Nobel Prize-winning economist Robert Shiller recently expressed concerns that the sharp rise in equity prices could signal the formation of a financial bubble. In an interview with Germany’s Der Spiegel magazine, the Yale professor and co-creator of the S&P Case/Shiller Home Price Index said that he was most troubled by the overvaluation of stock prices in the technology and financial sectors.
“I am most worried about the boom in the U.S. stock market. Also because our economy is still weak and vulnerable,” Shiller told the publication. “I am not yet sounding the alarm. But in many countries stock exchanges are at a high level and prices have risen sharply in some property markets. That could end badly.”
He noted that the current real estate market in Brazil is similar to that of the United States in the mid 2000s. Housing prices in São Paulo and Rio de Janeiro have risen over 200 percent since 2008 and the financial markets in the country mirror those in the United States during the real estate boom. According to Shiller, the Brazilian market shows that the world continues to be “very vulnerable” to bubbles.
Shiller along with economists Eugene Fama and Lars Peter Hansen was awarded the Nobel Prize for economics in October for his research that has improved the long-term forecasting of asset prices. At the award ceremony in Sweden, Schiller told Reuters that growing market speculation and the Federal Reserve’s economic stimulus were creating “bubbly” conditions.
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