Subject:
Eugene Fama Eugene Francis “Gene” Fama (born February 14, 1939) is an American economist, known for his work on portfolio theory and asset pricing, both theoretical and empirical. He is currently Robert R. McCormick Distinguished Service Professor of Finance at the University of Chicago Booth School of Business.
He earned his undergraduate degree in French from Tufts University in 1960 and his M.B.A. and Ph.D. from the Booth School of Business at the University of Chicago in economics and finance; his doctoral supervisor was Benoit Mandelbrot. He has spent all of his teaching career at the University of Chicago.
His Ph.D. thesis, which concluded that stock price movements are unpredictable and follow a random walk, was published in January, 1965 issue of the Journal of Business, entitled “The Behavior of Stock Market Prices”. That work was subsequently rewritten into a less technical article, “Random Walks In Stock Market Prices”, which was published in the Financial Analysts Journal in 1965 and Institutional Investor in 1968.
His article “The Adjustment of Stock Prices to New Information” in the International Economic Review, 1969 (with several co-authors) was the first event study that sought to analyze how stock prices respond to an event, using price data from the newly available CRSP database. This was the first of literally hundreds of such published studies.
Fama is most often thought of as the father of efficient market hypothesis, beginning with his Ph.D. thesis. In a ground-breaking article in the May, 1970 issue of the Journal of Finance, entitled “Efficient Capital Markets: A Review of Theory and Empirical Work,” Fama proposed two crucial concepts that have defined the conversation on efficient markets ever since. First, Fama proposed three types of efficiency: (i) strong-form; (ii) semi-strong form; and (iii) weak efficiency. Second, Fama demonstrated that the notion of market efficiency could not be rejected without an accompanying rejection of the model of market equilibrium (e.g. the price setting mechanism). This concept, known as the “joint hypothesis problem,” has ever since vexed researchers. (Wikipedia Jan 2010)
Commonsense Economics:
By John Schroy, on May 16th, 2010 | 
Eventually, at some point, without an efficient market, common stocks become mere baseball cards.
Sooner or later, some Baby Boomer, pressed to pay his bills in retirement, will find that one can’t live off the dividends of common stock and that when everyone is trying to cash out their holdings at the same time, market prices plunge to levels that seemed inconceivable for generations. But it will simply be the cost of allowing an inefficient market to flourish for so long.
This article discusses the concept of inefficient markets and the practical consequences.
Post Modern Security Analysis
By John Schroy, on August 6th, 2009 | 
The target of classical security analysis is ‘intrinsic value’, a fuzzy concept defined as the value justified by the facts.
Financial markets have become vastly more complex since the days of Graham & Dodd.
Since the 1960’s, stock prices have generally exceeded ‘intrinsic value’. New techniques are needed now to handle the flood of free investment information.
Post Modern Security Analysis
By John Schroy, on August 1st, 2009 | 
Security Analysis is the study of facts about negotiable instruments for the purpose of determining whether a particular instrument is appropriate for a specific investor at a particular time and the intrinsic value of the security compared to its market price, if any.
The technique has evolved over time with the changing nature of information.
In the 21st century, with a flood of open source information and increasingly complex, global markets, new approaches are necessary.
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