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Social and Behavioral Sciences Commons™
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Full-Text Articles in Social and Behavioral Sciences
Bubbles, Human Judgment, And Expert Opinion, Robert J. Shiller
Bubbles, Human Judgment, And Expert Opinion, Robert J. Shiller
Cowles Foundation Discussion Papers
Research in psychology and behavioral finance is surveyed for evidence to what extent experts such as professional investment managers or endowment trustees may behave in such a way as to help perpetuate speculative bubbles in financial markets. This paper discusses scholarly psychological literature on the representativeness heuristic, overconfidence, attentional anomalies, self-esteem, conformity pressures, salience and justification for insights into weaknesses in expert opinion. The role of the prudent person standard and the news media in influencing experts is considered. The relevance of the literature on testing of the efficient markets theory is discussed.
Valuation Ratios And The Long-Run Stock Market Outlook: An Update, John Y. Campbell, Robert J. Shiller
Valuation Ratios And The Long-Run Stock Market Outlook: An Update, John Y. Campbell, Robert J. Shiller
Cowles Foundation Discussion Papers
The use of price–earnings ratios and dividend-price ratios as forecasting variables for the stock market is examined using aggregate annual US data 1871 to 2000 and aggregate quarterly data for twelve countries since 1970. Various simple efficient-markets models of financial markets imply that these ratios should be useful in forecasting future dividend growth, future earnings growth, or future productivity growth. We conclude that, overall, the ratios do poorly in forecasting any of these. Rather, the ratios appear to be useful primarily in forecasting future stock price changes, contrary to the simple efficient-markets models. This paper is an update of our …