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Congratulating Professor Robert J. Shiller on winning the Nobel Prize in Economics

Surrey academic Dr Rafal Wojakowski lauds the work of the recent Nobel laureate.

Yale University's Professor Robert J. Shiller, along with Professor Eugene F. Fama and Professor Lars Peter Hansen of the University of Chicago, has been awarded the Nobel Prize in Economics for his ‘empirical analysis of asset prices’.

In his seminal research work dating back to 1981(1,2,3), Professor Shiller asked the fundamental question: on what factors do stock prices depend? At that time, the prevailing view was that stock prices depend on profits that a firm expects to make over time and how these profits will be discounted.

In fact, Professor Shiller found that actual stock prices change much more than could be explained by changes in profits or in discounting, showing that asset prices can behave irrationally, reaching levels beyond economic fundamentals for long periods of time. This research gave birth to the field of behavioural finance.

Professor Shiller's academic leadership has generated a wealth of practical work that has exercised a profound effect on finance practitioners. Thanks to the Case-Shiller Home Price Indices (now part of Standard & Poor's) we now have a far deeper insight into financial crises and financial bubbles, both driven by human behaviour.

In the years leading up to the financial crisis of 2007-08, in televised speeches and radio interviews, Professor Shiller warned that house prices in the United States had risen too far; eventually, as we now know, they imploded. In his prophetic book Irrational Exuberance, meanwhile, he predicted the bursting of the dot-com bubble.

On a personal note I am particularly happy for Bob Shiller to receive the Nobel Prize, as I had the great honour of co-authoring a paper, Continuous Workout Mortgages, with him(4).

In January 2009, when presenting a paper at the American Real Estate and Urban Economics Association conference in San Francisco, I was challenged by my discussant, Doug McManus from Freddie Mac, on how the paper related to Bob Shiller's recipes to cure the housing crisis, expounded in his 2008 book The Subprime Solution.

When back in the UK I realised that it was indeed possible to build upon my earlier work with Professor Shahid Ebrahim of Bangor University and Professor Mark Shackleton of Lancaster University and offer a simple pricing model for Continuous Workout Mortgages. These new types of mortgages are Bob’s brainchild, and involve a two-in-one product that offers insurance against house price decline. This, by design, eliminates foreclosures and real-estate crises happening before the event.


  1. Shiller RJ, "The Determinants of the Variability of Stock Market Prices" (with Sanford Grossman), American Economic Review (1981), 71: 222--227.
  2. Shiller RJ, "Do Stock Prices Move Too Much to be Justified by Subsequent Changes in Dividends?", American Economic Review (June 1981), 71(3): 421--436.
  3. Shiller RJ, "The Use of Volatility Measures in Assessing Market Efficiency," Journal of Finance (1981), 36: 291--304.
  4. Shiller RJ, Wojakowski RM, Shackleton MB, Ebrahim MS. (2013) 'Mitigating financial fragility with Continuous Workout Mortgages'. Journal of Economic Behavior and Organization, 85 (1), pp. 269-285. doi: 10.1016/j.jebo.2012.04.010

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