Over 60% of the time, stock market swings are caused by people gambling on prices, not the other way around.
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.
Stock Market Volatility: Shiller Test and Developments
SSRN · 6204179
<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