[00:00.100]From VOA Learning English,
[00:02.730]this is the Economics Report.
[00:06.180]This week, the Royal Swedish Academy of Sciences
[00:10.750]awarded the Nobel Prize in economics to three Americans.
[00:16.380]The academy recognises the three men for their work
[00:20.510]in the study and understanding of
[00:23.450]how things are priced in financial markets.
[00:27.330]Eugene Fama and Lars Peter Hansen
[00:31.570]are both professors at the University of Chicago.
[00:35.910]Robert Shiller is a professor at Yale University.
[00:40.140]They will share the prize worth about 1.2 million dollars.
[00:44.870]The academy's permanent secretary Staffan Normark
[00:49.350]offered a short explanation of why the men won the award.
[00:54.630]"This year's prize in economic sciences is about predictions."
[00:59.720]Predicting prices is something
[01:02.600]everyone involved in markets wants to do.
[01:06.190]This is especially true for financial markets
[01:10.510]when money managers invest millions of dollars
[01:14.610]for their clients and customers.
[01:17.940]All three of this year's prize winners
[01:20.730]are mainly known for their research
[01:23.460]and explanations of pricing forces in financial markets.
[01:29.050]They have had a big influence on the way people look at
[01:33.180]and talk about financial markets.
[01:36.610]But what might be surprising is that Eugene Fama
[01:41.240]and Robert Shiller receive the prize for findings
[01:45.580]that appear to oppose one another.
[01:48.470]The Swedish Academy however found
[01:52.000]that the underline idea of predict ability
[01:55.380]tied the work of all three winners together closely.
[02:01.380]Eugene Fama's research on financial markets in the 1960s
[02:07.060]led market watchers to change their ideas about investing.
[02:12.380]His ideas are linked to the theory that markets are efficient,
[02:18.220]that means market actors taking all available information
[02:23.740]to create the correct price for things at any given time.
[02:29.360]This also means that over short periods of time,
[02:33.750]it is not possible to predict prices.
[02:37.480]Robert Shiller found however that over long periods,
[02:42.860]the opposite is true.
[02:44.910]It is possible to predict the movement of prices
[02:49.360]and that its changes are linked to human behaviour.
[02:54.390]The findings of both economists
[02:57.630]have led to the growth of index funds.
[03:01.270]Index funds investing many different securities
[03:05.400]as a way to reduce risk.
[03:08.200]Mr Shiller also helped to create
[03:11.430]the Standard & Poor's Case-Shiller home prices index.
[03:16.460]That index follows home prices across the United States.
[03:21.650]Lars Peter Hansen developed the method
[03:25.480]for studying historical pricing information.
[03:28.820]His methods support Mr Shiller's findings
[03:32.750]and has an influenced efforts to predict prices
[03:36.590]in the financial industry.
[03:39.120]The Nobel Prize in economics was not created by Alfred Nobel,
[03:44.460]but was established in his memory
[03:47.250]by Sweden's central bank in 1968.
[03:52.070]And that's the Economics Report from VOA Learning English,
[03:57.060]I'm June Simms.