Do stock markets have a personality?

In his book Irrational Exuberance, Robert Shiller says, “A fundamental observation about human society is that people who communicate regularly with one another think similarly. There is at any place and in any time a zeitgeist, a spirit of times”. And this spirit of the times, transforms the thousands of isolated individuals who form the stock market, into a psychological crowd, which displays a conscious personality. At an individual level, stock market investors are very different, but the fact that on a whole they have been transformed into a psychological crowd gives them a collective mind.

So is the collective mind of the market better? The answer to this question can be found in the book, The Wisdom of Crowds by James Surowiecki. Surowiecki says, “The idea of wisdom of crowds is not that a group will always give you the right answer but that on an average it will consistently come up with a better answer than any individual could provide.” That’s why only a tiny fraction of investors consistently performs better than the market and remains the most powerful of piece of evidence that the market is efficient.

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