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Beyond Mechanical Markets by Michael D. Goldberg, Roman Frydman

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9

Fundamentals and Psychologyin Price Swings

BLOOMBERG'S MARKET WRAP reports indicate that short-term movements in a wide array of fundamental factors—from corporate earnings to the price of oil—underpin participants' trading decisions in equity and other asset markets. Participants interpret the impact of movements of fundamentals on the prospects and returns of companies over the near and longer term, causing their relative prices and thus their access to financial capital to change. As this allocative process unfolds over time, individual stock prices and broad price indexes also tend to undergo swings of unequal magnitude and duration away from and toward estimates of common benchmark levels.

These observations suggest that swings in asset ...

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