Shiller versus Siegel: Are Stocks Too High?
On the tenth anniversary of the financial crisis, Nobel Laureate Robert Shiller and Wharton’s Jeremy Siegel debated the question on every investor’s mind – is the market overpriced? According to Shiller, if the market’s reaction to Trump’s presidency and low-interest rates are just short-term fluctuations, then valuations are indeed precariously high.
The pair delivered a keynote presentation at the Wharton Jacobs Levy Center’s 2018 Conference in New York on September 14. You can view the keynote slides from Shiller’s presentation here and Siegel’s presentation here.
Shiller teaches at Yale, is the best-selling author of Irrational Exuberance and the winner of the 2013 Nobel Prize in Economic Sciences.
Siegel is the Russell E. Palmer professor of finance at the Wharton School of the University of Pennsylvania in Philadelphia and author of the classic book, Stocks for the Long Run, now in its sixth edition.
The two have had a long-running debate about U.S. stock market valuations, and they have faced off publicly several times since the Great Recession. You can read about the claims they made a year ago in this article.
The central issue upon which the two differ is the appropriate measure of stock market earnings. With the cyclically adjusted price-to-earnings (CAPE) ratio near historic highs and many analysts questioning equity valuations, it is unclear whether market conditions are being driven by short-term earnings spikes.
Siegel has been critical of the CAPE ratio’s methodology, which was popularized by Shiller and is widely used to assess whether the market is overvalued or undervalued.
Siegel has been unabashedly bullish on stocks during the post-crisis period, and vehemently disagrees with warnings by Shiller and other pundits that stocks are overvalued. He has provided some context for his bullish outlook based on the long-term performance of stocks versus other major asset classes. You can read about Siegel’s predictions for 2018 here.
Normally these two focus their debate on strategies for evaluating market levels. But this time, the pair made new claims about how investors should consider short-term fluctuations when analyzing U.S. stock market prices.
I will review the arguments made by Shiller and Siegel, but first let’s look at why they have shared the same basic economic perspective for a half-century.
Why Shiller and Siegel are celebrating a half-century long friendship
Long before these two established themselves as widely respected investment industry experts, they established a friendship as a pair of M.I.T. graduate students.