Market Credibility and Other Dietary Fads

Journal of Financial Transformation, Vol. 7, pp. 63-70, April 2003

8 Pages Posted: 15 Jun 2004 Last revised: 31 Aug 2009

Abstract

This paper seeks to identify why stock prices behave the way they do. We find that conventional economic theories are unable to explain why there are so many long bull and bear markets. We suggest that it is investor expectations of future market movements, based on their views of other investors' opinions, that determine stock prices. Where there is aggregate optimism, stock prices will rise and vice versa. We extend the work of the Rational Belief Hypothesis by suggesting that today's extremely high P/E ratios are associated with a substantial dislocation between investment horizons and economic reality.

Keywords: Market efficiency, Rational Belief Hypothesis, Asset Prices

JEL Classification: G14, G12

Suggested Citation

Feiger, George and Shojai, Shahin, Market Credibility and Other Dietary Fads. Journal of Financial Transformation, Vol. 7, pp. 63-70, April 2003. Available at SSRN: https://ssrn.com/abstract=556214

George Feiger

Aston Business School ( email )

Aston Triangle
Birmingham, B47ET
United Kingdom
+44(0)121 204 3435 (Phone)

Shahin Shojai (Contact Author)

Capco Institute ( email )

Dubai
United Arab Emirates

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