Nov 17, 2014
Essays

KRF: Gene Fama has taught us a lot over the last 50 years. In this essay, I describe some of the things Gene has taught me about doing research, writing papers, and life in general.

 
Aug 8, 2012
Essays

EFF: I have a new paper, "Does the Fed Control Interest Rates?". In it, I find that The Federal funds rate, FF, moves strongly toward the Fed's target, TF, but other rates show little day-to-day convergence to TF. When the Fed changes TF, it moves toward existing short rates. This suggests a passive Fed that follows the market, but it is also consistent with an active Fed that controls rates and rates adjust to reflect predictable changes in TF. When TF changes, short rates move toward the new TF. This is consistent with a Fed that controls short rates or a Fed that has no control but is an informed investor whose signals affect rates.

 
May 7, 2012
Essays

By Eugene F. Fama and Kenneth R. French

Understanding volatility is crucial for informed investment decisions. Our paper explores the volatility of the market, size, and value premiums of the Fama-French three-factor model for US equity returns.

Volatility and Premiums in US Equity Returns (PDF)

 
Mar 4, 2010
Essays

By Eugene F. Fama 

Foreword

I was invited by the editors to contribute a professional autobiography for the Annual Review of Financial Economics.  I focus on what I think is my best stuff.  Readers interested in the rest can download my vita from the website of the University of Chicago, Booth School of Business.  I only briefly discuss ideas and their origins, to give the flavor of context and motivation.  I do not attempt to review the contributions of others, which is likely to raise feathers.  Mea culpa in advance.

Professor Fama was invited by the editors of the Annual Review of Financial Economics to contribute a professional autobiography. In this essay, he highlights some of the key ideas and their origins that mark his distinguished career to give the flavor of context and motivation. 

(Read the full entry)

 
Nov 30, 2009
Essays

By Eugene F. Fama and Kenneth R. French

Our paper, "Luck versus Skill in the Cross Section of Mutual Fund Returns," examines the performance during 1984-2006 of actively managed US mutual funds that invest primarily in US equities.  It is an academic paper with lots of technical detail.  The purpose of this white paper is to provide a summary of the results that are relevant for investors.  We begin by examining the overall α for aggregate wealth invested in actively managed mutual funds.  We then turn to the performance of individual funds.

(Read the full entry)

 
Jun 3, 2009
Essays

By Eugene F. Fama and Kenneth R. French

William F. Sharpe has a great article in the January/February 1991 issue of The Financial Analysts Journal (Vol. 47, No.1, pages 7-9). The title is "The Arithmetic of Active Management." It should be required reading for academics and investment professionals alike.

(Read the full entry)

 
May 4, 2009
Essays

By Eugene F. Fama and Kenneth R. French

The cap-weighted market portfolio of NYSE-Amex-Nasdaq stocks delivered a 
-38.31% return for 2008. The experience was painful, but was it out of bounds? The volatility of returns also increased a lot during 2008. Was the observed volatility consistent with prior experience? These are the questions addressed here.

(Read the full entry)

 
Jan 28, 2009
Essays

By EUGENE F. FAMA

In his NY Times blog Paul Krugman attacks my piece on the stimulus plan.

Again, here is my argument in three sentences.

1. Bailouts and stimulus plans must be financed.

2. If the financing takes the form of additional government debt, the added debt displaces other uses of the same funds.

3. Thus, stimulus plans only enhance incomes when they move resources from less productive to more productive uses.

Are any of these statements incorrect?

(Read the full entry)

 
Jan 16, 2009
Essays

By EUGENE F. FAMA

There has been lots of response to my little essay on bailouts and stimulus plans. I will only comment on the negative ones that I think have merit and are overlooked in my original paper.

First, however, I want to restate my argument in simple terms.

1. Bailouts and stimulus plans must be financed.

2. If the financing takes the form of additional government debt, the added debt displaces other uses of the funds.

3. Thus, stimulus plans only enhance incomes when they move resources from less productive to more productive uses.

Are any of these statements incorrect?

(Read the full entry)

 
Jan 13, 2009
Essays

By EUGENE F. FAMA

There is an identity in macroeconomics. It says that in any given year private investment must equal the sum of private savings, corporate savings (retained earnings), and government savings (the government surplus, which is more likely negative, that is, a deficit),

PI = PS + CS + GS
(1)

In a global economy the quantities in the equation are global. This means the equation need not hold in a particular country, but it must hold in the world as a whole. For example, in recent years private investment in the US has been greater than the sum of private, corporate, and government savings in the US. This means the US has been importing savings from the rest of the world (by selling US securities to the rest of the world). But the equation always holds for the world as whole.

(Read the full entry)

 
Jan 5, 2009
Essays

By EUGENE F. FAMA

The financial sector provides the grease that makes the transfer of savings to productive investments more efficient. This role is critical for the health of the economy.

Government injections of equity capital into financial institutions can make sense if the whole financial system is in danger. But it is important that injections are at minimum cost to taxpayers, that is, without unnecessary subsidies. Problems on this score arise when the funds go primarily to prop up the value of a financial institution's existing debt. In this case the true amount of new equity capital is less than the injection of funds by the government, and the subsidy to debt holders is a loss to taxpayers with no clear offsetting benefits. My purpose here is to describe how this problem arises and how it can be avoided.

(Read the full entry)

 
ABOUT FAMA AND FRENCH
Eugene F. Fama
The Robert R. McCormick Distinguished Service Professor of Finance at the University of Chicago Booth School of Business
Kenneth R. French
The Roth Family Distinguished Professor of Finance at the Tuck School of Business at Dartmouth College
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