US trio win Nobel Economics Prize for asset price work
US trio Robert Shiller, Eugene Fama and Lars Peter Hansen won the Nobel Economics Prize on Monday 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 behavioural biases and market frictions," the Royal Swedish Academy of Sciences said.
Shiller, 67, is a professor at Yale University, while Fama, 74, and Hansen, 61, are both professors at the University of Chicago.
The award is for work done on the value of assets, such as stocks 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 that the prices of stocks and bonds and other assets are easier to predict in the long term than 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 civilisation," he said. "I want to see finance develop further to serve humankind."
Shiller, who has been frequently cited as a possible winner over the past few years, published the book "Irrational Exuberance" in 2000, predicting 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, and that new information is very quickly incorporated into prices, the academy said.
"The idea is really, how do you measure risk, and if the market is pricing things correctly, what is the relation between expected return -- which is the compensation for risk -- and risk," Fama said in an interview with the official Nobel Prize website.
Hansen developed a statistical method that is well suited to testing theories of how rational investors respond to uncertainty in asset prices.
"Investors respond to information and struggle with what's the right view of the world," Hansen, who referred to himself as the "youngster" in the trio, told the website.
"It gives ways to capture those struggles and how they reflect in asset markets."
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 ($1.2 million, 910,000 euros).
The economics prize is the only Nobel not originally included in the last will and testament of the prizes' creator, Swedish scientist and philanthropist Alfred Nobel.
It was established in 1968 by the Swedish central bank to celebrate its tricentenary, and first awarded in 1969. The other prizes have been awarded since 1901.
Americans have dominated the list of economics laureates, with 17 out of 20 laureates coming from the US in the past 10 years.
Last year, US scholars Alvin Roth and Lloyd Shapley won for their work on the functioning of markets and how best to match supply and demand.
The economics prize winds up this year's Nobel season, marked by awards in physics to the fathers of the Higgs boson, the literature prize to Canadian short story author Alice Munro, and the peace prize to the UN-backed Organisation for the Prohibition of Chemical Weapons.