Investor's Bookshelf: Irrational Exuberance

Irrational Exuberance, by Robert J. Shiller. Princeton University Press, April 2000; 233 pages.

On Wall Street, timing is everything. And considering the stock market's frightening fall on April 14, and subsequent turbulence, Robert J. Shiller couldn't have better timed the release of his book, Irrational Exuberance. Shiller passionately believes that Federal Reserve Board Chairman Alan Greenspan was right when he used the term "irrational exuberance" to describe investor behavior in a famous late-1996 speech. The steep climb in the stock market that followed meant a speculative bubble of historic proportions had developed, according to Shiller.

In finance, "bubble" is an especially ominous -- yet fascinating -- term. A bubble is a speculative buying binge that sends the stock market -- or any other asset, for that matter -- to heights far beyond the realm of reason. The cycle of prosperity leading to a mass investment delusion, and ending in catastrophe when the bubble bursts, has a long history: The tulip-bulb mania in 17th-century Holland; equities in 1920s; the fifty high-priced glamour stocks of the 1970s -- the so-called Nifty Fifty; the Japanese stock market in the 1980s. ...