Robert Shiller was not only one of the few to challenge the efficient market theory, as early as 1981 he was also the first to connect fundamental data with market data.
His paper on ‘The Volatility of Stock markets Prices’ published in 1987 uses dividend data and real interest rates to seek evidence that true investment value changes through time sufficiently to justify the price changes. His paper concluded that most of the volatility of the stock market prices appears unexplained.
Shiller’s volatility or fluctuations prove that the behavior of markets is not normal. Non-normal distribution series is a widely followed proof of inefficiency in prices. He illustrated his fluctuation case (Fig. 2) where he plotted the fluctuations of market prices compared to a fundamental value. The fluctuation in the real market was simply too large to explain.
Vibrations in a natural system work across time frames. The rate of change is more volatile at a smaller time frame than at a larger degree. The process of divergence and reversion is so persistent that it is hard not to acknowledge the generality of the turbulence generating mechanism. The author plotted the changes in the performance of various degrees together and could simulate a similar structure (Fig.1) like Shiller’s three-decade-old paper using Shiller's data. So the question for Shiller is whether it’s exuberance in mass psychology that drives the fluctuations or the temporal structure of turbulence that cause mass hysteria to oscillate normally and non-normally in a seemingly complex chaotic behavior? Is the perpetual motion machine-human psychology, or Nature itself?
Nature has infinite proof points.
