Kenneth French

Carl E. and Catherine M. Heidt

Professor of Finance

In "the old days," many people confused the efficient market hypothesis with the idea that the stock market follows a random walk. Then, in 1988, Gene Fama, my colleague at the University of Chicago, and I showed that long-term market returns are surprisingly predictable, and that simple measures like the market's dividend yield and earnings price ratio predict much of the variation in one- to fiveyear stock returns. We then applied the same logic to the performance of individual stocks. Using variables such as the book-to-market ratio and the earnings price ratio to sort firms, we found that value stocks tend to have higher average returns than growth stocks. We are now trying to estimate the long-term equity risk premium, which is just the extra return one expects from investing in stocks rather than bonds.

This is the second time I've joined the Tuck faculty. In 1993-94, as the David T. McLaughlin Visiting Professor of Finance, I found the Tuck students really impressive. They were at least as smart as the students I've taught at MIT, Chicago, and Yale. Moreover, although they worked hard, it was always easy to get a group together to go skiing or biking. The same is true today. It's clear the admissions office has not lost its touch.

I am equally impressed with the rest of the school, particularly the priorities set by Dean Danos. Tuck offers plenty of resources, stimulating colleagues, and the flexibility needed to do pathbreaking research.

Professor French earned a BS in mechanical engineering from Lehigh University. He received an MBA in finance and accounting, an MS in finance and econometrics, and, in 1983, a doctorate in finance, all from the University of Rochester. He held named professorships at the University of Chicago, Yale University, and MIT before returning to Tuck in 2001. An expert on the behavior of security prices and investment strategies, he has coauthored a series of seminal papers on market predictability.