By Karl Ritter
The Associated Press
STOCKHOLM -- Three American professors won the Nobel prize for economics Monday for shedding light on how stock, bond and house prices move over time -- work that's changed how people around the world invest.
Two of the winners -- Eugene Fama, 74, and Lars Peter Hansen, 60 -- teach at the University of Chicago. The third, Robert Shiller, 67, is a professor at Yale University and is well-known as a creator of the well-known Case-Shiller index of home prices.
The three economists were honored for separate research that collectively expanded the understanding of asset prices.
Beginning in the 1960s, Fama showed that prices change so quickly and efficiently to reflect new information that investors can't outperform markets in the short term. This was a breakthrough that helped popularize index funds, which invest in broad market categories instead of trying to pick individual winners.
Two decades later, Shiller reached a separate conclusion: That over the long run, markets can often be irrational, subject to booms and busts and the whims of human behavior. The Royal Swedish Academy of Sciences noted that the two men's findings "might seem both surprising and contradictory."
Hansen developed a statistical method to test theories of asset pricing.
The three economists shared the $1.2 million prize, the last of this year's Nobel awards to be announced.
"Their methods have shaped subsequent research in the field and their findings have been highly influential both academically and practically," the academy said.
Monday morning, Hansen said he received a phone call from Sweden while on his way to the gym. He said he wasn't sure how he'll celebrate but said he was "still working on taking a deep breath."
Shiller, famous for having warned against the bubbles in technology stocks and housing that burst over the past two decades, said he responded with disbelief when he received a phone call about the Nobel.