Irrational Exuberance: Second Edition - Hardcover

Shiller, Robert J

Hardcover

ISBN 10: 0691123357 ISBN 13: 9780691123356

Publisher: Princeton University Press, 2005

Synopsis

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

About this title

Review:

Robert J. Shiller, Co-Winner of the 2013 Nobel Prize in Economics


New York Times Bestseller
Winner of the 2000 Commonfund Prize for the Best Contribution to Endowment Management Research
From review of Princeton's previous edition: "Robert J. Shiller . . . has done more than any other economist of his generation to document the less rational aspects of financial markets."--Paul Krugman, New York Times

From review of Princeton's previous edition: "Irrational Exuberance is not just a prophecy of doom. . . . [I]t is a serious attempt to explain how speculative bubbles come about and how they sustain themselves."--John Cassidy, New Yorker

From review of Princeton's previous edition: "Informative and well-argued . . . A calm and reasonable antidote to today's euphoria."--Jeff Madrick, New York Review of Books

From review of Princeton's previous edition: "What set off this speculation and what feeds it? Shiller ranges widely his explanations, laying them out in the first 168 pages in easy-to-read, sometimes passionate prose. . . . [T]hose first 168 pages are must reading for anyone with savings invested in stocks."--Louis Uchitelle, New York Times Book Review

From review of Princeton's previous edition: "Mr. Shiller's book offers a dose of realism. . . . [I]t presents a message investors would be wise to head: Make sure your portfolio is adequately diversified. Save more and don't count on double-digit gains of the past decades continuing to bail you out during retirement."--Burton G. Malkiel, Wall Street Journal

From review of Princeton's previous edition: "Although its message may be unwelcome to many, this important book should be read by anyone interested in economics or the stock markets."--Rene M. Stulz, Science

From review of Princeton's previous edition: "Dazzling, richly textured, provocative . . By far the most important book about the stock market since Jeremy J. Siegel's Stocks for the Long Run."--William Wolman, Business Week

From review of Princeton's previous edition: "Shiller has provided an accessible guide to the usually impenetrable literature on financial markets, especially the American stock market."--Foreign Affairs

From review of Princeton's previous edition: "Shiller contends that investor psychology is so given to herd behavior that it's almost impossible to manipulate or even influence. The market can 'go through significant mispricing lasting years or even decades.'"--Robert J. Samuelson, Washington Post

Synopsis:

In this timely and prescient update of his celebrated 2000 bestseller "Irrational Exuberance", Robert J. Shiller returns to the topic that gained him international fame: market volatility. Shiller breaks new ground in this second edition by laying out in even clearer and starker terms the market excesses that continue to destabilize the economy and disrupt our lives.Having predicted the stock market collapse that began just one month after the first edition was published, he now expands the book to cover other markets that have become volatile, particularly the recently red-hot housing market. He includes a full chapter on domestic and international housing prices in historical perspective. Shiller amasses impressive evidence to support his argument that the recent housing market boom bears many similarities to the stock market bubble of the late 1990s, and may eventually be followed by declining home prices for years to come. After stocks plummeted when the bubble burst in 2000, investors moved their money into housing. This precipitated the inflated real estate prices not only in America, but around the world, Shiller maintains.

Hence, irrational exuberance did not disappear - it merely reappeared in other settings.Building on the original edition, Shiller draws out the psychological origins of volatility in financial markets, this time folding real estate into his analysis. He broadens the evidence that investing in capital markets of all kinds in the modern free-market economy is inherently unstable - subject to the profoundly human influences captured in Alan Greenspan's now-famous phrase, "irrational exuberance." The ultimate solution to this troubling condition, he maintains, would involve better-designed public institutions such as a revamped social security system, new forms of insurance to protect people's incomes and homes, and a broader array of investment options. As was true of its predecessor, the second edition of "Irrational Exuberance" is destined to be widely read, discussed, and debated.

About this edition

• Publisher: Princeton University Press
• Publication date: 2005
• ISBN 10: 0691123357
• ISBN 13: 9780691123356
• Binding: Hardcover
• Edition number: 2
• Number of pages: 344