Richard Roll Interviewed Eugene Fama

The video clip is short (only 24 minutes) but very informative. Richard Roll interviewed Eugene Fama on August 15th, 2008 in several topics including Center for research in security prices (CRSP), Fama-French three-factor model, finance in economics, Fama-MacBeth Regression, which is a method used to estimate parameters for asset pricing models, and Mandlebrot and the stable Paretian hypothesis ,which is the paper he first published and two-thirds of which is related to distribution. Fortunately, many concepts such as APT (Arbitrage pricing theory), EMH( efficient market hypothesis) and Momentum have been introduced in our course. If I did not attend this course, those points would be hard to understand for me.

In the video, what surprised me is that before entering the graduate school, Fama never took a finance course. He is really a genius. In his earlier academic career, he proposed so many important and influential theories that he was widely recognized as the "father of modern finance". Before watching this video, I do not know Eugene Fama, professor of University of Chicago, is so famous and is among the most cited of America's researchers because of those theories significantly contributed by him. The video is a very good chance for me to have the first hand interview with the master of finance.

What most impresses me in the interview is the origin of the Fama-French three-factor model. Many studies at that times said CAPM did not explain very well because of some reasons. What Fama and French found was two variables worked very well. Fama and French started with the observation that two classes of stocks have tended to do better than the market as a whole: (i) small caps and (ii) stocks with a high book-to-market ratio (BTM, customarily called value stocks, contrasted with growth stocks). In fact, there was nothing new at all, but they just put those factors together. Then, they did better job than CAPM model. That showed