Subjectivism and Economic Analysis: Essays in memory of Ludwig ...

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EXPECTATIONS AND STOCK MARKET PRICESthe interval regarded as ‘normal’ by different individuals, the morelikely it is that a significant portion of these normal intervals willoverlap. In general, however, it seems that we would want toassociate wider ‘inner’ intervals with more uncertainty, and hence,with less agreement about what the future price will be. So whetheror not the interval-based price expectations of the members of somecommunity qualify as convergent will always be relative to someprior judgement of how narrow intervals must be in order to beregarded as reflecting ‘agreement’ about future prices. This willclearly not be a hard-and-fast matter. But it does suggest a way ofcharacterising the two cases: in what follows ‘convergent’expectations or beliefs will refer to expectations held by themembers of a social group, where (i) the associated normal intervalshave a tendency to coincide more closely over time; and (ii) wherethis is not due to the intervals widening (in general, convergentexpectations would be associated with relatively narrow normalintervals that narrow further over time). ‘Divergent’ expectations orbeliefs, in contrast, will refer to expectations held by members of asocial group that are not convergent, or where (i) the degree ofoverlap between the associated normal intervals has a tendency toreduce over time; and (ii) where this is not due primarily to suchintervals narrowing (in general, divergent expectations would beassociated with relatively wide normal intervals that may widenfurther over time).As we have already noted, the notion of divergent expectationscomes to the fore in Lachmann’s writings on equity prices. The keytheme is that such prices reflect a balance of the heterogeneousbeliefs of market participants. 6 At a very general level, of course, thisis true enough. But the notion of a ‘bulls-bears’ equilibrium ofopposing expectations is more complex than it at first appears, andnot only because of the difficulties in arriving at a precisecategorisation of divergent expectations. In the first place, as weshall show, share prices reflect the ratio of holders of the share topotential holders in the market and generally do not correspond tothe ‘average expectation’ of the market. Second, expectations offuture prices and/or prospective yields are only one of the things thatdetermine the value of a share to individual investors, and whichthereby influence its market price. As Lachmann himself points out,share values depend on how prevailing prices are interpreted. Otherimportant considerations include risk, 7 ambiguity, 8 and how actorsrespond to these. Finally, there is the impact of all manner ofuncertainties that need have no particular bearing on the prospects187
JOCHEN RUNDE AND JÖRG BIBOWof the particular share itself, and which introduce the more generalconsiderations of ‘market’ confidence and liquidity.These complexities suggest that the relation between divergentexpectations and equity prices must be qualified and extended. Wepropose to do so by focusing on what we shall call the diversity ofopinion between market participants, not about future prices,yields, etc., but about the value they attach to any particular share.In particular we would like to focus on the fact that, at any pointin time, there are likely to be marked differences between marketparticipants about what a share is currently worth to them inmoney terms whatever the source of these differences. The keydistinction in what follows, then, is between the diversity ofopinion on the one hand, and divergent expectations or beliefs(about future prices, for example) on the other. The former term,to repeat, will refer to the money value that investors, potential orotherwise, attach to a share at some point in time, the latter toexpectations about the future value of variables. Clearly, asinvestors’ valuations of a share are usually informed by theirexpectations, divergent expectations will tend to lead to increasesin the diversity of opinion about that share. However, and as weshall see below, this need not always be the case.Diverse opinion and equity pricesAlthough the prices of shares traded on the Stock Exchange appearto be ‘continuously’ on the move, definite prices are determined atdiscrete points in time. We shall call these ‘equilibrium’ prices,equilibrium in the sense that, at these points, market participants(both holders and non-holders of the share in question) do not wantto change their position (Lachmann, 1976:60). In equilibrium, then,all existing shares are willingly held at the prevailing price. In whatfollows the term ‘average evaluation’ will refer to the average of thevalues the individual market participants attach to a particularshare at some point in time, be they holders or non-holders. 9 As willbecome clearer below, this average evaluation will generally notcorrespond to the market price of the share. Optimists will bedefined as those individual market participants who value the shareat more than the average evaluation, pessimists as those who valueit at less. Not all optimists need be holders of the share.According to Miller (1977:1151) ‘the very concept ofuncertainty implies that reasonable men may differ in theirforecasts’. It then follows that uncertainty will tend to lead to a188
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SUBJECTIVISM ANDECONOMIC ANALYSISTh
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SUBJECTIVISM ANDECONOMICANALYSISEss
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CONTENTSNotes 57References 594 Lach
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CONTENTS10 Expectations and stock m
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1INTRODUCTIONRoger Koppl and Gary M
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INTRODUCTIONdirection of Israel Kir
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INTRODUCTIONand revising plans, det
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INTRODUCTIONAs the language of Lach
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INTRODUCTIONits deep insight and me
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INTRODUCTIONthe frontispiece to thi
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SUBJECTIVISM IN ECONOMICS AND THE E
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3MISES AND LACHMANNON HUMAN ACTIONS
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MISES AND LACHMANN ON HUMAN ACTIONM
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MISES AND LACHMANN ON HUMAN ACTIONm
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MISES AND LACHMANN ON HUMAN ACTIONA
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MISES AND LACHMANN ON HUMAN ACTIONt
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MISES AND LACHMANN ON HUMAN ACTIONH
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MISES AND LACHMANN ON HUMAN ACTIONa
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MISES AND LACHMANN ON HUMAN ACTIONa
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MISES AND LACHMANN ON HUMAN ACTIONc
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MISES AND LACHMANN ON HUMAN ACTIONH
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MISES AND LACHMANN ON HUMAN ACTION2
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MISES AND LACHMANN ON HUMAN ACTIONW
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MISES AND LACHMANN ON HUMAN ACTIONT
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MISES AND LACHMANN ON HUMAN ACTIONA
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MISES AND LACHMANN ON HUMAN ACTIONc
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4LACHMANN ON THESUBJECTIVISM OF ACT
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THE SUBJECTIVISM OF ACTIVE MINDSThe
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THE SUBJECTIVISM OF ACTIVE MINDSsho
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THE SUBJECTIVISM OF ACTIVE MINDStha
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THE SUBJECTIVISM OF ACTIVE MINDSour
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THE SUBJECTIVISM OF ACTIVE MINDSor
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THE SUBJECTIVISM OF ACTIVE MINDSa p
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THE SUBJECTIVISM OF ACTIVE MINDSact
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THE SUBJECTIVISM OF ACTIVE MINDSexp
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THE SUBJECTIVISM OF ACTIVE MINDSLan
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SUBJECTIVISM AND IDEAL TYPESthis or
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SUBJECTIVISM AND IDEAL TYPESof Gott
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SUBJECTIVISM AND IDEAL TYPESIn the
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SUBJECTIVISM AND IDEAL TYPESsuffici
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SUBJECTIVISM AND IDEAL TYPESAccordi
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SUBJECTIVISM AND IDEAL TYPESto his
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SUBJECTIVISM AND IDEAL TYPESEconomi
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SUBJECTIVISM AND IDEAL TYPESanswer
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SUBJECTIVISM AND IDEAL TYPES1 B wan
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SUBJECTIVISM AND IDEAL TYPESconclus
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SUBJECTIVISM AND IDEAL TYPESOn the
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SUBJECTIVISM AND IDEAL TYPES——(
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ENDOGENOUS CHANGEIntroductionAmong
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ENDOGENOUS CHANGEconsequences. If,
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ENDOGENOUS CHANGEHahn’s notion of
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ENDOGENOUS CHANGEentertain theories
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ENDOGENOUS CHANGEwords, is it possi
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ENDOGENOUS CHANGEX=X (L*,X*) [1]w=X
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ENDOGENOUS CHANGEP=Wa 0+rP(K/X)wher
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ENDOGENOUS CHANGEThere is no room i
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ENDOGENOUS CHANGEmodel that Dutt ha
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ENDOGENOUS CHANGE3 The difficulty i
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7RADICAL SUBJECTIVISMAND AUSTRIANEC
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RADICAL SUBJECTIVISMdecisions under
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RADICAL SUBJECTIVISMconsidered as
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RADICAL SUBJECTIVISMnot simply enta
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RADICAL SUBJECTIVISMperformed by th
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RADICAL SUBJECTIVISMeconomic theory
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Page 156 and 157: 8HIERARCHICALMETAPHORS IN AUSTRIANI
Page 158 and 159: HIERARCHICAL METAPHORScoordination
Page 160 and 161: HIERARCHICAL METAPHORSpioneering ef
Page 162 and 163: HIERARCHICAL METAPHORSbe understood
Page 164 and 165: HIERARCHICAL METAPHORSlegal order.
Page 166 and 167: HIERARCHICAL METAPHORSMany of these
Page 168 and 169: HIERARCHICAL METAPHORSBanking and t
Page 170 and 171: HIERARCHICAL METAPHORSdemand’, th
Page 172 and 173: HIERARCHICAL METAPHORS(eds) (1993);
Page 174 and 175: HIERARCHICAL METAPHORS——(1988)
Page 176 and 177: 9LACHMANN’S POLICYACTIVISMAn Aust
Page 178 and 179: LACHMANN’S POLICY ACTIVISMLachman
Page 180 and 181: LACHMANN’S POLICY ACTIVISMcapital
Page 182 and 183: LACHMANN’S POLICY ACTIVISM‘plan
Page 184 and 185: LACHMANN’S POLICY ACTIVISMcapital
Page 186 and 187: LACHMANN’S POLICY ACTIVISMwithdra
Page 188 and 189: LACHMANN’S POLICY ACTIVISM…Supp
Page 190 and 191: LACHMANN’S POLICY ACTIVISMchain o
Page 192 and 193: LACHMANN’S POLICY ACTIVISMKnowled
Page 194 and 195: LACHMANN’S POLICY ACTIVISMinvestm
Page 196 and 197: 10EXPECTATIONS ANDSTOCK MARKET PRIC
Page 198 and 199: EXPECTATIONS AND STOCK MARKET PRICE
Page 214 and 215: INDEXaction: individual 32-3, 38-9,
Page 216 and 217: INDEXefficient allocation/co-ordina
Page 218 and 219: INDEXmarket 119-20; theory of value
Page 220 and 221: INDEX19; stock market expectations1
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