Vested interest

29 October 2013 By Martin Hutchinson

Eugene Fama won his Nobel for arguing in 1970 that equity markets are efficient. Robert Shiller shared the prize by later writing that they tend to form bubbles. Resources and capital would be distributed better in Fama-world. But it will take higher rates to leave Shiller-land.

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Eugene Fama and Robert Shiller, together with Lars Peter Hansen, on Oct. 14 shared the 2013 Nobel Memorial Prize in Economic Sciences. Fama’s paper “Efficient Capital Markets” in May 1970, put forward the Efficient Market Hypothesis, by which the market prices of a security are held to include the effects of all public information on it. Shiller’s 2000 book “Irrational Exuberance,” together with other work, postulated that markets were prone to form bubbles, in which prices moved above their rational level for prolonged periods of time.
The St. Louis Fed’s Money of Zero Maturity, a broad measure of money supply, rose at an annual rate of 6.7 percent from January 1959 to March 1995, compared to a 7.8 percent annual rise in nominal GDP between the first quarter of 1959 and the first quarter of 1995. It rose at an annual rate of 8.1 percent from March 1995 to June 2013, compared with a 4.4 percent annual rise in nominal GDP between the first quarter of 1995 and the second quarter of 2013.

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