Analysis of the Australian Stock Market using the Shiller Index

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The term “irrational exuberance” was first used by Alan Greenspan, chairman of the Federal Reserve Board in Washington, in a speech entitled “The Challenge of Central Banking in a Democratic Society” in 1996. In this speech Greenspan posed a question: “… how do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions as they have in Japan over the past decade?”

Taking up this point in his seminal work Irrational Exuberance in 2001, Robert J. Shiller, a respected expert on market volatility and behavioural finance, provides a methodology to examine the phenomenon, and identify its impact on market valuations.

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This paper uses data from the Australian Equities Database. For more details, please click here.