Does the stock market overreact? Recent capital market turbulences have cast doubt whether the behaviour of stock markets is in line with rational investor behaviour. To which extent stock returns are predictable is the question at the heart of the controversy between the paradigms of rational asset pricing and behavioural finance. This new and revised edition discusses the empirical evidence from both perspectives. Theory and empirical analysis are blended with feedback from security analysts to offer a road towards a deeper understanding of the underlying forces to drive performance in the stock market. In his book “Irrational Exuberance” Robert Shiller offered an analysis of the US stock market in 2000. The focus of his book was the level of the stock market, which he thought to be overvalued at the time. This monograph offers a complementary analysis of the cross section of stock returns.
