Stock prices are high, but haven\’t yet hit alarming levels, Yale economics professor and Nobel winner Robert Shiller said Tuesday.
In an interview with MarketWatch on the sidelines of The Economist magazine\’s Buttonwood Gathering, Shiller noted that the cyclically-adjusted price-equity, or CAPE, ratio that he constructed with Harvard professor John Campbell, stands at 25. That\’s well above the historical average of around 16 but remains far off the 2000 high of 46, he noted.
That 2000 level pointed to 0% returns over the subsequent decade, while the ratio\’s current \”fitted value\” points to returns of around 2.5%, which isn\’t great but isn\’t terrible, either, Shiller said.
Oct 14, 2013
12:13 PM ET
If anything, Robert Shiller\’s Nobel Prize win Monday is a sign of the times.
The prominent Yale economist was one of three winners of the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel, all of whom were cited for their analysis of asset prices.
As far his asset-price work goes, Shiller is probably best known for the two editions of his book, Irrational Exuberance. His work is often credited with predicting the bursting of the tech bubble in 2001 and the real estate bubble just a few years later.
Oct 14, 2013
11:05 AM ET
If you’re a big fan of index investing, then you can view this year’s Nobel Prize in Economics as yet another win for that approach.
Three U.S. economists received the prize for their analyses of asset prices. One of them – the University of Chicago’s Eugene Fama – has long been credited for helping to bring about index funds. Here’s how the Nobel folks put it:
Beginning in the 1960s, Eugene Fama and several collaborators demonstrated that stock prices are extremely difficult to predict in the short run, and that new information is very quickly incorporated into prices. These findings not only had a profound impact on subsequent research but also changed market practice. The emergence of so-called index funds in stock markets all over the world is a prominent example. [emphasis added]