Academics have debated for decades why stock prices are so much more volatile than earnings. This is the excess volatility puzzle. There are a few different theories:
1.Yale prof @RobertJShiller believes that markets are subject to bouts of irrational exuberance driven by people’s animal spirits amazon.com/Irrational-Exu…
2.Harvard prof Andrei Schleifer says the problem is that markets aren’t limited to smart rational arbitrageurs, many people in the market are “noise traders” (deplorables w/ access to robin hood) pubs.aeaweb.org/doi/pdf/10.125…
3. Stanford prof Mordecai Kurz argues that excess volatility is the result of rational people coming to different conclusions based on the same data. He calls this theory Rational Beliefs. web.stanford.edu/~mordecai/OnLi…
If Kurz is right, then investing is a game of meta-analysis: understanding how and why other market participants make forecasts and then trying to make our own forecasts superior to the crowd. us13.campaign-archive.com/?e=[UNIQID]&u=…
