Understanding Market Volatility

Robert J. Shiller
Arthur M. Okun Professor of Economics, Cowles Foundation for Research in Economics and Professor of Finance at the International Center for Finance, Yale University, New Haven, CT USA

Shiller is suggested as a possible Nobel Prize winner “for pioneering contributions to financial market volatility and the dynamics of asset prices”

Shiller is best known to the public as the author of the bestseller Irrational Exuberance (Princeton 2000) which presciently warned of a bubble in the stock market. He also warned of an impending bubble in real estate values in a paper in 2003 and in the second edition of Irrational Exuberance in 2005. He is also the co-inventor of the widely quoted Case-Shiller index tracking real estate prices. But it is not for these accurate market forecasts or for his index that he may be in the running for Nobel honors. Rather, it is for his many studies of volatility in asset prices. In particularly, his 1981 article in American Economic Review, “Do Stock Prices Move Too Much to be Justified by Subsequent Changes in Dividends,” is a classic and highly cited study that challenged the widely accepted Efficient Market Hypothesis. This paper has been cited more than 700 times, is Shiller’s most cited journal article, and is listed in a summary on what mattered most in economics since 1970 and as one of the 20 most influential articles ever published in the American Economic Review, a study authored by several past Nobel Prize (see: http://economics.mit.edu/files/6349). More recently, he published, with the 2001 Nobel Laureate George A. Akerlof, Animal Spirits: How Human Psychology Drives the Economy, and Why it Matters for Global Capitalism (Princeton, 2009).

Commentary on the Economics Laureates by David A. Pendlebury, Analyst, Thomson Reuters