COWLES FOUNDATION FOR RESEARCH IN ECONOMICS
AT YALE UNIVERSITY

Box 208281
New Haven, CT 06520-8281

COWLES FOUNDATION DISCUSSION PAPER NO. 719R

"Stock Prices and Social Dynamics"

Robert J. Shiller

August 1984
Revised October 1984

The empirical evidence that is widely interpreted as supporting the efficient markets theory in finance actually does not rule out the possibility that changing fashions or fads among investors have an important influence on prices in financial markets. A model of the impact of such fashions on prices is proposed and used in an exploratory data analysis of the aggregate United States Stock Market in the 20th century.

JEL Classification: 313

Keywords: Efficient markets, speculative bubbles, fashions, fads