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Eugene Fama quotes
If assets are priced rationally, variables that are related to average returns, such as size and book-to-market equity, must proxy for sensitivity to common (shared and thus undiversifiable) risk factors in returns. The time-series regressions give direct evidence on this issue. In particular, the slopes and R2 values show whether mimicking portfolios for risk factors related to size and [book-to-market] capture shared variation in stock and bond returns not explained by other factors.
Eugene Fama
Economies typically do not function well in hyperinflation. The real value of government debt might disappear, but the economy is likely to disappear with it.
Eugene Fama
Debates go on to this day about what caused the Great Depression. Economics is not very good at explaining swings in economic activity.
Eugene Fama
Although size and book to market equity seem like ad hoc variables for explaining average stock returns, we have reason to expect that they proxy for common risk factors in returns.
Eugene Fama
Firms that have a high BE/ME (a low stock price relative to book value) tend to have low earnings on assets. Conversely, low BE/ME (a high stock price relative to book value) is associated with persistently high earnings.
Eugene Fama
The question is when is good? The answer is never.
Eugene Fama
The empirical successes of [the three-factor model] suggest that it is an equilibrium pricing model, a three-factor version of Merton's (1973) intertemporal CAPM (ICAPM) or Ross's (1976) arbitrage pricing theory (APT). In this view, SMB and HML mimic combinations of two underlying risk factors or state variables of special hedging concern to investors.
Eugene Fama
Tastes and behavior are important in economics. Nobody denies that. But the question is: How much of behavior is irrational, and how much of the irrational behavior really affects prices? It turns out that's very difficult to answer.
Eugene Fama
People are always saying that prices are too high. When they turn out to be right, we anoint them. When they turn out to be wrong, we ignore them. They are typically right and wrong about half the time.
Eugene Fama
People don't walk away from their homes unless they can't make the payments. That's an indication that we are in a recession.
Eugene Fama
The investors who generate big returns over five years, the guys they write books about, are supposed to keep winning, right? Well, they don't.
Eugene Fama
If active managers win, it has to be at the expense of other active managers. And when you add them all up, the returns of active managers have to be literally zero, before costs. Then after costs, it's a big negative sign.
Eugene Fama
I'd compare stock pickers to astrologers but I don't want to bad mouth astrologers.
Eugene Fama
I take the market-efficiency hypothesis to be the simple statement that security prices fully reflect all available information.
Eugene Fama
The efficient market theory is one of the better models in the sense that it can be taken as true for every purpose I can think of. For investment purposes, there are very few investors that shouldn't behave as if markets are totally efficient.
Eugene Fama
After costs, only the top 3% of managers produce a return that indicates they have sufficient skill to just cover their costs, which means that going forward, and despite extraordinary past returns, even the top performers are expected to be only as good as a low-cost passive index fund. The other 97% can be expected to do worse.
Eugene Fama
An investor doesn't have a prayer of picking a manager that can deliver true alpha.
Eugene Fama
State constitutions typically provide that the state first has to service its debt, then make it pension payments, and then pay for services. What we don't know is whether that order will be enforced. And ultimately, the busted state is going to be looking to the federal government for a bailout. Think Greece, but on a much bigger scale.
Eugene Fama
I'm an extreme libertarian, but I realize we're in a democracy, and in a democracy, people can have views of all stripes, and there's no reason to argue about it.
Eugene Fama
All the central banks are doing is substituting one form of debt with another form of debt. They're issuing short term debt and using it to buy long term debt. In finance, we tend to think that's a neutral activity, even though those stimulus programs are huge.
Eugene Fama
Everybody wants the world to be a better place, and some think that government actions can bring that about. But they don't take into consideration that government actions can often do more harm than good.
Eugene Fama