US trio wins Nobel for economics
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US trio Lars Peter Hansen, Eugene Fama and Robert Shiller won the Nobel Economics Prize yesterday for groundbreaking work on spotting trends in markets, the jury said.
The three “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,” the Royal Swedish Academy of Sciences said.
Fama, 74, and Hansen, 61, are both professors at the University of Chicago, while Shiller, 67, is a professor at Yale University.
The award is for work conducted on the value of assets, such as stock and bonds, and comes as the global economy is still reeling from the effects of the financial market crisis at the end of the last decade.
The three were awarded for “surprising and contradictory” findings showing the difficulty in pricing stocks and bonds and other assets in the short term.
“There is no way to predict the price of stocks and bonds over the next few days or weeks,” the academy said.
“But it is quite possible to foresee the broad course of these prices over longer periods, such as the next three to five years.”
Shiller, who spoke to the Swedish academy shortly after receiving the prize, said finance “has a body of knowledge that is useful to society.”
“(The current crisis) reflected mistakes and imperfections in our financial system that we are already working on correcting,” he said.
“Finance drives modern civilization,” he said. “I want to see finance develop further to serve humankind.”
Shiller has been frequently cited as a possible winner over the past few years, not least because his book “Irrational Exuberance,” published in 2000, predicted the collapse of the dotcom bubble.
Beginning in the 1960s, Fama and several collaborators demonstrated that stock prices are extremely difficult to predict in the short run, the academy said.
Hansen developed a statistical method that is well suited to testing theories of how rational investors respond to uncertainty in asset prices.
Ironically for a scholar who has devoted his career to the study of predictions, Shiller said he had not foreseen that he would get the Nobel Prize.
“I’m aware that there are so many worthy people, that I had discounted it. So no, I did not expect it,” he said.
Fama, Hansen and Shiller will share the prize sum of eight million Swedish kronor (US$1.2 million).
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