Shiller and Barclays launch equity indices

Barclays and Robert Shiller, the Yale economist, are to launch a series of US equity indices to identify undervalued sectors by comparing stocks’ long-term value in a way that looks through short-term swings in profitability.

The indices are based on a valuation measure designed by Mr Shiller and economist John Campbell called the cyclically adjusted price/earnings ratio, a metric that has gained a wide following since Mr Shiller successfully used it to predict the bursting of the technology stocks bubble in 2000.

The launch of the Shiller Barclays CAPE Index Family marks the latest foray into financial products for Mr Shiller, an academic who has researched financial markets for more than four decades.

Barclays said the three indices will be aimed at long-term, institutional investors and linked to a range of “over-the-counter” instruments including swaps, structured notes, certificate of deposits and so-called Delta One products.

“Predicting the market in the short run is an art and not a science. We are doing something systematic here intended for long-term investors,” Mr Shiller said.

He added: “Well informed people have always had an interest in value investing. We are putting forward a better analysis on the market in a way that respects the complexities of history, psychology and human behaviour.”

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Related link: Robert Shiller Interview on NPR