Economist Eugene Fama: ‘Efficient markets is a hypothesis. It’s not reality’
Snagging a lunch date with the financial economist Eugene Fama proved almost as hard as beating the stock market. My first attempt in 2021 foundered because of long-lasting Covid-19 lockdowns. A suggestion that we instead do it by video was forcefully shot down. “On Zoom, watching people eat and talk comes across as gross,” Fama emails. It’s hard to disagree.
Another try is scuppered by the University of Chicago professor spending winters on the West Coast. We finally find a time to eat in Chicago, but when I ask for some possible venues we hit another snag. In his terse email style Fama informs me that“I never eat lunch out”. As a compromise, I turn up at his office at the University of Chicago with two brown paper bags containing a dubious selection of sandwiches, wraps, salads, sushi and soft drinks acquired from a downstairs bodega.
Thankfully, the 85-year old Fama is no fussy eater, and happily grabs a chicken Caesar wrap. Feeling brave, I take the 12-pack of indeterminate sushi. It’s an underwhelming meal, but very efficient, which feels appropriate given what I want to talk about.
Fama is arguably the world’s most famous and influential finance professor, thanks to his revolutionary efficient market hypothesis — that stock market prices at anytime incorporate all available information, thanks to the cumulative and unending efforts of millions of investors constantly trying to outfox it. The paradox is that as a result of their efforts, the stock market is in practice almost impossible to beat.
