A Nobel for Financial Econometrics

First it was Engle and Granger (2003); now it's Fama, Hansen and Shiller.

A central issue in the economics of financial markets is whether and how those markets process information efficiently, to arrive at fair prices. Inextricably linked to that central issue is a central tension: certain lines of argument suggest that financial markets should be highly efficient, yet other lines of argument suggest limits to market efficiency. Gene Fama, Lars Hansen and Bob Shiller have individually and collectively made landmark contributions that now shape both academic and practitioner thinking as regards that tension. In so doing they've built much of the foundations of modern financial economics and financial econometrics. Fama empirically championed the efficient markets hypothesis, which in many respects represents the pinnacle of neoclassical financial economics. Shiller countered with additional empirical evidence that seemingly indicated the failure of market efficiency, setting the stage for several decades of subsequent work. Throughout, Hansen supplied both powerful economic theory that brought asset pricing in closer touch with macroeconomics, and powerful econometric theory (GMM) that proved invaluable for empirical asset pricing, where moment conditions are often available but likelihoods are not.

If today we celebrate, then tomorrow we return to work -- obviously there's more to be done. But for today, a resounding bravo to the three deserving winners!