Irrational Exuberance (book)


Irrational Exuberance is a March 2000 book written by American economist Robert J. Shiller, a Yale University professor and 2013 Nobel Prize winner. The book examines economic bubbles in the 1990s and early 2000s, and is named after Federal Reserve Chairman Alan Greenspan's famed "irrational exuberance" quote warning of such a possible bubble in 1996.

Overview

Published at the height of the dot-com boom, the text put forth several arguments demonstrating how the stock markets were overvalued at the time. The stock market collapse of 2000 happened the exact month of the book's publication.
The second edition of Irrational Exuberance was published in 2005 and was updated to cover the housing bubble. Shiller wrote that the real estate bubble might soon burst, and he supported his claim by showing that median home prices were six to nine times greater than median income in some areas of the country. He also showed that home prices, when adjusted for inflation, have produced very modest returns of less than 1% per year. Housing prices peaked in 2006 and the housing bubble burst in 2007 and 2008, an event partially responsible for the Worldwide recession of 2008-2009.
The third edition of Irrational Exuberance was published in 2015 and included new material on bonds. Shiller warns of significant downside risk to holding long term bonds. Shiller also warns that global house prices are in bubble territory and that US Stock prices are high.

Reactions

There are some economists who challenge the predictive power of Shiller's publication. Eugene Fama, the Robert R. McCormick Distinguished Service Professor of Finance at The University of Chicago and co-recipient with Shiller of the 2013 Nobel Prize in Economics, has written that Shiller "has been consistently pessimistic about prices," so given a long enough horizon, Shiller is bound to be able to claim that he has foreseen any given crisis.

Quotations

Gallery