Back in the early 2000s, I read an academic paper co-authored by Harvard economist, former Secretary of the Treasury, and former chief economist of the World Bank, Larry Summers, that altered the direction of my career forever. The paper, entitled “What Moves Stock Prices?” was written soon after the Black Monday crash of 1987 and looked at possible causality of fifty of the largest market moves in history. The conclusion of the paper is summed up in the abstract:
The…evidence that large?market moves often occur on days without any identifiable major news releases,?casts doubt on the view that stock price movements are fully explicable by news?about future cash flows and discount rates.
It was this paper that took me down a path for several years of doing research into how markets process incoming information on the micro and macro levels and eventually, to the work of Tversky, Kahneman, Shiller, Thaler, and other Behavioral Economists.
Just recently, I found a follow-up to the Summers et al paper written by Bradford Cornell?at the California Institute of Technology?that updated the earlier findings for the time period between 1988 and 2012. These are facinating papers and are very approachable by lay readers, so I encourage you to read through them for yourselves. I have posted both papers below.