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Amazon.co.uk Review
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, Amazon.com --This text refers to an out of print or unavailable edition of this title.
Louis Menand, The New Yorker
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Most Helpful Customer Reviews
10 of 10 people found the following review helpful:
5.0 out of 5 stars
An elegantly simple book on why markets ignore fundamenals,
By A Customer
This review is from: Irrational Exuberance (Hardcover)
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.
10 of 10 people found the following review helpful:
4.0 out of 5 stars
A worthwhile addition to the literature on the subject,
By mikegordonw@aol.com (Redmarley, England) - See all my reviews
This review is from: Irrational Exuberance (Hardcover)
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). It also discusses the role of the media (which ultimatley Shiller regards as having at best a short-term influence on market behaviour), the psychology of the investor (for me the least convincing part of the book) and an interesting chapter discussing the arguments of efficient market theorists and their attempts to justify current stock market levels with reference to dividend values (since they are so clearly at variance with price earnings ratios). Finally Shiller concludes with his recommendations to overcome the irrationality of markets. Paradoxically, these mean an expansion of the role of the market through the commodification of more risks and the action of investors to spread their risks beyond the stock market. Robert J. Shiller's book is a great introduction for those interested in the history and causes of financial exuberance. While you may not agree with his conculsions and proposals, the preceding examination of the various causes seems comprehensive and is lucidly explained. Of particular interest are the chapters discussing feedback mechanisms and how financial bubbles are inflated What this section lacks, perhaps because no one has found the answer, is a description of what causes the feedback loop to breakdown and the bubble to deflate. In summary I consider this to be a worthwhile addition to the literature on financial markets and how they can go wrong.
4 of 4 people found the following review helpful:
5.0 out of 5 stars
Packed with Knowledge!,
By
This review is from: Irrational Exuberance: (Second Edition) (Hardcover)
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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