I’ve posted Entry #242 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called Shiller’s Claim That It Is Now Investor Anxiety Rather Than Investor Exuberance Pushing Stock Prices Up Is Unconvincing.
Juicy Excerpt: The problem that I have with the Shiller analysis is that he seems to be saying that opposite sorts of emotional takes could produce the same result. Investors were irrationally exuberant in the late 1990s. That caused prices to rise to insanely dangerous levels. Now investors are not exuberant but anxious. And the anxiety too leads to high prices. When investors are happy, they push stock prices up. When investors are unhappy, they push stock prices up. In Shiller’s world, investor emotion always pushes prices up.
I know that he doesn’t really think this. But I can’t say that I have ever heard Shiller address himself to the question of what causes investor emotion to pull prices down to insanely low levels. It may just be that he is usually asked to explain current realities and we haven’t seen insanely low stock prices since the early 1980s. But I think it would aid our understanding of how the market works if we all put a bit less focus on explaining bubbles and a bit more on explaining their opposite.