Empiricist of Chicago Economics

Eugene F. Fama was born on February 14, 1939, in Boston, Massachusetts. A central figure in the Chicago School of Economics, Fama is best known for his development of the Efficient Market Hypothesis (EMH), which revolutionized the study of financial markets and asset pricing. His work provided the foundation for modern portfolio theory, empirical asset pricing, and financial economics, shaping how economists, investors, and policymakers understand market behavior.

Fama earned his undergraduate degree from Tufts University before pursuing his Ph.D. at the University of Chicago, where he studied under Merton Miller. His 1965 dissertation, The Behavior of Stock Market Prices, introduced the idea that financial markets are informationally efficient, meaning that asset prices fully reflect all available information. He further expanded on this concept in his seminal 1970 paper, Efficient Capital Markets: A Review of Theory and Empirical Work, where he formalized the three forms of market efficiency—weak, semi-strong, and strong—each varying in how quickly and thoroughly information is incorporated into prices.

Fama’s research challenged the idea that investors could consistently “beat the market” through stock-picking or market timing, reinforcing the case for passive investing and index funds. His findings also had major implications for risk pricing, leading to the development of asset pricing models like the Fama-French Three-Factor Model, which extended the Capital Asset Pricing Model (CAPM) by incorporating size and value factors alongside market risk.

Throughout his career, Fama remained at the University of Chicago’s Booth School of Business, where he influenced generations of economists and finance scholars. His contributions to empirical asset pricing helped solidify finance as a rigorous academic discipline, blending economic theory with statistical methods.

For his groundbreaking work on asset pricing and market efficiency, Fama was awarded the Nobel Prize in Economic Sciences in 2013, shared with Robert Shiller and Lars Peter Hansen. His research continues to guide financial market analysis, investment strategies, and policy decisions.