Money managers all know there's a relationship between stock prices and earnings, but it was Clive W.J. Granger who demonstrated that when the two get out of whack, they are likely to come back closer together.
Equally important, Robert F. Engle helped lay the foundations for value-at-risk, an essential building block of modern-day risk modeling.
The two academics last week were awarded the Nobel Memorial Prize in Economic Sciences for their contributions that have affected money managers and pension executives in very direct ways.
Both were cited by members of the Royal Swedish Academy of Sciences, presenters of the awards, for their work on analyzing economic time series.
Mr. Granger, a retired professor of economics at the University of California, San Diego, developed a method — called cointegration — to understand the relationship between two economic variables, such as stock prices and earnings, or short- and long-term interest rates. Mr. Engle, a professor of economics at New York University's Leonard N. Stern School of Business, developed a model for quantifying and forecasting volatility.