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From VOA Learning English, |
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this is the Economics Report. |
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This week, the Royal Swedish Academy of Sciences |
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awarded the Nobel Prize in economics to three Americans. |
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The academy recognises the three men for their work |
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in the study and understanding of |
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how things are priced in financial markets. |
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Eugene Fama and Lars Peter Hansen |
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are both professors at the University of Chicago. |
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Robert Shiller is a professor at Yale University. |
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They will share the prize worth about 1.2 million dollars. |
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The academy's permanent secretary Staffan Normark |
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offered a short explanation of why the men won the award. |
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"This year's prize in economic sciences is about predictions." |
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Predicting prices is something |
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everyone involved in markets wants to do. |
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This is especially true for financial markets |
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when money managers invest millions of dollars |
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for their clients and customers. |
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All three of this year's prize winners |
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are mainly known for their research |
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and explanations of pricing forces in financial markets. |
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They have had a big influence on the way people look at |
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and talk about financial markets. |
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But what might be surprising is that Eugene Fama |
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and Robert Shiller receive the prize for findings |
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that appear to oppose one another. |
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The Swedish Academy however found |
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that the underline idea of predict ability |
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tied the work of all three winners together closely. |
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Eugene Fama's research on financial markets in the 1960s |
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led market watchers to change their ideas about investing. |
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His ideas are linked to the theory that markets are efficient, |
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that means market actors taking all available information |
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to create the correct price for things at any given time. |
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This also means that over short periods of time, |
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it is not possible to predict prices. |
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Robert Shiller found however that over long periods, |
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the opposite is true. |
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It is possible to predict the movement of prices |
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and that its changes are linked to human behaviour. |
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The findings of both economists |
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have led to the growth of index funds. |
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Index funds investing many different securities |
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as a way to reduce risk. |
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Mr Shiller also helped to create |
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the Standard & Poor's Case-Shiller home prices index. |
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That index follows home prices across the United States. |
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Lars Peter Hansen developed the method |
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for studying historical pricing information. |
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His methods support Mr Shiller's findings |
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and has an influenced efforts to predict prices |
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in the financial industry. |
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The Nobel Prize in economics was not created by Alfred Nobel, |
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but was established in his memory |
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by Sweden's central bank in 1968. |
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And that's the Economics Report from VOA Learning English, |
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I'm June Simms. |
