I will start this lecture with some general thoughts on the determinants of long-term asset prices
such as stock prices or home prices: what, ultimately, drives these prices to change as they do
from time to time and how can we interpret these changes? I will consider the discourse in the
profession about the role of rationality in the formation of these prices and the growing trend
towards behavioral finance and,
more broadly, behavioral economics, the growing acceptance of
the importance of alternative psychological, sociological, and epidemiological factors as
affecting prices. I will focus on the statistical met
hods that allow us to learn about the sources of
price volatility in the stock market and the housing market, and evidence that has led to the
behavioral finance revolution in
financial thought in recent decades.
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