"Irrational exuberance" is the phrase used by the then-Federal Reserve Board chairman, Alan Greenspan, in a speech given at the American Enterprise Institute during the dot-com bubble of the 1990s.
But 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?The Tokyo market was open during the speech and immediately moved down sharply after this comment, closing off 3%.
[4] The irony of the phrase and its aftermath lies in Greenspan's widely held reputation as the most artful practitioner of Fedspeak, often known as Greenspeak, in the modern televised era.
I define a speculative bubble as a situation in which news of price increases spurs investor enthusiasm, which spreads by psychological contagion from person to person, in the process amplifying stories that might justify the price increases, and bringing in a larger and larger class of investors who, despite doubts about the real value of an investment, are drawn to it partly by envy of others' successes and partly through a gamblers' excitement.
[11] In 2017, Robert J. Shiller, Nobel Prize Laureate and author of the seminal book Irrational Exuberance, called Bitcoin the best current example of a speculative bubble.