The Royal Swedish Academy of Sciences said that through their separate research, the three had laid the foundation of the current understanding of asset prices and changed the way people invest.
While it’s hard to predict whether stock or bond prices will go up or down in the short term, it’s possible to foresee movements over periods of three years or longer, the academy said.
“These findings, which might seem surprising and contradictory, were made and analyzed by this year’s laureates,” the academy said.
Shiller, an economist famous for having warned against bubbles in technology stocks and housing, said he reacted with disbelief when he got the call from the academy early Monday.
“People told me they thought I might win. I discounted it. Probably hundreds have been told that,” he said to The Associated Press.
He said he believes finance is a structure for society, which if regulated properly is “at the core of our civilization.”
“It seems to some people it’s selfish and money-grubbing. It doesn’t really have to be that way. The financial crisis we’ve been through is traumatic, but we’re learning from it,” Shiller said.
For example, he said many students from other countries are able to study in the United States because of financial aid made possible by financial investments. He also said the Consumer Financial Protection Bureau established as a result of the recession is holding finance to higher standards.
Starting in the 1960s, Fama and others showed how difficult it is to predict individual stock prices in the short run. His findings revolutionized the practice of investing, leading to the emergence of index funds.
“These are three very different kinds of people and the thing that unites them all is asset pricing,” says David Warsh, who tracks academic economists on his Economic Principals blog.
American researchers have dominated the economics awards in recent years; the last time there was no American among the winners was in 1999.