Preface
 

Every history is a growth and every growth is a mysterious union

of permanence and change … These two features of movement and

of universality are essential interest without which the play would

have little meaning for human spectators.

Arnold Toynbee (1953)

These essays begin with a study of the U.S. stock market that subsequently evolved into an exploration of the values and institutions that make large-scale markets possible.

Since Keynes and Samuelson, economics has been studied as a mathematical system. However the real world economy, and in particular the market, is a social system where context and threshold are also relevant to human behavior. Our analysis finds that prices are formed by two distinct and superimposed processes: a non-equilibrium trading on contextual events that moves the market to extremes, and a longer-term normative process based upon the levels of earnings and interest rates that defines economic equilibrium and rationality. We then go on to show that these two disparate processes can be conceptually unified by an econometric error correction model of the U.S. stock market.

The stock market is like the weather. Investors should be concerned with its environment.

R.S.

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