Irrational Exuberance

“Irrational Exuberance” is a quote which Alan Greenspan used during the stock market boom of the 1990s. The homonymous book, written by Yale’s professor Robert Shiller, goes against the theory of efficient market and explains that the stock market can be overpriced because of hype triggered by different factors such as media promotions, technology innovations and so on.

Shiller describes common investors’ behavior by showing main speculative bubbles’ bursts happened during stock market history and he reports some interesting quantitative data. In my opinion this is the most valuable part of the book, stock prices and dividends are compared through almost a century (the 1st edition of this book was published before 2001 dot-com bubble’s burst) and price/earning ratio charts show clearly overpricing phenomena before market crashes (interesting also the “negative bubbles”, referring to underpiced phases of stock market).

The chapters in which the author warns about the risks of investing, especially the retirement contributions, in stock market are, in my opinion, interesting but somewhat messy and not strongly argumented. I also had the feeling that sometimes Shiller has been over-catastrophic to impress the reader.

In conclusion I’d say that this book is really worth the reading and very easy to understand also for people with no economical background as me, however I think that a more structured framework in which assess this theory would have made this book more effective.

P.S. A collegue of mine with whom I had a discussion about investing in stock market suggested me “A random walk down Wall Street“, a book which supports the theory of efficient markets. I wanted to stop with economic books for a while but this will be the very next one when I’ll start back.