How should one value a firm or the overall stock market? Below is an interview with Robert Shiller on his cyclically-adjusted price/earnings ratio and its usefulness as a predictor of future market value. Shiller thinks that today's market is overvalued, but is not sure when the market will turn down.
My colleague and former PhD student Gareth Campbell has created a website about the British Railway Mania - click here . This episode has been described by the Economist as probably the greatest bubble in human history. Gareth's website provides background on the Mania and posits some explanations for the 'bubble'. In his explanation of why the bubble happened, Gareth places a lot of emphasis on investor myopia regarding future dividends and uncalled capital. His study of investors during the episode does not support the view that this episode was fuelled by naive and irrational investors.