Right on the money 3 years later.,
This review is from: Irrational Exuberance (Paperback)This is a treaty on Behavioral Finance. Shiller makes a strong case that markets are not efficient, but respond to crowd psychology.
Shiller rebuts the Efficient Market Hypothesis. He has analyzed many U.S. stock market crashes. In each case, he did not find information absorbed by institutional and individual investors that justified the market downturns. In all cases, it appears the investors were "aware" of the reasons for the market downturn as explained by the financial press after the downturn occurred. For Shiller, this means that the reasons were false, and that investors do not digest information in such an efficient and immediate way as stated in the Efficient Market Hypothesis.
Shiller believes investors are irrational, and trade based on certain premises such as herd instinct, momentum, belief that stocks always go up. These beliefs are reinforced by the media. The resulting market valuation at the time the book was published (first quarter 2000, the market's peak) was far above its intrinsic value. As they say, the rest is history. Shiller's timing was perfect. We have been in a Bear market ever since.