Understanding Market Volatility: A Deep Dive into "Irrational Exuberance" (3rd Edition)
: He illustrates that price patterns often bear little relation to actual construction costs, interest rates, or population growth, pointing instead to sentiment-driven bubbles. 2. Valuations and the CAPE Ratio Irrational Exuberance 3rd edition
A central tool in Shiller's work is the , which compares current stock prices to their average inflation-adjusted earnings over the past ten years. : Investors often remember the purchase price from
: Investors often remember the purchase price from years ago and are surprised by the current value, failing to account for the fact that most of the gain is explained by inflation. home prices to return to their 1890 levels
Shiller challenges the widespread perception that home prices are on a continuous, indefinite uptrend.
: Data shows a strong tendency for U.S. home prices to return to their 1890 levels in real terms over the long run.
: The ratio highlighted extreme valuations during the 1929 and 1999 peaks.