Morgan Stanley

THE JOURNAL OF FINANCE•VOL.LXIII,NO.1•FEBRUARY2008Eugene F.FamaMorgan Stanley—American Finance Association Awardfor Excellence in Finance2008vi The Journal of FinanceEugene F.FamaThe selection committee has chosen Eugene F.Fama,the Robert McCormick Distinguished Service Professor of Finance at the University of Chicago,as the inaugural recipient of the Morgan Stanley—American Finance Association Award for Excellence in Finance.Eugene Fama’s first publication,“The Behavior of Stock-Market Prices,”was also his Ph.D.dissertation at the University of Chicago.It appeared in the Journal of Business in January1965and studied the predictability of price changes.His most recent working paper,as of this writing,is“Dissecting Anomalies,”written with his frequent and long-time coauthor,Kenneth French. It studies the abnormal returns,measured relative to the Fama–French three-factor model,attributable to firm characteristics such as accruals,net stock issues,asset growth,and profitability.In the years separating these two papers,a great deal has happened in the field Eugene Fama helped to create,and throughout that time his contributions have been instrumental in shaping that evolution.In well over100published papers and two important books,Professor Fama has contributed to almost every subfield of finance.The empirical methods he has developed have be-come the starting points for every academic researcher,and many practition-ers,working to bring coherence to financial data,and the substantive empirical findings in his papers have triggered tens of thousands of subsequent papers attempting to extend,qualify,or refute them.Indeed,in studies of citation counts,his name invariably heads the list,and by most metrics he is separated from the field by a large margin.In addition,his many doctoral students and junior coauthors have,in their turns,gone on to become intellectual leaders of our field.Professor Fama’s past(and continuing)contributions to research in finance exemplify the criteria set forth for the Award:Their impact has been “fundamental,sustained,and broad.”While over40years separate the two papers mentioned above,both illus-trate admirably the central characteristics of Professor Fama’s scholarship. His work shows a relentless determination to extract interesting facts from fi-nancial data,an ability to summarize those facts in the most provocative,fresh, and informative ways,and a willingness to take radical positions.He supports his positions with careful,logical economic reasoning,expressed in disciplined and efficient prose.He also shows an opportunistic ability to find,adapt,or develop statistical methods and theoretical arguments that solve the problems encountered along the way.These methods,in turn,have been widely adopted by other scholars because his original work illustrates their utility so clearly. Professor Fama’s earliest papers developed what came to be called the Effi-cient Markets Hypothesis(EMH).His dissertation characterized the distri-bution of stock price changes,tested for serial dependence in returns,and anticipated subsequent work on mutual fund performance.Fama,Fisher, Jensen,and Roll(1969)pioneered the methodology we know as the“eventAmerican Finance Association Award vii study,”which has become an essential empirical tool for researchers in cor-poration finance and accounting.Professor Fama’s review paper on the EMH, published in the Journal of Finance in1970,was a critical turning point in the history of the field.It brought together the study of market efficiency with the insights about risk and return gained through the two-parameter equilib-rium model of asset prices.The paper made clear the dependence of tests for market efficiency on the assumed model for the determination of equilibrium returns.It also taxonomized tests for market efficiency into weak,semi-strong, and strong forms based on the type of information involved.In the early1970s Professor Fama took on the task of testing the new equi-librium theories of risk and return.Of the several competing methodologies ex-plored during this period,the“Fama–MacBeth regression”method(1973)sur-vives as the standard technique researchers employ to test the cross-sectional restrictions imposed by asset pricing models.In the late1970s and1980s,Professor Fama turned his attention to other se-curities markets,producing fundamental empirical findings on the term struc-ture,interest rates,inflation,and the forward premia in foreign exchange mar-kets.These results have become central concerns for macro and international, as well as financial,economists.Economists generally produce their most important work early in their ca-reers.Remarkably,Professor Fama’s most cited papers were written in the early 1990s,25years after his Ph.D.His papers with long-time coauthor Kenneth French on the rewards earned by holding value and small stocks have proved both methodologically and substantively central to the evolution of research on asset pricing.The“Fama–French factor model”(1992,1993)has become a workhorse and benchmark in a wide range of empirical applications.Explain-ing the value and size of the premia,as characterized in these papers,is a central challenge asset pricing models attempt to meet.In the current decade,Professor Fama has continued to add fundamental insights to perhaps the most central question in asset pricing:Which stocks have high average returns and why?His recent papers with Professor French in this area explore such questions as whether the determinants of expected returns are consistent with simple present value relations and clean surplus accounting,1and which of them are pervasive across size categories,as opposed to limited to micro-cap stocks that would be particularly difficult to trade.2 Fama and French have also turned to some of the central concerns of corporate finance,producing influential papers documenting the downward trends in dividend payments3and,more recently,arguing that equity issuance through non-SEO methods is pervasive,suggesting that adverse selection is unlikely to explain the configuration of capital structures,even if it is important to choosing the method of issuance.41See Fama and French(2006).2See Fama and French(2007).3See Fama and French(2001).4See Fama and French(2005).viii The Journal of FinanceThe selection committee,the American Finance Association,and Morgan Stanley join in congratulating Eugene Fama on a career full of remarkable achievements.His research contributions have had a major impact on the the-ory,empirics,and practice of modern finance,and that impact will be enduring.REFERENCESFama,Eugene F.,1965,The behavior of stock-market prices,Journal of Business38,34–105. Fama,Eugene F.,1970,Efficient capital markets—Review of theory and empirical work,Journal of Finance25,383–423.Fama,Eugene F.,Lawrence Fisher,Michael Jensen,and Richard Roll,1969,The adjustment of stock prices to new information,International Economic Review10,1–21.Fama,Eugene F.,and Kenneth R.French,1992,The cross-section of expected stock returns,Journal of Finance47,427–465.Fama,Eugene F.,and Kenneth R.French,1993,Common risk factors in the returns on bonds and stocks,Journal of Financial Economics33,3–56.Fama,Eugene F.,and Kenneth R.French,2001,Disappearing dividends,Journal of Financial Economics60,3–43.Fama,Eugene F.,and Kenneth R.French,2005,Financing decisions:Who issues stock?Journal of Financial Economics76,549–582.Fama,Eugene F.,and Kenneth R.French,2006,Profitability,investment,and average returns, Journal of Financial Economics82,491–518.Fama,Eugene F.,and Kenneth R.French,2007,Dissecting anomalies,CRSP working paper,Uni-versity of Chicago.Fama,Eugene F.,and James MacBeth,1973,Risk,return,and equilibrium:Empirical tests,Jour-nal of Political Economy81,607–636.。