Investor sentiment influences market trends from "summary" of Irrational Exuberance by Robert J. Shiller
Investor sentiment plays a crucial role in shaping market trends. The collective mood of investors can have a significant impact on the direction of financial markets. When investors are optimistic and confident about the future, they tend to buy more stocks, driving prices higher. On the other hand, when investors are fearful or uncertain, they may sell off their holdings, causing prices to decline. This phenomenon can lead to feedback loops, where positive or negative sentiment reinforces itself and magnifies market movements. In times of exuberance, investors may overlook risks and fundamentals, leading to speculative bubbles. Conversely, during periods of pessimism, investors may become overly risk-averse, causing markets to undershoot their true val...
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