Chicago Booth Magazine A Fireside Chat with Eugene F. Fama and David Booth

Eugene F. Fama arrived at the then–Graduate School of Business by pure “serendipity,” as he puts it. A college senior on the cusp of graduation, the man who would go on to become the father of the efficient-market hypothesis discovered his application to Chicago’s PhD Program had never been received. Thankfully for the school—and for the history of finance—it was quickly rectified, and he’s been here ever since.

That includes a special day in 2013, when he still showed up to teach on the morning he won the Nobel Prize in Economic Sciences. “I had never missed a class in all the years I’d been teaching,” said Fama, MBA ’63, PhD ’64, and the Robert R. McCormick Distinguished Service Professor of Finance. “I wasn’t going to start now.”

He first crossed paths with David Booth, ’71, in the classroom, and Fama called him his “best student” at the time. It was Booth who took his mentor’s ideas—that stock prices reflect all relevant information, so beating the market consistently is nearly impossible—and applied them in the real world.

In 1981 Booth and another alumnus, Rex Sinquefield, ’72, founded Dimensional Fund Advisors, which now manages $579 billion, mainly for institutions and individuals who invest through financial advisers. After he and Sinquefield started Dimensional, they put Fama on its management board and faculty members Merton Miller and Myron Scholes, MBA ’64, PhD ’69, on its mutual fund board, and all three men would go on to win Nobel Prizes. In 2008 David Booth gave a gift to the school valued at the time at $300 million, and the Graduate School of Business was renamed after him. “I wouldn’t have been anywhere without Chicago,” said Booth.

In a recent conversation at Harper Center, moderated by Bloomberg Opinion columnist Barry Ritholtz, Fama and Booth recounted to today’s Booth students how it all began. An edited version follows.

Ritholtz: Eugene, you were in your senior year at Tufts. You had applied here but you never heard back from the school.

Fama: Right. I called and the dean of students, Jeff Metcalf, AM ’53, answered the phone. We chatted for a while and he said, “Well, hate to tell you, but we don’t have any record of your application. What kind of grades do you have at Tufts?” And I said, “Pretty much all As.”

He said, “Well, we have a scholarship for someone from Tufts. Do you want it?” And that’s how I ended up at the University of Chicago.

Ritholtz: You came here as a student. You were finishing your work. Eventually Merton Miller said to you, “Hey, do you want to stick around and keep doing the sort of research you’re doing?” Is that how you became a professor here?

Fama: Yes, when I came here to Chicago, research on asset prices had begun to get going in a really serious way. People were interested in the question of how well stock prices adjusted to new information. I would say it started because of computers. Before 1960 we really didn’t have a serious computer to do data analysis on.

And with the coming of computers, economists had a new toy to play with, and stock prices were easily available. Immediately the economists said, “Well, how would we expect prices to behave if markets work properly?” In other words, if markets are efficient.