Eugene Fama, Lars Peter Hansen, and Robert Shiller
Citation: For their empirical analysis of asset prices.
The key idea
Fama: efficient markets — prices reflect all available information; predicting short-term returns is essentially impossible. Shiller: prices are too volatile to be explained by fundamentals alone; behavioural and bubble-prone. Hansen: GMM — the workhorse estimator for testing asset-pricing models.
The explanation
Fama's 1970 efficient-markets formulation classified market efficiency into weak/semi-strong/strong forms. Shiller's volatility-bounds test (1981) found stock prices fluctuate too much to be justified by dividends — opening behavioural finance. Hansen's Generalised Method of Moments (1982) provided the econometric framework to test asset-pricing restrictions without specifying full distributions.
Why Africa should care
EMH in African markets is a partial story: NSE, JSE, NGX have efficient elements but documented mispricings around earnings announcements and limited analyst coverage. Shiller's CAPE ratio applied to African indices typically reads expensive relative to global, reflecting demographic and growth premia. Hansen GMM is the standard estimator behind every academic test of African asset-pricing.
How to use it
Before betting on short-term price moves in an African listed equity, ask why this opportunity exists — what information are you using that the market hasn't priced? If you can't answer, EMH is winning.
Canonical works
- Eugene F. Fama (1970) "Efficient Capital Markets: A Review of Theory and Empirical Work" Journal of Finance
- Robert J. Shiller (1981) "Do Stock Prices Move Too Much to Be Justified by Subsequent Changes in Dividends?" American Economic Review
- Lars Peter Hansen (1982) "Large Sample Properties of Generalized Method of Moments Estimators" Econometrica
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