Eugene F. Fama: Quantification of His Research Impact

Transcription

1 Eugene F. Fama: Quantification of His Research Impact Since Gene Fama is undoubtedly the preeminent empiricist in the history of finance, it seems only natural to analyze the quantitative measures of his research influence in trying to summarize his prodigious career. My goal in this talk is to highlight some well known facts about Gene and his work, as well as produce some less well known facts that give important insights into his character as a scholar. If this was a research seminar, and Gene was the speaker, he would next proceed to display the first table or figure in his paper and immediately begin the process of convincing his audience that you were going to learn something new and important. Tonight is not a seminar, and I do not have the time to thoroughly immerse you in the facts as Gene would. Nevertheless, I will try to hit some highlights that give a broad overview of Gene s contribution to financial economics. By my count, Gene has over 100 published papers and books that have been cited by other authors in their own work. These papers have been cited more than 30,000 times in published articles as shown in the Social Science Citation Index, and more than 140,000 times as shown in Google Scholar, which also covers citations from unpublished papers and other sources accessible on the internet. Many of his most cited papers are in the area of asset pricing that the Nobel Committee recognized with their prize. His 1965 Journal of Business paper on The Behavior of Stock Market Prices and his 1970 Journal of Finance paper Efficient Capital Markets both emanated from his dissertation research. Later, his 1973 Journal of Political Economy paper

2 with Jim MacBeth was one of the first tests of the capital asset pricing model. It also invented the use of portfolios to measure asset returns in asset pricing tests, and the now widely-used Fama-MacBeth method of assessing statistical reliability in asset pricing tests. His 1992 Journal of Finance paper 'The Cross-Section of Expected Stock Returns, and his 1993 Journal of Financial Economics paper Common Risk Factors in the Returns on Stocks and Bonds, both with Ken French, created the now ubiquitous Fama-French 3-factor model. This new approach to empirical asset pricing has dominated both academic and professional finance in the last two decades. The papers in this part of Gene s research portfolio represent about half of his output and about two-thirds of his citations. Each of the papers mentioned above have been cited more than 1,300 times in the SSCI and more than 6,500 times in Google Scholar, which is rarified air for academic papers! Perhaps more importantly for society at large, Gene s asset pricing research has had immense influence on the practice of financial management. The firm Dimensional Fund Advisors, which was started in 1981 by two of Gene s students, David Booth and Rex Sinquefield, has designed its menu of products and services around the Fama-French asset pricing research. As of September 2013, DFA had over $315 billion assets under management. Gene has been an active part of DFA s success as a Director and consultant. Needless to say, the success of DFA has been very beneficial for the University of Chicago as reflected in the naming of the Booth School of Business in Other Fama Ph.D. students, Cliff Asness and John Liew, co-founded AQR Capital Management in Today AQR has over $90 billion in assets under management. Gene has also done substantial work in other areas of economics and finance. For example, his work on corporate control has received almost 5,000 citations in the SSCI (almost

3 25,000 in Google Scholar). The two most prominent papers in this area are his 1980 Journal of Political Economy paper Agency Problems and the Theory of the Firm, and his 1983 Journal of Law and Economics paper 'Separation of Ownership and Control, with Michael Jensen. He also has major papers on banking, dividend policy and capital structure, as well as on the behavior of interest rates, exchange rates, and futures prices. For most academics, the papers Gene has written in any one of these other fields would represent an incredibly successful career! Perhaps the most refreshing thing I can say about Gene s choice of research topics throughout his life is that it has reflected questions that really interested him, at least at the time. That approach is a good one for all of us to aspire to. Another measure of Gene s influence on finance and economics is the enormously successful set of Ph.D. students he has supervised. With some help from John Cochrane and the Booth Ph.D. office, I have assembled a list of 102 graduates of the Booth School and the Economics Department who had the benefit of Gene s guidance since My name is on that list, and I can attest to the wonderful role model that Gene has provided for me throughout my career. Among the notable scholars Gene has guided are Michael Jensen, Myron Scholes, Campbell Harvey, Richard Roll, Ross Watts, Ray Ball, William Beaver, Brad Barber, Robert Stambaugh, and many more. Together, these 102 Ph.D graduates papers and books have been cited more than 500,000 times in Google Scholar! Having benefited from Gene s guidance, I have tried to follow in his footsteps and train Ph.D. students to have a keen interest in the interplay between theory and evidence. I am proud to say that I feel like I have slightly repaid my debt to Gene when I recommended one of my

4 students, Ken French, to him in Their subsequent collaboration has certainly been great for both of them. As a long-time journal editor, I have had the opportunity to interact with Gene as an author and as a referee for about 35 years. He has been a role model. In fact, Rene Stulz created a very useful Tips for Authors list on the Journal of Finance web site that migrated to the Journal of Financial Economics web site when Rene finished his terms as JF editor. I know for a fact that several of the examples that Rene cites of how authors should write papers and react to referees reports are based directly on Gene s behavior. Something that I am in a somewhat unique position to comment on is Gene s behavior as a referee of others papers. Gene has been the longest continuously active editor at the JFE, having been a co-editor when it was first published in Frankly, most people who achieve much more modest success in our profession often find it too taxing to continue to serve as a referee, reading, thinking about, and offering constructive criticism to authors who are hoping to get their papers published in an academic journal. Gene, in contrast, has always found time to contribute his time and thoughts to his professional colleagues, usually without any direct means of receiving recognition for his efforts since referee reports are anonymous to the author. Since 1994, Gene has averaged more than four referee reports per year for the JFE, which is higher than the average workload for the rest of the editorial board, and his average turnaround time has been a little more than 10 days, compared with about 32 days for the rest of the editorial board. In short, Gene continues to make the rest of us look like slackers, even when the only one who can actually see his behavior in detail is the editor.

5 So what does all of this tell us about Gene? He is a true scholar. He enjoys his work and he does a lot of it. He views the scientific endeavor as a struggle to better understand the world we live in, and he believes that what he learns, and shares with us, has important applications outside of academia. I am so pleased that the Nobel committee has recognized Gene and his work for its important contribution to economics and finance.