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Irrational Exuberance: (Second Edition) [Kindle Edition]

Robert J. Shiller
4.3 out of 5 stars  See all reviews (13 customer reviews)

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Book Description

This first edition of this book was a broad study, drawing on a wide range of published research and historical evidence, of the enormous stock market boom that started around 1982 and picked up incredible speed after 1995. Although it took as its specific starting point this ongoing boom, it placed it in the context of stock market booms generally, and it also made concrete suggestions regarding policy changes that should be initiated in response to this and other such booms. The book argued that the boom represents a speculative bubble, not grounded in sensible economic fundamentals. Part one of the book considered structural factors behind the boom. A list of twelve precipitating factors that appear to be its ultimate causes was given. Amplification mechanisms, naturally-occurring Ponzi processes, that enlarge the effects of these precipitating factors, were described. Part Two discussed cultural factors, the effects of the news media, and of "new era" economic thinking. Part Three discussed psychological factors, psychological anchors for the market and herd behavior. Part Four discussed attempts to rationalize exuberance: efficient markets theory and theories that investors are learning. Part Five presented policy options and actions that should be taken.

The second edition, 2005, added an analysis of the real estate bubble as similar to the stock market bubble that preceded it, and warned that "Significant further rises in these markets could lead, eventually, to even more significant declines. The bad outcome could be that eventual declines would result in a substantial increase in the rate of personal bankruptcies, which could lead to a secondary string of bankruptcies of financial institutions as well. Another long-run consequence could be a decline in consumer and business confidence, and another, possibly worldwide, recession." Thus, the second edition of this book was among the first to warn of the global financial crisis that began with the subprime mortgage debacle in 2007

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Amazon Review

CNBC, day trading, The Motley Fool, Silicon Investor. Not since the 1920s has there been such an intense fascination with the US stock market. For an increasing number of people, logging onto Yahoo finance is a habit more precious than that morning cup of coffee (as thousands of SBUX and YHOO shareholders know too well). Yet while the market continues to go higher, most of us can't get Alan Greenspan's famous line out of our heads. In Irrational Exuberance, Yale economics professor Robert Shiller examines this public fascination with stocks and sees a combination of factors that have driven stocks higher, including the rise of the Internet, increased coverage by the popular media of financial news, overly optimistic cheerleading by analysts and other pundits, the decline of inflation, and the rise of the mutual fund industry. He writes, "Perceived long-term risk is down ... Emotions and heightened attention to the market create a desire to get into the game. Such is irrational exuberance today in the United States."

By history's yardstick, Shiller believes this market is grossly overvalued and the factors that have conspired to create and amplify this unique millennium event--the baby boom effect, the public infatuation with the Internet, news media interest--will most certainly abate. He fears that too many individuals and institutions have come to view stocks as their only investment vehicle, and that investors should consider looking beyond stocks as a way to diversify and hedge against the inevitable downturn. This is a serious and well-researched book that should read like a Stephen King novel to anyone who has staked their future well-being to the market's continued success. --Harry C. Edwards,

Louis Menand, The New Yorker

It may be one of the most important books on higher education published in the last twenty years. It is certainly one of the most interesting.

Product details

  • Format: Kindle Edition
  • File Size: 1082 KB
  • Print Length: 333 pages
  • Page Numbers Source ISBN: 0691123357
  • Publisher: Princeton University Press; 2 edition (9 Feb. 2009)
  • Sold by: Amazon Media EU S.à r.l.
  • Language: English
  • ASIN: B005CQAJ80
  • Text-to-Speech: Enabled
  • X-Ray:
  • Word Wise: Enabled
  • Enhanced Typesetting: Not Enabled
  • Average Customer Review: 4.3 out of 5 stars  See all reviews (13 customer reviews)
  • Amazon Bestsellers Rank: #239,766 Paid in Kindle Store (See Top 100 Paid in Kindle Store)
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Customer Reviews

Most Helpful Customer Reviews
12 of 12 people found the following review helpful
It was on 5 December 1996 that Alan Greenspan described the behaviour of investors who had driven the value of shares on the New York Stock Exchange to record levels as "Irrational Exuberance". Robert J. Shiller has used this remark as the title of his book and the starting point for an examination of stock market and investor behaviour which is both accessible to the general reader and adds to the existing stock of serious work on the subject.
Robert Shiller begins his look at irrational exuberance in financial markets by outlining the evidence, which he finds convincing, that the current level of stock markets (even allowing for the poor performance during the year 2000) is far above that which is reasonable or rational.
He argues that this behaviour can be explained by 12 factors which are examined in the subsequent chapters. These are a mixture of common perceptions which drive markets higher than the underlying facts justify (role of internet, baby boom, expansion of defined contribution pension schemes, decline of economic rivals, cultural change favouring business, Republican congress, growth of mutual funds), cultural and psychological factors which have affected investor behaviour (expanded media reporting, optimistic forecasts of analysts, rise of gambling opportunities) and feedback mechanisms. The detailed analysis which follows explains convincingly how bubbles emerge through feedback effects (feeding upon themselves driving markets upwards or down).
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11 of 11 people found the following review helpful
By A Customer
Not so long ago, the rise of the NASDAQ to a a peak of over 5,000 was seen as a clear sign that we had entered a new economic era. Economic cycles were a thing of the past, new technology and the belief that the all-powerful US Fed would ride to our rescue encouraged investors to bid up share prices to levels that now in hindsight looked certainly unrealistic. Academic studies on stock markets teach us that prices of stocks eventually return to their long-trend line. However, as Shiller in this elegantly simple book demonstrates, financial markets periodically detach themselves from economic fundamentals. The trending or herd influence of investors pulls markets to over-optimistic and over-pestimistic levels. Stock market psychology as Shiller shows is simply the use of rules of thumb by investors that distorts the efficient market over the short term. What Shiller unfortunately does not investigate is how style factors could become even more confusing as more and more investors (primarily institutional fund managers) become more conscious of the potential of style investing. However, the insight that the herd is probably made up of a bunch of headless chickens (who use feeling and not disciplined analysis) can be enjoyed by both active and disillusioned investors.
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5 of 5 people found the following review helpful
5.0 out of 5 stars Packed with Knowledge! 7 Sept. 2005
By Rolf Dobelli TOP 1000 REVIEWER
Shortly after a 1996 briefing by author Robert J. Shiller, Alan Greenspan, chairman of the U.S. Federal Reserve Board, warned the country about the mood of "irrational exuberance" that was pushing up stock prices. In hindsight, it's clear that the bull was just beginning. Anyone who heeded that warning would have missed nearly unprecedented gains. But Shiller proved prophetic when the market peaked and crashed in 2000, the year he published this book's first edition. Shiller isn't teaching market timing; he's debunking cherished investing axioms, such as the belief that stocks or real estate are necessarily great long-term investments. He discredits financial reporting, notes the psychological and emotional factors that make investors behave irrationally, and sounds a note of caution as timely now as it was at the turn of the millennium. This book vaccinates you against the virus of credulity. We suggest a copy for every investor - dog-eared from frequent rereading. It's a wise investment.
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12 of 13 people found the following review helpful
4.0 out of 5 stars bubble bubble 26 Aug. 2003
By tomsk77
Shiller stands as one of the few people to come out of the experience of the recent bubble with his reputation enhanced. His book came out at pretty much the peak since when the market had dropped an incredible amount.
I can see why people didn't like hearing what he was saying at the time but in retrospect it is hard to challenge much of what he says. P/E ratios were wildly out of line with historical precedent with no clear reason why (seemingly sometimes just because the companies had websites!). I never really bought the US productivity miracle story anyhow but it seems increasingly clear that the reason for higher productivity in US firms is predominantly that employees work significantly more hours than European equivalents, not because of a techological revolution.
It makes interesting reading that there was very similar talk of "new eras" during previous bubbles, and of small investors only just realising that equities were a better investment over the long-run (how many times will this one be trotted out I wonder). Also having spoken to quite a few people who made and then lost a few grand in TMT stocks I find it very hard to dismiss the central idea that in such cases bubbles are really just naturally-forming pyramid schemes.
finally personally I'm gob-smacked that anyone actually bothers to seriously listen to fund managers anymore. They were no better at avoiding the collapse of the bubble than the day-traders as our staff pension fund has learnt to its cost. The only big investor to arguably call it right was Tony Dye at PDFM but he was two years or so too early.
I'm only giving it four stars because a) it's now of historical interest and not that practical for the future and b) because I found it too easy to understand.
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Most Recent Customer Reviews
3.0 out of 5 stars Another reason of why it's written like a dissertation is all the...
So I bought this book probably more so because of the author's reputation and credibility. I wanted a book about investing, or rather, I was seeking some text about bubbles in... Read more
Published 2 months ago by SearchFindBuy
2.0 out of 5 stars Two Stars
Published 3 months ago by Anonymous
5.0 out of 5 stars Five Stars
nice one
Published 5 months ago by Mark
4.0 out of 5 stars Four Stars
Fascinating insight into the world of finance.
Published 9 months ago by Barry Andreasen
5.0 out of 5 stars It drones on a bit at times, but nonetheless ...
It drones on a bit at times, but nonetheless it gives a unique understanding of how the market economy works. Read more
Published 10 months ago by NJB
5.0 out of 5 stars Amazing Book to explain unexplainable rise in the markets
The book easily explains why stocks and mortgage markets rise irrationally and foresees the mortgage crisis in the US when calenders were saying 2005.
Published on 3 July 2010 by Ozan Emre ARAS
5.0 out of 5 stars A Model of Clarity
The rarest of beasts: a book by an academic economist that's approachable, clear and polymathic. Shiller weaves a narrative that includes social trends, psychology, history,... Read more
Published on 29 Mar. 2010 by Rutherbooks
5.0 out of 5 stars Vindication
I am surprised this book hasn't featured more prominently in light of the fact that it specifically warns house price rises and peoples irrational fixations with them might cause... Read more
Published on 14 Oct. 2009 by James Withers
4.0 out of 5 stars An analysis all the more chilling for its rigour
Schiller's case rests on a rich mix of quantitative and qualitative research and analysis. (By qualitative, I include his surveys of fund managers with small sample sizes). Read more
Published on 13 Jun. 2000 by Vincent T
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