Economist, Academic (1946–Present)
Robert Shiller is an American economist who won the Nobel Prize in Economics for his empirical analysis of asset prices. Shiller is the author of many best selling books and has written on topics including behavioural finance, real estate and risk management. He is a highly influential economists and, amongst his many positions, was vice president of the American Economic Association in 2005.
Shiller asserts that irrational exuberance, an unsustainable investor enthusiasm, helps to drive up asset prices to levels that are not supported by fundamentals. Although the term was coined by Alan Greenspan, it has become synonymous with Shiller’s work.
In his 1981 article ‘Do stock prices move too much to be justified by subsequent changes in dividends?’, Shiller challenged the efficient market hypothesis and, alternatively, asserted that, in a rational stock market, investors base stock prices on the expected receipt of future dividends, discounted to a present value.
Using data from the US stock market since the 1920s, he then examined the performance of stock prices and considered the expectations of future dividends and discount rates that could explain the large variation in the data. Shiller concluded that the stock market volatility was greater than any rational view of the future could explain, meaning that irrational exuberance must have played a significant factor.
“Economists who adhere to rational-expectations models of the world will never admit it, but a lot of what happens in markets is driven by pure stupidity – or, rather, inattention, misinformation about fundamentals, and an exaggerated focus on currently circulating stories.”
– Robert Shiller