Over 60% of the time, stock market swings are caused by people gambling on prices, not the other way around.
March 26, 2026
Original Paper
Stock Market Volatility: Shiller Test and Developments
SSRN · 6204179
The Takeaway
Contrary to the idea that speculators simply flock to volatile 'action' in the market, this 150-year analysis shows the causality is almost entirely one-way. It also reveals that modern stock prices are twice as volatile as company dividends can actually justify, suggesting the market is structurally detached from its own fundamentals.
From the abstract
<div> <p><span>This paper investigates stock market volatility through an econometric extension of Shiller’s variance bounds test over the period 1871–2024. Using monthly S&P 500 data, I compare actual prices with fundamentals-based ex-post prices and show that actual stock prices are about twice as volatile as justified by dividends and discount rates, confirming a persistent rejection of the Efficient Market Hypothesis. I then quantify the role of macroeconomic policy and speculative activ