Eugene F. Fama
Robert R. McCormick Distinguished Service Professor of Finance, Graduate School of Business, University of Chicago
Eugene F. Fama is a founder of modern portfolio theory, or as he prefers to call it, portfolio theory.
For 40 years, he has been one of the great intellectuals of financial economics.
In 1960, the year he graduated from Tufts University with the unlikely major of French for such a seminal figure in investment, Mr. Fama entered graduate school at the University of Chicago, which has been his home ever since. He received his MBA and doctorate there, and joined the faculty of the Graduate School of Business in 1963.
His dissertation, "The Behavior of Stock Market Prices," was followed in 1964 by publication of "Random Walks in Stock Market Prices." These papers introduced the efficient-market hypothesis, a concept still controversial yet widely accepted by many investors.
According to the hypothesis, all public information about a stock is instantly reflected in its price. Thus, all stocks are correctly priced at any time, making it difficult for any investor, even a professional, to gain any advantage over other investors. It provided the intellectual foundation for passive investment management.
Mr. Fama also developed the three-factor model that takes into account market risk, style risk and size risk in valuing equities. He helped lay the intellectual foundation for the growth vs. value debate. A 1997 paper by Mr. Fama and Kenneth R. French, a former University of Chicago faculty member now at the Yale University School of Management, found that value stocks have higher returns than growth stocks in markets around the world.
"He is one of the giants of the field," said Richard Ennis, principal, Ennis Knupp + Associates Inc., Chicago. "His theoretical and empirical work has enriched all of us. He made a permanent mark on our understanding of securities' prices. He is a disciplined and rigorous man" in his work. "He is the epitome of a scholar."