Economic Nobel Prizes: an empirical tour of asset markets with professors Bertola and Garcia

Written on 21 February 2014.


To speak about the topic, the association invited professors Giuseppe Bertola and Rene Garcia. Professor Garcia started the conference by introducing the three laureates and their work. Fama is best known as the father of the efficient market hypothesis.

In recent years his research focused on extending the CAPM, which resulted in the Fama-French three-factor model. Professor Garcia then went on talking about Shiller, who in his work challenges the efficient market hypothesis and argues that the volatility in the stock market is greater than could plausibly be explained by any rational view of the future. Garcia concluded by presenting the third laureate, Lars Peter Hansen, an econometrician. He provided the methodology to test different hypothesis and is best known as the developer of the generalised method of moments.

Professor Bertola then focused on the differences and similarities in the work of the Nobel laureates. He pointed out the contradiction between the theories of Fama and Shiller, the first claiming that markets are efficient, while the latter stipulates that decisions are often irrational and driven by emotions. As for the similarities he pointed out that they all focused on prices and determining the fair value of an asset. Furthermore, he argued that, although the models might not produce a perfect fit, they are an attempt to explain returns and prices in the financial markets.

A Q&A session followed with the audience asking numerous questions such as the influence of the laureates’ work on the EDHEC’s curriculum.


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