Three American scientists won the 2013 economics Nobel prize on Monday (October 14) for research that has improved the forecasting of asset prices in the long term and helped the emergence of index funds in stock markets.
"This year's prize in economic sciences is about predictions. The Royal Swedish Academy of Sciences has decided to award the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 2013 to Professor Eugene Fama, University of Chicago, United States, Professor Lars Peter Hansen, University of Chicago, United States and Robert Shiller, from Yale University, New Haven, United States for their empirical analysis of asset prices," Staffan Normark, Permanent Secretary of the The Royal Swedish Academy of Sciences said awarding the 8 million crown ($1.25 million) prize to Eugene Fama, Lars Peter Hansen and Robert Shiller.
Fama, tipped as a Nobel winner for many years, has been called the father of modern finance and is well-known for research showing that certain groups of stocks tend to outperform over time.
"They got it for their empirical research on asset prices and you know asset prices are supposed to convey information to the rest of the economy so it's really important to know how well these markets function," Peter Englund, Professor in Banking at the London School of Economics and secretary in the prize committee said.
The behaviour of asset prices is key to decisions such as savings, house buying and national economic policy, the academy said.
"Perhaps the most important implication of Fama's findings is that it doesn't pay to try to beat the market. Analysis of individual stocks etc. or analysis of short run swings in markets don't pay off. So we're much better off in investing in index funds and his research really stimulated the development on index funds which now is sort of the major investment vehicle for households," Englund said.
Presented by Adam Justice