Robert Shiller

Robert Shiller received his PhD in economics from MIT and has been a professor at Yale University since 1982. He is one of the most prominent critics of the Efficient Markets Hypothesis and a central figure in behavioural finance. In 1981 he published a landmark paper demonstrating that stock price volatility is far too large to be explained by subsequent dividend changes — suggesting that markets are driven by factors beyond rational expectations. His book "Irrational Exuberance" (first edition 2000) warned of overvaluation in the US stock market at the height of the dot-com bubble, correctly predicting the subsequent crash. The second edition (2005) warned of overvaluation in the US housing market, presaging the 2008 financial crisis. Shiller created the cyclically-adjusted price-earnings ratio (CAPE or Shiller PE), which compares stock prices to 10-year average earnings adjusted for inflation. The CAPE ratio has been one of the most widely followed long-term valuation indicators and has gained enormous influence among institutional investors. Together with Karl Case he created the Case-Shiller Home Price Indices, which became the standard measure of US residential real estate prices. He shared the 2013 Nobel Prize in Economics with Eugene Fama and Lars Peter Hansen. More recently he has developed the concept of "narrative economics" — the study of how popular stories and narratives spread and drive economic events — extending behavioural insights into macroeconomics.