Shiller talks markets

Robert Shiller, the Arthur M. Okun Professor of Economics, has taught at Yale since 1982. The author of nine books, including the New York Times-bestselling “Irrational Exuberance,” Shiller has been recognized for his research in finance and behavioral economics.

One of his papers, the 1981 “Do Stock Prices Move Too Much to Be Justified by Subsequent Changes in Dividends?”, was listed among the top 20 articles in 100 years of the American Economic Review in this February’s issue. He currently teaches ECON 252b: “Financial Markets,” and advises several senior and Ph.D. theses.

Shiller sat down with the News on Tuesday to talk about his economic work.

Robert Shiller has been a professor of economics at Yale since 1982.
Robert Shiller has been a professor of economics at Yale since 1982.

Q Your paper listed in the American Economic Review’s top 20 showed that historical stock price movements were more volatile than expected from dividend payout data, thus calling into question the efficient markets hypothesis. Could you tell us a little about how the paper came about? What insights did it present?

A When I wrote that paper, the efficient markets hypothesis was widely believed. People thought it was one of the great successes of academic finance — the discovery that financial markets are smarter than any of us. I think it was a little bit analogous to Wikipedia, the product of millions of people so it becomes more authoritative than any single person.

It’s an attractive and exciting thought, but I was skeptical. It meant somebody out there knew something, [it] defied common sense. I thought the mere volatility of markets is evidence against efficient markets.

I think the reason the committee selected that paper is that a lot of people read it and [thought] … that “this guy Shiller’s just some nut.” But [the efficient markets hypothesis] didn’t feel right, and as the years went by, [the article] changed peoples’ opinions.

Q One economic blogger noted yours was the only behavioral economics paper that made the top 20 list. What do you think of that?

A If you look at it in a century-long perspective, behavioral economics has been emerging over the last 20 years. [The fact that there is only one behavioral economics article on the list] does put life into perspective — there’s just a lot going on in the academic world and you just don’t know about it.

Q What do you think of the housing crisis, given you developed the Case-Shiller index that depicts constant-quality house prices?

A Well, [the Case-Shiller index is] about trying to make [housing markets] more of a science. [The index] has a lot of application.

Lately, I’ve been writing a column for the New York Times … about real-estate bubbles, but they seem to be long-term historical events that occur not that frequently. Simple data collection revealed to me that the recent bubble was the biggest ever.

That raises the question, whether housing has just become more speculative and we’re going to have another bubble soon, or alternatively, they’re just very rare events.

I don’t know the answer to that, but right now, I’m leaning towards saying they’re just very rare events. My feeling right now is that the housing market is so damaged; our psychology is not ready to go gangbusters on another bubble, not for years.

Q You teach a course, Financial Markets, which is also available to the world through Open Yale Courses. Do you have any anecdotes on that — for instance, has someone from the other side of the world ever contacted you about your online lectures?

A I have office hours on Mondays, and one student came in — I thought she was my student, because I have 160 students, but then she said, “Oh, I’m not in your class. I’m from India. I came from India for your office hours.” Well, she had another reason to be here, but she saw on the web when I had office hours. This was the first time I’ve had someone come to my office hours who’s been taking my course online.

Q Can you tell us a little about what you’ve been doing in the past couple of years?

A In recent years I have focused more on book writing, but I have a couple of projects I’m working on right now. One of them [was] a survey in 1991 about attitudes to markets in Moscow and New York, and I’m repeating that. I’m doing another paper on the housing market; I’m trying to understand where that’s going now.

Q You have been the recipient of many awards and honors in recent years. What do you think are the chances you’ll be woken up one October morning by a call from Sweden [to learn that you have received the Nobel Memorial Prize for Economic Science], or do you prefer not to think about these things?

A [laughs]

I try not to think about it. But my wife thinks about it. One time she, in fact, turned the ringer on in our phone when we went to bed, and I said, “what did you do that for?” (Nominees are notified by phone that they have been awarded the Nobel Prize). But I try not to think about it.


  • Yaleman

    How many students have studied Professor Shiller’s Open Yale Courses? What part of the world has been most attentive?