Eugene Fama of the University of Chicago is one of three economists just awarded the Nobel Prize in Economics. Fama is best known for his formulation of the “efficient market hypothesis,” or EMH. For investors, the main practical implication of the EMH is the superiority of “passive management” (which means matching market returns) rather than “active management” (meaning the pursuit of excess returns). Therefore, the best way to participate in financial markets is to capture the returns of various asset classes at the lowest possible cost. Professor Fama’s groundbreaking work on asset pricing and markets inspired the founding of Dimensional Fund Advisors (DFA). Dimensional fund shares are not available directly to individuals but are limited to clients of a select group of fee-only financial advisory firms. The relationship between Dimensional and the independent advisor is based on shared views about how capital markets work and how best to provide clients with a successful investment experience.
We at Rockbridge would like to offer our congratulations to Professor Fama.