What did Robert J. Shiller study for his doctoral thesis at MIT?

Robert J. Shiller earned his Ph.D. from MIT in 1972 under Franco Modigliani with a thesis examining rational expectations and interest rate structures.

Why did Robert J. Shiller question the Efficient Market Hypothesis in 1981?

Robert J. Shiller published an article in 1981 showing that U.S. stock market volatility far exceeded what constant expected returns could justify according to traditional theory.

How did Robert J. Shiller predict the housing market collapse before 2008?

Robert J. Shiller warned in 2005 and wrote articles in August 2006 and September 2007 predicting an imminent collapse in the U.S. housing market and subsequent financial panic.

Robert J. Shiller: the story on HearLore

Robert James Shiller was born on the 29th of March 1946 in Detroit, Michigan. His father worked as an engineer and entrepreneur while his mother bore the name Ruth R. Radsville. He grew up within a Lithuanian family that raised him as a Methodist. The young student spent two years at Kalamazoo College before transferring to the University of Michigan. He graduated Phi Beta Kappa with a Bachelor of Arts degree in 1967. MIT awarded him a Master of Science degree in 1968. He earned his Ph.D. from that same institution in 1972 under the supervision of Franco Modigliani. His doctoral thesis examined rational expectations and interest rate structures.

Shiller published a groundbreaking article in 1981 that questioned the dominant Efficient Market Hypothesis. This view held that stock prices reflected all available information instantly. He analyzed U.S. stock market performance dating back to the 1920s. His statistical model showed volatility far exceeded what constant expected returns could justify. Investors should base prices on future dividends discounted to present value according to traditional theory. Shiller found wide variations in market swings that defied this explanation. The American Economic Association later named this paper one of the top twenty articles in its hundred-year history. It established behavioral finance principles by showing emotion often drives decisions instead of pure calculation.

Karl Case and Allan Weiss joined Shiller in 1991 to form Case Shiller Weiss. Weiss served as CEO until the firm sold to Fiserv. They created a repeat-sales index using home sales data across the nation. Case studied unsustainable booms in Boston while Shiller explored bubble behaviors. Standard & Poor acquired the index and further developed it into the Case-Shiller housing price index. This tool uses recent sales prices of other houses to value individual properties statistically. It provides critical information about trends in home prices for economists and common people. Modern technology helps accrue broader asset class data to make markets more efficient through better information flow.

Shiller co-authored a Brookings Institution paper titled Is There a Bubble in the Housing Market? in 2003. He warned in 2005 that rising stock and housing markets could lead to significant declines. A long-run consequence might include reduced consumer confidence and a worldwide recession. Writing in The Wall Street Journal during August 2006 he predicted a possible recession sooner than expected. His September 2007 article appeared almost exactly one year before Lehman Brothers collapsed. That piece predicted an imminent collapse in the U.S. housing market and subsequent financial panic. People did not believe his timing until late 2006 and early 2007 due to lagged data revelation. CNBC panelist David Lereah disagreed with Shiller on whether housing rises could outstrip inflation long-term.

Eugene Fama Lars Peter Hansen and Robert J. Shiller jointly received the 2013 Nobel Memorial Prize in Economic Sciences. The award recognized their empirical analysis of asset prices. Shiller explained at the prize ceremony why markets are not fully efficient. He presented arguments showing Eugene Fama's Efficient Market Hypothesis was fallacious. EMH postulates present value reflects efficient information incorporation into prices. Shiller demonstrated results were extremely erratic unlike smoother movements predicted by intrinsic value models. Dividend growth averaged two percent per year yet contradicted expected dividends under standard theory. Only half to one-third of stock market fluctuations get explained by expected dividends models according to his Linearized Present Value model. Variables like interest rates failed to explain housing market movement either.

Survey research asked investors what motivated them to make trades starting from 1989. Results showed decisions often driven by emotion instead of rational calculation. This behavioral finance school gained credibility following the October 1987 stock market crash. Keynes compared stock markets to beauty contests where people bet on majority attractiveness rather than individual merit. People do not use complicated mathematical calculations while participating in asset markets. A huge set of data is required for markets to operate efficiently but very minuscule data existed for common people. Shiller developed indices to provide information about trends and help accrue broader asset class data through modern technology.

Robert J. Shiller.

Challenging Market Efficiency

Measuring Housing Values

Continue Browsing

Common questions

Warnings Before The Crash

Nobel Prize Recognition

Psychology Of Investors