GHANA STOCK EXCHANGE WEEK FROM 17-02-20 TO 21-02-20

ROBERT SHILLER IRRATIONAL EXUBERANCE

GHANA STOCK EXCHANGE WEEK FROM 17-02-20 TO 21-02-20 WAS RATHER BORING. BOTH INDECES WENT UP AND DOWN, DURING THE WEEK, BUT ONLY WITHIN A NARROW FRAME. AS THERE IS NOTHING SPECIAL, I DECIDED TO TELL YOU SOMETHING ABOUT A BOOK I’M CURRENTLY READING. IT HAS THE TITLE “IRRATIONAL EXUBERANCE”, AND IS WRITTEN BY NOBEL PRIZE LAUREATE, PROFESSOR ROBERT SHILLER. YOU CAN DOWNLOAD THE BOOK FROM THE BEGINNING OF THIS ARTICLE.

UNFORTUNATELY, I MUST ADMIT THAT I’VE NOT READ THE BOOK UP TO THE END YET. BUT, WHAT I’VE READ UNTIL NOW GAVE ME THE IMPRESSION THAT IT’S ALREADY WORTH RECOMMENDING IT.

PROFESSOR SHILLER SHOWS THE MOVEMENTS ON THE STOCK MARKETS ARE NOT SOLELY CAUSED BY FIGURES. PRICE/EARNINGS RATIOS MAY BE THE REASONS FOR STOCK MARKET MOVEMENTS.BUT, THE EXTENT TO HOW FAR THESE MOVEMENTS GO IN EITHER DIRECTION DEPENDS OFTEN ON DIFFERENT CAUSES.

SHOWING THIS, SHILLER INVESTIGATES CRASHES ON THE NEW YORK STOCK EXCHANGE AS THE ONES OF 1929 AND 1987. ON THE OTHER HAND, HE ALSO CHECKS THE REASONS FOR WHAT IS LATER CALLED THE “DOT COM BUBBLE” AROUND THE TURN OF THE MILLENIUM.

HIS RESEARCH SHOWS THAT THERE ARE EXTERNAL INFLUENCES ESPECIALLY FOR EXTREME MOVEMENTS. THESE MIGHT BE CHANGES IN THE AGE OF INVESTORS, AS THE “BABY BOOMERS” OF THE 1960’S ENTERED RETIREMENT AGE. FURTHERMORE, SHILLER ALREADY SEES THE GROWING INFLUENCE THE INTERNET HAS ON INVESTMENT DECISIONS. THIS IS ALTHOUGH HE WROTE THE BOOK AT THE TURN OF THE MILLENIUM.

THE OTHER REASONS WE CAN SEE IN MEDIA ARTICLES OR CULTURAL INFLUENCES. SHILLER POINTS OUT THAT IN MOST OF THE CASES, THERE IS NOT A SPECIAL MEDIA ARTICLE THAT TRIGGERS INVESTMENT DECISIONS. THIS IS ESPECIALLY TRUE FOR EXTENSIVE SELLING AS IT HAPPENED BEFORE STOCK MARKET CRASHES.

IT IS MORE THE REPETITION OF SEEMINGLY UNIMPORTANT NEWS THAT MAKES INVESTORS SELL THEIR STOCKS. SHILLER CALLS THAT A “CASCADE” OR “FEEDBACK EFFECTS OF PRICE CHANGES”. FOR WHATEVER REASON, SOMEONE SELLS A BIG CHUNK OF SHARES. SOMEONE ELSE GETS THIS INFORMATION AND BECOMES INSECURE, SO HE/SHE DOES THE SAME, ETC.

BY THE WAY, THE SAME PHENOMENOM CAN HAPPEN THE OTHER WAY ROUND. SOME INVESTORS HAVE THE FEELING THAT INTERNET FIRMS HAVE A BIG FUTURE. WITHOUT LOOKING AT THE FUNDAMENTALS, THEY BUY A LOT OF THESE SHARES. PRICES OF THE SHARES GO UP, AND OTHER INVESTORS FEEL THAT THEY MISS SOMETHING. SO THEY ALSO BUY, AND PUSH THE PRICES UP MORE. OTHERS WILL FOLLOW, UNTIL THE SHARES ARE COMPLETELY OVERPRICED. THIS MAKES INVESTORS SELL FAST IN THE MIDST OF FEARS THAT THEY MIGHT LOSE.

SHILLER SHOWS THAT THERE ARE A LOT OF OTHER REASONS, OFTEN PSYCHOLOGICAL, FOR INVESTORS TO MAKE DECISIONS.SHILLER’S WORK MIGHT NOT BE IMPORTANT FOR THE GHANA STOCK EXCHANGE AT THE MOMENT. FOR THIS, TOO FEW INVESTORS, ESPECIALLY INDIVIDUAL ONES, ARE IN THE MARKET. THAT IS OFTEN BECAUSE THE MEDIA ARE USUALLY NOT VERY MUCH INTERESTED IN THE STOCK MARKET IN GHANA. ON THE OTHER HAND, THE MARKET IS VERY NARROW. THAT MEANS THAT IT DOESN’T TAKE A LOT TO INITIATE CHANGES.

WHAYEVER WAY YOU THINK, PROFESSOR SHILLER’S BOOK IS CERTAINLY WORTH READING.

GHANA STOCK EXCHANGE WEEK FROM 17-02-20 TO 21-02-20 WENT A LITTLE BIT ON A DETOUR TODAY. BUT LOOKING AT THE FACT THAT NOT MUCH WAS HAPPENING LAST WEEK, IT’S SURELY WORTH IT.

STAY TUNED!

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