ECON 319 Lecture Notes - Lecture 8: John Kenneth Galbraith, Panic Selling, Stock Market
9 Feb 2013
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End of section 2: speculative cycle and fundamentals , fundamentals . Expected pv of future stream of dividends. Widespread optimism rising prices capital gains: if one person is optimistic, they will buy a whole bunch of shares, but will not influence the market. But if there is widespread optimism, it leads to rising share prices (people are all optimistic about the future), generates capital gains (anyone who bought before sees share values go up capital gains justify optimism) Self-fulfilling prophesy: prices deviate from fundamentals . They are seeing the equation and feel optimistic: but aren"t expectations part of fundamentals , bubbles and crashes. Distribution of the perceived fundamental value of a specific share. There is never going to be an agreement on the right or fundamental price. They agree that there is a range fair value. Anything to the right = too high, to left = too low.
