Robert Shiller shares Nobel Prize in economics with 2 colleagues

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Robert Shiller — perhaps best known to many in the real estate industry as the co-creater, with Karl Case, of the S&P/Case-Shiller home price indices — has been awarded the Nobel Prize in Economic Sciences along with Eugene F. Fama and Lars Peter Hansen. The three were recognized work that has helped economists understand how asset prices, such as stocks and bonds, move, Bloomberg News reports.

In the 1980s, Shiller’s work showed that stock prices fluctuate more than changes in a company’s dividends would suggest and that it’s easier to predict prices over the long term.

“Shiller’s research showed episodes when assets were overvalued,” said Peter Englund, professor in banking at the Stockholm School of Economics and secretary of the committee that awards the Nobel Prize in Economic Sciences. “Shiller said in the late 1990s, when IT shares rose, that this is not sustainable in the long term, which he was right about. He also warned for many years about a housing bubble in the U.S. He was right there, too.”

The Case-Shiller home price indices, and Shiller himself, came under fire from some circles in 2008 when the bottom fell out of the housing market. Some critics, including National Association of  Realtors Chief Economist Lawrence Yun, questioned whether, as a co-founder of MacroMarkets LLC, Shiller profited from the trade of housing and futures options on the Chicago Mercantile Exchange and had a financial incentive to “scare” the market.

“The more hedging of bets that occur, the more profits go into Dr. Shiller’s bank account,” Yun claimed in an opinion piece published by the Wall Street Journal. “And more hedging of the bets will take place if people believe there will be a crash in housing values.”

Although the strengths and weaknesses of the S&P/Case-Shiller home price indices and others indexes that track housing prices are still debated, it’s generally acknowledged that the housing crash was precipitated by market fundamentals, including lax mortgage lending standards that helped inflate home prices in many markets. Source: bloomberg.com