Robert J. Shiller
Markets do not just reflect rational economic fundamentals; they mirror human psychology, where infectious narratives and feedback loops can drive asset prices to dizzying, unsustainable heights.
Feedback loops drive speculative bubbles when news of initial price increases sparks enthusiasm, which spreads through psychological contagion and draws in new investors.
The Cyclically Adjusted Price-to-Earnings ratio reveals that when market valuations far exceed historical averages, future long-term returns tend to be substantially lower.
Media coverage actively exacerbates market volatility by making price changes salient and propagating narratives that encourage herd mentality.