The Nobel Prize for the Efficient Markets Hypothesis

Now isn’t this interesting:

The 2013 Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel was awarded jointly to Eugene F. Fama, Lars Peter Hansen and Robert J. Shiller “for their empirical analysis of asset prices”.

This is something of a blow for the lefties. 5 years after the crash we’ve got the Nobel going to the efficient market hypothesis. More, Shiller is certain that the housing crash was caused by not enough speculation, not too much.

If there had been a futures market in housing, the ability to sell short, then the bubble would never have grown so big.

It really is a big fuck you all to all those complaining that finance caused the current problems.

26 comments on “The Nobel Prize for the Efficient Markets Hypothesis

  1. In an efficient market would the counterfeit Nobel be worth as much as a real Nobel? Come to that, would the silly real Nobels (Literature and Peace) be worth tuppence ha’penny?

  2. The story I heard was that Fama was due for the Nobel back in 2008, but it was felt that it might be slightly embarrassing to give it to him as the crisis broke. He has thus been on the bookies list of favourites ever since.

  3. “In an efficient market would the counterfeit Nobel be worth as much as a real Nobel? ”

    yes. The value would reflect fundamentals, that they are both prizes awarded by the Swedish Academy of Sciences and nobody gives a rats arse about who established the prizes back in the mists of time.

    Tim I think Shiller is rather more left friendly than you think. My take was that his presence here amounts to saying Fama started ball rolling but Shiller has since shown where he was wrong.

  4. here is Shiller for instance

    RS: The crisis is the result of different factors. Worst of all was the widespread perception in the U.S. that housing prices could not fall. So there was no reason to worry about a speculative bubble, and the authorities and central banks did little. This is something that we can fix, and to some extent, have already done.

    Tim adds: No, not really. Shiller wrote a whole book on the point that the housing bubble was about a lack of speculation (specifically, a method of going short). Thus his proposed solution was to have options and or futures in house prices: to have more speculative opportunities.

  5. I have the feeling that if you go deep enough,the fault will always lie with the state and their shitty policy.

  6. Luis – the peace prize recipient is selected by the Norwegian Nobel prize committee, and presented in Oslo.

  7. “blow for lefties”

    Seeing what you want perhaps. Isn’t Shiller the one who says markets aren’t that efficient ? *Irrational* exuberance, and that was stocks, which you can short.

    Sounds like more Scandi humour, like making you and Murph joint blogger of the year, Kissinger/Obama peace prize etc.

  8. If there had been a futures market in housing, the ability to sell short, then the bubble would never have grown so big.

    and several other benefits besides. Enron was working on it just before it went under

    I shall be posting on this later in the week

  9. MyBurningEars, Ken French was never seen as a likely winner according to the bookies. His contribution was seen as lesser.

    Luis is right, Shiller’s views – on, say, behavioural finance – are very lefty friendly. But, Tim is correct in pointing out that Shiller believes in more markets.

  10. Ken – thanks. I thought that it may have made sense for French to be co-awarded with Fama, so it looks like his chance has gone.

    Which bookies do you check the odds at btw?

  11. Doesn’t Chris (stumbling, mumbling) Dillow quite often remind tim that lefties are allowed to believe in markets too, even if many of his brethren don’t?

  12. thinking more complete markets might have prevented housing bubble really is not the same thing as claiming finance was not to blame for the crisis.

  13. “Doesn’t Chris (stumbling, mumbling) Dillow quite often remind tim that lefties are allowed to believe in markets too, even if many of his brethren don’t?”

    Yes. He and others (including Tim) also point out that plenty of right-wingers don’t believe in markets.

    In fact I’d say the correlation between right-wingness and marketry is pretty damn weak, thought probably positive I’d grant. (That’s unless you simply define your terms to make it equal to 1, which I seem to recall Tim has been known to do.)

  14. MBE, paddypower had a market up, usually oddschecker (IIRC) has a listing of places allowing you to bet. If you go onto econ job rumors they usually have odds (and rumours) as well.

    TBF the bookies have been wrong – a few years ago you could get 75-1 on Elinor Ostrom in 2009. There are probably others that came as a surprise.

  15. It really is a big fuck you all to all those complaining that finance caused the current problems.

    Who did cause it then?

  16. But can Nobel laureate economists who advocate a derivatives market in property establish a derivatives market in property (and make a fortune)?

  17. Wasn’t effectively sourcing CDS insurance how John Paulson made $2Bn off the housing price crash.

    Was the issue was that his “effective short” wasn’t visible as market information?

  18. “nobody gives a rats arse”: on the contrary, the fact that they routinely lie about it means that they do give a rat’s arse.

  19. Paulson shorted subprime bonds. Which is not quite the same thing as it is one step removed from the market. My point is that the prices of many subprime bonds recovered to par once the panic during 2008 abated. The market overreacted on the downside since many of these securities were actually very safe (senior tranches etc..). The ability to short a housing index would be the best way to do what Shiller wants.

  20. ken – “The story I heard was that Fama was due for the Nobel back in 2008, but it was felt that it might be slightly embarrassing to give it to him as the crisis broke. He has thus been on the bookies list of favourites ever since.”

    Surely he could not have been the bookies’ favourite. Because if we assume an efficient market, he would have already won.

  21. Tim, normally I’d be cheering you on and of course you have a point. I would just add that in recent years, my impression is that the Nobel Prize has been cheapened a bit by the political antics and literary thuggery of Paul Krugman, who has cheapened the award by his behaviour and general bullying of anyone who disagrees with him.

    In the end, these prizes are not what they are cracked up to be and my take on that is about the same as that of the late Richard Feynman, who pulled a face when he heard he’d received one for science.

  22. Tim: So if the financiers had done something they didn’t do – trade a liquid house-price index – they would have blown up less badly. And that proves that they are not to blame for blowing themselves up?

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