Professor Eugene Fama’s groundbreaking work on asset pricing and markets inspired the founding of Dimensional Fund Advisors (DFA), and his ongoing contributions have guided Abacus’ investment approach since the early 1990s. On Monday, he won the Nobel Prize in economics. To see an engaging short video in which Dr. Fama explains the evolution of finance, click here.
The Father of Modern Finance
Eugene Fama, often called the father of modern finance, developed the efficient market hypothesis. He figured out that new information helps predict share prices that are difficult to forecast in the short term. The idea that markets constantly price in information quickly spawned the development of index funds which are now heavily used by multi-billion dollar pension plans, 401(k) plans and more sophisticated individual investors. These funds don’t include expensive research that promises to pick winners. They accept that you can’t know the information that will impact a stock’s price in advance, so why spend the time trying?
Fama, a DFA board member, joins two other Nobel Prize winners involved with the firm, Robert Merton and Myron Scholes. Not bad for a Monday. I wonder what his Tuesday looks like.
