Irrational Exuberance (book)
Encyclopedia
Irrational Exuberance is a March 2000 book written by Yale University
professor Robert Shiller
, named after Alan Greenspan
's "irrational exuberance" quote. Published at the height of the dot-com boom, it put forth several arguments demonstrating how the stock market
s were overvalued at the time. Shiller was soon proven right when the Nasdaq
peaked on the very month of the book's publication, and the stock markets collapsed right after.
The second edition of Irrational Exuberance published in 2005 is updated to cover the housing bubble
, especially in the United States
. Shiller writes that the real estate bubble may soon burst, and he supports his claim by showing that median home prices are now six to nine times greater than median income in some areas of the country. He also shows that home prices, when adjusted for inflation, have produced very modest returns of less than 1%/year.
Shiller proved right again as witnessed by the fall of the housing bubble
which was in part responsible for the Worldwide recession of 2008-2009.
Yale University
Yale University is a private, Ivy League university located in New Haven, Connecticut, United States. Founded in 1701 in the Colony of Connecticut, the university is the third-oldest institution of higher education in the United States...
professor Robert Shiller
Robert Shiller
Robert James "Bob" Shiller is an American economist, academic, and best-selling author. He currently serves as the Arthur M. Okun Professor of Economics at Yale University and is a Fellow at the Yale International Center for Finance, Yale School of Management...
, named after Alan Greenspan
Alan Greenspan
Alan Greenspan is an American economist who served as Chairman of the Federal Reserve of the United States from 1987 to 2006. He currently works as a private advisor and provides consulting for firms through his company, Greenspan Associates LLC...
's "irrational exuberance" quote. Published at the height of the dot-com boom, it put forth several arguments demonstrating how the stock market
Stock market
A stock market or equity market is a public entity for the trading of company stock and derivatives at an agreed price; these are securities listed on a stock exchange as well as those only traded privately.The size of the world stock market was estimated at about $36.6 trillion...
s were overvalued at the time. Shiller was soon proven right when the Nasdaq
NASDAQ
The NASDAQ Stock Market, also known as the NASDAQ, is an American stock exchange. "NASDAQ" originally stood for "National Association of Securities Dealers Automated Quotations". It is the second-largest stock exchange by market capitalization in the world, after the New York Stock Exchange. As of...
peaked on the very month of the book's publication, and the stock markets collapsed right after.
The second edition of Irrational Exuberance published in 2005 is updated to cover the housing bubble
United States housing bubble
The United States housing bubble is an economic bubble affecting many parts of the United States housing market in over half of American states. Housing prices peaked in early 2006, started to decline in 2006 and 2007, and may not yet have hit bottom as of 2011. On December 30, 2008 the...
, especially in the United States
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
. Shiller writes that the real estate bubble may soon burst, and he supports his claim by showing that median home prices are now six to nine times greater than median income in some areas of the country. He also shows that home prices, when adjusted for inflation, have produced very modest returns of less than 1%/year.
Shiller proved right again as witnessed by the fall of the housing bubble
United States housing bubble
The United States housing bubble is an economic bubble affecting many parts of the United States housing market in over half of American states. Housing prices peaked in early 2006, started to decline in 2006 and 2007, and may not yet have hit bottom as of 2011. On December 30, 2008 the...
which was in part responsible for the Worldwide recession of 2008-2009.
Quotations
- "[t]he stock market has not come down to historical levels: the price-earnings ratio as I define it in this book is still, at this writing [2005], in the mid-20s, far higher than the historical average. … People still place too much confidence in the markets and have too strong a belief that paying attention to the gyrations in their investments will someday make them rich, and so they do not make conservative preparations for possible bad outcomes."