Eugene Fama

Eugene Fama
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Name	Eugene Fama
Caption	Fama in 2013
Birth date	14 February 1939
Birth place	Boston, Massachusetts, U.S.
Nationality	American
Field	Financial economics
Institution	University of Chicago Booth School of Business
Alma mater	Tufts University (B.A.), University of Chicago (M.B.A., Ph.D.)
Doctoral advisor	Merton Miller
Known for	Efficient-market hypothesis, Fama–French three-factor model
Prizes	Nobel Memorial Prize in Economic Sciences (2013), Deutsche Bank Prize in Financial Economics (2005), Morgan Stanley–American Finance Association Award (2008)

Eugene Fama is an American economist renowned for his foundational contributions to financial economics and empirical finance. He is the Robert R. McCormick Distinguished Service Professor of Finance at the University of Chicago Booth School of Business, where he has spent the majority of his academic career. Fama is best known for formulating the efficient-market hypothesis and, with Kenneth French, developing the influential Fama–French three-factor model. His pioneering work earned him the Nobel Memorial Prize in Economic Sciences in 2013, which he shared with Lars Peter Hansen and Robert Shiller.

Early life and education

Born in Boston, Massachusetts, Fama attended Malden Catholic High School before pursuing his undergraduate studies. He earned a Bachelor of Arts in Romance languages from Tufts University in 1960. His initial career path shifted after he took a job as an assistant to a University of Chicago economist, which sparked his interest in the field. He subsequently enrolled at the University of Chicago Booth School of Business, where he received his Master of Business Administration in 1963 and his Doctor of Philosophy in 1964. His doctoral dissertation, written under the supervision of future Nobel laureate Merton Miller, laid the groundwork for his later research on market efficiency.

Academic career

Upon completing his doctorate, Fama joined the faculty of the University of Chicago Booth School of Business in 1963, where he has remained for his entire academic tenure. He served as the director of the Center for Research in Security Prices (CRSP) for many years, a pivotal institution for empirical research in finance. Fama also held the position of editor for the Journal of Financial Economics, a leading publication in the field. His mentorship and collaboration with other prominent scholars, including Kenneth French and James MacBeth, significantly advanced the study of asset pricing and portfolio theory.

Efficient-market hypothesis

Fama is most famous for his development and rigorous testing of the efficient-market hypothesis (EMH), which he formally presented in his 1970 paper. The hypothesis posits that asset prices fully reflect all available information, making it impossible to consistently achieve abnormal returns through market timing or security analysis. His work challenged the premises of technical analysis and many forms of active management, providing a theoretical foundation for the rise of index funds. While the hypothesis has been debated and refined—notably by critics like Robert Shiller—it remains a cornerstone of modern financial theory.

Fama–French three-factor model

In the early 1990s, in collaboration with Kenneth French, Fama extended the Capital Asset Pricing Model (CAPM) by developing the Fama–French three-factor model. This influential asset pricing model explains stock returns through exposure to three factors: market risk, the outperformance of small-cap stocks over large-cap stocks (SMB), and the outperformance of high book-to-market stocks over low book-to-market stocks (HML). Published in the Journal of Financial Economics, the model became a standard tool in empirical finance and portfolio management, profoundly impacting both academic research and the practices of investment firms like Dimensional Fund Advisors.

Awards and recognition

Fama has received numerous prestigious awards for his contributions to economics. He was awarded the Nobel Memorial Prize in Economic Sciences in 2013, sharing it with Lars Peter Hansen and Robert Shiller. Earlier honors include the Deutsche Bank Prize in Financial Economics in 2005 and the Morgan Stanley–American Finance Association Award in 2008. He is a fellow of the American Academy of Arts and Sciences and the Econometric Society. His research has also been recognized by institutions like the American Finance Association, which awarded him the Smith Breeden Prize.

Personal life

Fama is married to Sallyann Fama, and they have four children. He maintains a relatively private life, with his public profile centered on his academic work. An avid fan of squash, he was a competitive player in his younger years. Despite his profound influence on financial markets, he is known for a modest and direct demeanor in both personal and professional settings. He continues to reside in Chicago, remaining actively engaged with the University of Chicago community.

Category:American economists Category:University of Chicago faculty Category:Nobel laureates in Economics Category:1939 births Category:Living people