The work that earned Eugene Fama the Nobel Prize in economics provided the intellectual foundation for index-tracking funds, which have upended stock picking as investors abandon active money managers.
Fama, 74, has argued that financial markets are efficient and that stock-price movements are unpredictable, making it impossible for even professional money managers to gain an advantage. His conclusion that investors would be better off in low-cost funds that track the markets performance helps explain the success of Vanguard Group Inc., the biggest U.S. mutual-fund company, as well as the rise of passive investments, which had more than $2.6 trillion in U.S. assets between exchange-traded funds and mutual funds at the end of 2012.
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