Stock markets, bubbles, and dividend growth

The stock market sure looks like a bubble now but it’s actually very difficult to distinguish bubbles from rational behavior when dividend growth rates can change and must be forecast. Ironman has an excellent post on this at Political Calculations, titled Acceleration, Amplification and Shifting Time.  See also the simple model discussed in my paper with Gary Santoni which Ironman kindly cites.

I don’t deny that bubbles exist, by the way, my point is that the fact that they are difficult to distinguish from rational behavior is one reason that they exist.   


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