Welcome to my website

I am an Associate Professor and Vice-Chair in the Department of Accounting and Information Systems at Rutgers Business School - Newark and New Brunswick.

I write about the functioning of capital markets.  I am interested in behavioral finance, asset pricing, agency conflicts, corporate structure, and corporate disclosure and reporting strategies. My work has been published in the Review of Financial Studies, Journal of Financial Economics, and the Journal of Accounting Research, among others.  Please use the tabs above to learn more about my research and teaching.

New paper:

Shiller's CAPE: Market Timing and Market Efficiency (with Prem Jain), working paper.

Abstract

Robert Shiller shows that Cyclically Adjusted Price to Earnings Ratio (CAPE) is strongly associated with future long-term stock returns. This result has often been interpreted as evidence of market inefficiency. We present two findings that are contrary to such an interpretation. First, if markets are efficient, returns on average, even when conditional on CAPE, should be higher than the risk-free rate. We find that even when CAPE is in its ninth decile, future 10-year stock returns, on average, are higher than future returns on 10-year U.S. Treasurys. Thus, the results are largely consistent with market efficiency. Only when CAPE is very high, say, CAPE is in the upper half of the tenth decile (CAPE higher than 27.6), future 10-year stock returns, on average, are lower than those on 10-year U.S. Treasurys. Second, we provide a risk-based explanation for the negative association between CAPE and future stock returns. Consistent with a risk-return tradeoff, we find that CAPE is negatively associated with future stock market volatility. Overall, (i) CAPE levels do not seem to reflect market inefficiency, and (ii) CAPE levels reflect risk (volatility).




A favorite quote:

"Risk comes from not knowing what you are doing" -- Warren Buffett.