Nobel Prize economist warns of stock market bubble in US

A Nobel Prize winner in economics has warned that sharp rises in equity and property prices could lead to a financial bubble.

Robert Shiller, who won the award with Eugene Fama and Lars Peter Hansen for research into market prices and asset bubbles, said that US stock market and the property market in Brazil were areas of concern.

According to the Guardian, Shiller told Der Spiegel magazine that he was not yet sounding the alarm, but in many countries stock exchanges are at a high level and prices have risen sharply in some property markets, which could end badly.

Shiller said that he was most worried about the boom in the US stock market, because its economy is still weak and vulnerable, describing the financial and technology sectors as overvalued.

He had also examined the increase in house prices in Rio de Janeiro and Sao Paulo in Brazil over the past five years.

The collapse of the US housing market helped trigger the 2008-09 global financial crisis.

He said that bubbles look like this. And the world is still very vulnerable to a bubble.

Bubbles are created when investors do not recognise when rising asset prices get detached from underlying fundamentals, the report added.