Practical analysis for investment professionals
17 October 2013

Weekend Reads: Efficient Markets, Enron, and Dilbert

Posted In: Weekend Reads

Robert Shiller, Eugene Fama, and Lars Peter Hansen shared the Nobel Prize for economics this past week “for their empirical analysis of asset prices that greatly improved our understanding of how financial markets work, when they seem to work well and when they seem to work otherwise.” As Ron Rimkus, CFA, and others have already pointed out, there’s some irony in the fact that Fama, the father of the efficient market hypothesis, does not recognize the existence of financial bubbles, while Shiller, author of Irrational Exuberance, has gained considerable fame for sounding alarm bells for overvalued markets.

Shiller, of course, is also well-known for his use of the cyclically adjusted P/E as a measure of stock market value. Investors who are cautious on US equities today are quick to point to the CAPE, or Shiller P/E, as clear evidence of an overvalued stock market. Market bulls prefer to look forward and the promise of strong earnings, and they’ve been richly rewarded for their optimism over the past two years. This divergence of opinion is what makes a market truly efficient.

CAPE Price E10 Ratio


Here are some interesting reads you may have missed over the past few weeks.

Strategic Thinking

Asian Accounting under Scrutiny

Twitter in Focus

Sotheby’s under Fire

Ethics and Governance Matters

Gender Roles

Relax and Recharge

Career Advice

For more on equity analysis: Aswath Damodaran will be one of the valuation experts speaking at the 2013 CFA Institute Equity Research and Valuation Conference in New York on 21–22 November. Delegates can hear from Damodaran and other speakers, including Wharton School Professor Jeremy J. Siegel and Morgan Stanley managing director Betsy Graseck, CFA.   


Please note that the content of this site should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute.

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About the Author(s)
David Larrabee, CFA

David Larrabee, CFA, was director of member and corporate products at CFA Institute and served as the subject matter expert in portfolio management and equity investments. Previously, he spent two decades in the asset management industry as a portfolio manager and analyst. He holds a BA in economics from Colgate University and an MBA in finance from Fordham University. Topical Expertise: Equity Investments · Portfolio Management

1 thought on “Weekend Reads: Efficient Markets, Enron, and Dilbert”

  1. Mauricio Bedoya says:

    Empirical finding of authors (Famma, Shiller, Hansen and others), allow us to infer the organic disorder growth of financial theory. The disorder leads to non homogeneous expectations, that translate in the existence of an observed capital markets, where trade is possible (efficient market).
    When you search the meaning of science, there is an interesting finding: it requires a systematic organize body of knowledge (Oxford Dictionary). Something that you don’t find in economic “science”.

    Paradigms support theory and also leads crowd behavior. If paradigms change to often, then you are not dealing with a science, your are dealing with believes.
    (Mauricio Bedoya).

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