Irrational Exuberance by Robert Shiller

Shiller puts US stock valuations in historical and global comparison, cataloguing 12 precipitating factors for the 1990s US bull market. This leaves the door open for him to write a book on crashes and their precipitating factors. Plus ca change....

Precipitating factors(reorganized and critiqued):

  1. The arrival of the Internet at a time of solid earnings growth
    other investments look less sexy, so cash is diverted to equities. We demand a reason for valuations to not be as they previously were; big complex things like the Internet seem to work as well as the then-unknown reasons for strangely random markings on tulips.
  2. The Baby Boom and its perceived effects on the market
    non-effect; our saving rate wasn't higher; people demand reasons for a market to go up, so we deliver them, hence the 'perceived'.
  3. Triumphalism and the decline of foreign economic rivals
    new sources of demand for products open up
  4. A Republican Congress and capital gains tax cuts
    more money available for re-investment
  5. The expansion of defined contribution pension plans
    people choose investments instead of fund managers, involving more people
  6. The growth of mutual funds
    maybe; don't know
  7. The decline of inflation and the effects of money illusion
    maybe; would like to see a long-term multi-country study on inflation and asset allocation
  8. Expansion of the volume of trade: discount brokers, day traders, and twenty-four-hour trading
    seems to not have an first-order effect, the number of shares available (supply) and the number of simultaneous shareholders (demand) should determine price, not the number of transactions
  9. The rise of gambling opportunities
    seems negative; dollars spent gambling don't go in your retirement account
  10. Cultural changes favoring business success or the appearance thereof
    I would classify this as an always available feedback engine, the competition for scarce resources means that it should always be an effect
  11. An expansion in media reporting of business news
    feedback engine, same as above
  12. Analysts' increasingly optimistic forecasts
    feedback engine as try to outdo each other for accurate forecasts in a market that increasingly diverges from reality
Most advertising is really not the presentation of important facts about the product but merely a reminder of the product and its image. Given the heightened media coverage of investments, a stock market boom should come as no greater suprise than increased sales of the latest sports utility vehicle after a major ad campaign.
-- Precipitating Factors, An Expansion in Media Reporting of Business News
The history of speculative bubbles begins roughly with the advent of newspapers.
-- The News Media, introduction
in 1989, when the Japanese Nikkei index was at its peak, our questionnaire surveys found that the average Japanese institutional investor expected a 9.5% increase in the Nikkei in the following year, while US institutional investors expected a 7.7% decrease
-- Speculative Volatility in a Free Society, Dealing with Bubbles by Expanding or Encouraging Trade