The second article examines how each views the existence of asset price bubbles—the condition where asset prices deviated sharply from the level justified by fundamentals. The third article examines real world applications of the thoughts of Fama and Shiller.
Investors can profit from the insights of this year’s Nobel prizewinners in economics. Those who know the work of Eugene Fama and Robert Shiller may find it odd that they both are honored with the Nobel Prize in Economics in the same year. Their approaches differ, yet there is much common ground. “Fama’s great insight is the “efficient markets hypothesis,” which asserts that “movements in asset prices are not predictable in the short term