The award of the Nobel Prize last week to three academics who have specialized in the empirical modelling of asset prices has focused attention on what academic research can tell us about a highly topical question: could the US equity or credit markets currently be in a bubble? It goes without saying that this is of great interest to investors, who have seen the US equity market rise by 131 per cent since February 2009, and are asking when the bull market might end.
It is also of relevance to the likely next Chair of the Fed, Janet Yellen, who will be closely examined about bubbles in her confirmation process. In the past, she has strongly argued that the Fed should not use standard monetary policy to deal with bubbles . Read more