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US economists Shiller, Fama and Hansen win Nobel prize for work on predicting markets

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US economists Shiller, Fama and Hansen win Nobel prize for work on predicting markets
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Nobel prizes can be as hard to predict as the stockmarkets, but this year the winners of the economics awarded included longterm favourites Robert Shiller and Eugene Fama.

They, together with Lars Peter Hansen, were awarded the accolade for their separate research on developing understanding of asset price movements.

The Royal Swedish Academy of Sciences announced the prize. Academy member Per Krusell said: “Fama’s, Hansen’s and Shiller’s research not only radically changed the views among researchers, but also influenced market practice in many ways.”

Fama, tipped as a Nobel winner for many years, has been called the ‘father of modern finance’ and is well known for work showing that asset prices cannot be predicted in the short term, although certain groups of stocks tend to outperform over time.

Shiller, who is renowned for being one of the few economists who predicted that the US housing bubble would burst in 2007, found that stock prices could be more easily forecast over periods of several years, rather than days or months.

Reacting to the news that he was one of this year’s Nobel winners, Shiller explained the importance of the research, saying: “It is so fundamental to human activity and it follows precise mathematical relations – but there is an element of imprecision in it that reflects human nature.”

Hansen developed a statistical method suitable for testing rational theories of asset pricing.

Shiller is currently Sterling Professor of Economics at Yale University. Fama and Hansen are both Distinguished Service Professors at the University of Chicago – Fama of Finance and Hansen of Economics and Statistics.