Finance is the study and discipline of money, currency and capital assets. It is related to and distinct from Economics which is the study of production, distribution, and consumption of goods and services. The discipline of Financial Economics bridges the two fields. Based on the scope of financial activities in financial systems, the discipline can be divided into personal, corporate, and public finance.
The early history of finance
The early history of finance parallels the early history of money, which is prehistoric. Ancient and medieval civilizations incorporated basic functions of finance, such as banking, trading and accounting, into their economies. In the late 19th century, the global financial system was formed. In the middle of the 20th century, finance emerged as a distinct academic discipline, separate from economics.
The father of modern finance
Eugene F. Fama, 2013 Nobel laureate in economic sciences, is widely recognized as the "father of modern finance." His research is well known in both the academic and investment communities. He is strongly identified with research on markets, particularly the efficient markets hypothesis. He focuses much of his research on the relation between risk and expected return and its implications for portfolio management. His work has transformed the way finance is viewed and conducted.
Early life and education
Fama was born in Boston, Massachusetts, in 1939, to a working-class family of Italian immigrants. He was the first in his lineage to go to university. He attended Tufts University, where he intended to become a high school teacher and sports coach.
He married his high school sweetheart, Sallyann Dimeco, in 1958. He later switched his major to economics and graduated in 1960. He then pursued his graduate studies at the University of Chicago, where he earned his MBA in 1963 and his Ph.D. in 1964.
Academic career and research
Fama has spent his entire academic career at the University of Chicago Booth School of Business, where he is currently the Robert R. McCormick Distinguished Service Professor of Finance. He has published numerous influential papers and books on various topics in finance, such as portfolio theory, capital asset pricing model, market efficiency, dividend policy, agency theory, and behavioral finance.
One of his most notable contributions is the development of the efficient-market hypothesis, which states that asset prices fully reflect all available information and that investors cannot consistently beat the market.
He also pioneered the use of empirical methods to test the validity of financial theories and models, using large data sets and sophisticated statistical techniques. He has also mentored many prominent scholars and practitioners in the field of finance, such as Kenneth French, John Cochrane, and Cliff Asness.
Awards and honors
Fama has received many awards and honors for his outstanding achievements in finance. He is a fellow of the American Academy of Arts and Sciences, the American Finance Association, and the Econometric Society.
He has also served as the president of the American Finance Association and the director of the Center for Research in Security Prices. He has received honorary doctorates from several universities, such as Tufts University, the University of Rochester, and the University of Basel.
His most prestigious award is the Nobel Prize in Economic Sciences, which he shared with Lars P. Hansen and Robert J. Shiller in 2013. The Nobel committee cited their work on "empirical analysis of asset prices," which has enhanced our understanding of how financial markets operate and how investors make decisions.
Other influential figures in finance
Finance is a broad and diverse field that has many subfields and applications. Some of the other influential figures in finance include:
- Klaus Schwab, the founder and executive chairman of the World Economic Forum, who has been a leading voice on global issues such as the Fourth Industrial Revolution, stakeholder capitalism, and the Great Reset.
- Tony Elumelu, the chairman of Heirs Holdings, the United Bank for Africa, and Transcorp, who is a pioneer of the concept of Africapitalism, which advocates for the private sector's role in driving Africa's economic and social development.