Irrational exuberance

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Summary

"Irrational exuberance" is the phrase used by the then-Federal Reserve Board chairman, Alan Greenspan, in a December 1996 speech given at the American Enterprise Institute during the dot-com bubble of the 1990s.

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Venue of the speech where the phrase was coined
This think tank hosted the December 1996 event where Alan Greenspan first used the term to warn about the risks of the dot-com era stock market.
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Originator of the phrase in a 1996 speech
As Chairman of the Federal Reserve, Greenspan used the term to question whether the stock market's rapid rise was supported by economic fundamentals.
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Author of the book Irrational Exuberance
The economist Robert Shiller popularized the phrase in his 2000 book of the same name, which expanded on Greenspan's warning to analyze the psychological factors driving market bubbles.
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Historical context for the coining of the phrase
The term was coined during the height of the dot-com bubble to describe the speculative frenzy surrounding internet-based companies.
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psychological state fueling speculative market bubbles
Coined by Alan Greenspan and popularized by Robert Shiller, this term describes the unsustainable investor enthusiasm that drives asset prices far beyond rational levels.
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Metric used to identify irrational exuberance
Shiller and other analysts use high P/E ratios to demonstrate that market prices have become detached from the actual earnings potential of companies.
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Counter-theory to the concept of irrational exuberance
The efficient-market hypothesis argues that asset prices reflect all available information, directly contradicting the idea that market participants act with irrational, unfounded optimism.
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Theoretical framework for understanding irrational market behavior
This field provides the academic basis for the concept of irrational exuberance by studying how cognitive biases and emotions influence financial decision-making.
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Specific market environment for irrational exuberance
Irrational exuberance is a primary driver of stock market bubbles, where investor optimism leads to prices far exceeding company valuations.
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Benchmark for identifying irrational exuberance
Irrational exuberance occurs when market prices deviate significantly from the calculated intrinsic value of an asset.
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Investment strategy fueled by irrational exuberance
This theory explains why investors continue to buy overvalued assets, assuming they can sell them to a 'greater fool' before the bubble bursts.
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Psychological driver of the Minsky cycle
This term describes the investor behavior that fuels the growth phase of the Minsky cycle, leading to the unsustainable asset prices that eventually collapse.
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psychological driver of asset price inflation
Coined by Alan Greenspan, this term describes the psychological state where investors ignore fundamental risks, fueling the price spikes characteristic of economic bubbles.
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Psychological mechanism driving irrational exuberance
Herding describes the tendency of investors to follow the actions of a larger group, which fuels the unsustainable price increases characteristic of irrational exuberance.
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Consequence of irrational exuberance
When market prices driven by irrational exuberance eventually collapse to align with intrinsic values, the resulting decline is known as a market correction.
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