Chapter

Irrational Exuberance

Roy C. Smith and Ingo Walter

in Governing the Modern Corporation

Published in print February 2006 | ISBN: 9780195171679
Published online September 2006 | e-ISBN: 9780199783618 | DOI: http://dx.doi.org/10.1093/0195171675.003.0001
 Irrational Exuberance

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This chapter examines the nature, effects, and consequences of the bubble of 1995-2000. The 20th century experienced four exceptional stock market booms in the United States that have been called “bubbles”. Economist Richard Sylla describes these periods (1905, 1928, 1958, 1998) as times when the 10-year moving averages of real rates of return on stocks reached peaks from which they rapidly descended (or crashed) a year to two later. Of these four bubbles, the ones that peaked in 1928 and 1998, leading to crashes in 1929 and 2000, respectively, were the ones of greatest significance. The 2000 crash involved more financial wreckage than earlier crashes. It was followed by scandals that were front-page stories for months, and public interest in the market collapse and its causes and consequences was intense. The causes of the 2000-2002 crash are analyzed.

Keywords: economic bubble; stock market crash; capital markets; financial markets

Chapter.  8994 words. 

Subjects: Microeconomics

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