Two Pillars of Asset Pricing

  title={Two Pillars of Asset Pricing},
  author={Eugene F. Fama},
  journal={The American Economic Review},
  • E. Fama
  • Published 8 December 2013
  • Physics
  • The American Economic Review
Eugene F. Fama delivered his Prize Lecture on 8 December 2013 at Aula Magna, Stockholm University. 

Figures from this paper

Speculative Asset Prices (Nobel Prize Lecture)
Nobel Prize Lecture, December 2013.
What Is the Alternative Hypothesis to Market Efficiency?
1. Bradford Cornell 1. is a professor of financial economics at the California Institute of Technology in Pasadena, CA. (bcornell{at} 1. To order reprints of this article, please
House price developments in Sweden : The role of fundamentals
House prices in Sweden have been increasing at an unprecedented pace since the mid-1990s. In this study, I examine the main causes behind this increase. Specifically, if the increase in house price
Impact of Asset Allocation on Insurance Companies’ Performance : A study of the European Economic Area
Insurance companies offer business and individuals the possibility to reduce the financial impact of a risk occurring by transferring it away from themselves onto someone. For taking on risk on beh
Asset Pricing in the Quest for the New El Dorado
Creative destruction not only involves bringing new technology to market, it imposes higher risk on the future of existing assets. We characterize the asset pricing implications of creative
Bubbles for Fama
The Financial Performance of Socially Responsible Investments: Insights from the Intertemporal CAPM
This study formulates a two-factor empirical model under the intertemporal CAPM framework to evaluate the cross-sectional implications of socially responsible investments in the US equity market. Our
Rational Bubbles and Economic Crises: A Quantitative Analysis
We extend the Bewley-Aiyagari-Huggett model by incorporating an incomplete stock market and a persistent income process. In this quantitative general equilibrium framework, non-fundamental asset
Complexity of Option Pricing
This paper discusses internal complexity of assets and option pricing. We review the Black-Scholes-Merton equation within economic space point of view. We argue reasons for economic space definition
Fama on bubbles Tom Engsted
Eugene Fama has repeatedly expressed his discontent with the notion of an ’irrational bubble’. However, he has never publicly expressed his opinion on ’rational bubbles’. This is peculiar since such


The Leverage Cycle
Equilibrium determines leverage, not just interest rates. Variations in leverage cause fluctuations in asset prices. This leverage cycle can be damaging to the economy, and should be regulated.
Speculative Investor Behavior in a Stock Market with Heterogeneous Expectations
I. Introduction, 323.—II. Formulation, 325.—III. An example, 326.—IV. Consistent price schemes, 328.—V. Back to the example, 332.—VI. Relaxing the assumptions, 333.—VII. Concluding remarks, 334.
Leverage Cycles and the Anxious Economy
We provide a pricing theory for emerging asset classes, like emerging markets, that are not yet mature enough to be attractive to the general public. We show how leverage cycles can cause contagion,
The recent economic crisis highlights the role of financial markets in allowing economic agents, including prominent banks, to speculate on the future returns of different financial assets, such as
Efficient Capital Markets: II
SEQUELS ARE RARELY AS good as the originals, so I approach this review of the market efficiency literature with trepidation. The task is thornier than it was 20 years ago, when work on efficiency was
Speculative Investor Behavior and Learning
As traders learn about the true distribution of some asset's dividends, a speculative premium occurs as each trader anticipates the possibility of reselling the asset to another trader before
(1979). Inflation, Rational Valuation and the Market. Financial Analysts Journal: Vol. 35, No. 2, pp. 24-44.
The Random Character of Stock Market Prices.
This work is known to a generation of financial economists having marked the beginnings of the field known as financial econometrics. This edition sets out to show that the text, first written in
Noise Trader Risk in Financial Markets
We present a simple overlapping generations model of an asset market in which irrational noise traders with erroneous stochastic beliefs both affect prices and earn higher expected returns. The