Blog Nobel Prize winning economist Robert Shiller explains the art of investing

Nobel Prize winning economist Robert Shiller explains the art of investing
Nobel Laureate Robert Shiller is one of the most prescient political economists of his generation. He accurately predicted the collapse of the two financial bubbles in the 2000s, based on a rigorous examination of equity market values and the application of innovative ideas from behavioral finance.

At the AIC, Shiller will make a keynote speech that addresses the question: “The art of investing – should the heart rule the mind?”  It is an issue that goes to the center of the discussion about the efficacy of behavioral finance, and how to interpret potential drivers of financial crisis.

This is critically important at a time when the global economy has been going through a period of unusually low yields, driven largely by unconventional central bank action, such as quantitative easing. Many argue that such policies could have distorting effects on asset prices.

In a recent blog post Shiller pointed out that economists failed to predict most of the major crises in the last century, including the 1920-21 slump, the 1980-82 back-to-back recessions, and the worst of them all, the Great Depression after the 1929 stock-market crash.

Shiller is a distinguished professor of economics at Yale University and earned his 2013 Nobel Prize in Economics for his empirical analysis of asset prices.  He co-created the S&P/Case-Shiller Index, the most widely quoted home price index in the U.S. and also helped launch a liquid market in house price futures and options on the Chicago Mercantile Exchange.

He is the author of Irrational Exuberance, the third edition of which was published in January 2015, and, most recently, Finance and the Good Society.

One of his major concerns is the threat of “secular stagnation”, especially in Europe. He argues that economic growth is largely driven by learning and innovation, not just saving and the accumulation of capital, he blogged last November.

In fact, Shiller says that we need both.

“If we are to encourage dynamism, we need Keynesian stimulus and other policies that encourage creativity – particularly policies that promote solid financial institutions and social innovation,” he wrote.