How Stories Drive the Stock Market
By ROBERT J. SHILLER

Since the stock market began falling at the beginning of this year, there seems to have been a palpable change in the stories we have been hearing. Suddenly there is more willingness to entertain the possibility of a major stock market correction, or of an economic recession.

It is no surprise that this kind of talk appears after a market drop: The stock market is perhaps the most famous leading indicator of a recession, though hardly a perfect one. That status has been well known at least since the 1920s.

Narrative psychology, as in the work of the New York University psychologist Jerome Bruner, for example, suggests that popular narratives, particularly human interest stories, are fundamental drivers of motivation. Several such narratives are worth looking at more closely.

One tale that has been intensified lately has focused on the Chinese economy and its stock market, including sharp market declines at the beginning of 2016. Long-abiding concerns about Chinese overinvestment, shadow banking issues, ghost cities that were built but never inhabited and similar problems have been amplified. In the West the narrative has been colored with emotions. China’s mistakes have been contrasted with Western optimism, our sense of patriotism and our sense of competitiveness.

The prevalence of such stories encourages a gross exaggeration of the importance of the Chinese economy for our markets. Consider that United States exports in goods to China have recently accounted for only six-tenths of 1 percent of our gross domestic product. (United States imports in goods from China, though about four times bigger, are still relatively small as an overall proportion.) But once story-based thinking gets started, there is comparatively little public interest in such numbers.

Another current focus is the fact that this year set a record for poor performance of the stock market in the first week of the year. That timing has given the market-decline story wings, though there is really nothing special about such timing. After all, the date of the new year is an arbitrary social convention. There’s a Western Christian New Year, an Orthodox New Year, a Jewish New Year, an Islamic New Year, a Chinese New Year and so forth. The prominence of the Western year in global calendars reflects a history of Western dominance, and that has given the new year the ability to spark stories that evoke mixed, and changing, feelings.

Such feelings have real effects. It is worth recalling the stock market movements at the beginning of the year 2000, which was widely celebrated as the start of a new millennium. That timing sounds portentous, but it is again completely arbitrary. Even using the Western calendar, the true millennium, it can be argued, was Jan. 1, 2001, but no matter. Jan. 1, 2000, was when the big party started for most people. And it seems to be no coincidence that the highest price-earnings ratio since 1881 (I calculate this ratio with 10-year-average earnings in the denominator) occurred around then. The Dow Jones industrial average had a record peak on Jan. 14, 2000, and then fell sharply.

A third narrative that is being widely conveyed concerns oil, and the extremely low prices that energy commodities have reached.

Just a few years ago the prevailing narrative about oil was all about the amazing United States success with a newly improved extraction method, fracking, to the detriment of the less creative oil-exporting countries. That story has been resonant here in America, where it has been taken as a tale of peculiarly American creativity. The history of modern petroleum may be seen as an American story that goes back to 1859 and Edwin Drake, who showed the world how it was possible, in Titusville, Pa., to drive a pipe deep through bedrock to reach oil. Drake became part of a great social narrative, leading the way to an entrepreneurial revolution in oil production and to still enduring American pride.

The recent fracking revolution — the United States has emerged as one of the world’s top oil producers in just the last few years — and the continuing story of American creativity has had an effect on the whole stock market. Americans can easily become emotional about that history of innovation.

Unfortunately, the bottom has just dropped out of that narrative, and some of us have gotten emotional about that, too. With this year’s extremely low oil prices, many of these frackers, so recently hailed as heroes, are going out of business. Their very ingenuity in increasing the supply of oil has been part of the problem by contributing to the oil price drop. It is easy to jump from this to broader conclusions: Maybe we’re not so smart after all, or so the new story goes. This thinking is a downer: Sometimes social narratives are quite depressing.

There is also a fourth story, a tale of the tripling of the United States stock market from 2009 to 2014 and its supposed sudden unwinding this year. This is not just a story about numbers: It too is a human interest story, one in which many investors missed a huge profit opportunity. They missed it because they overreacted to the 2008 financial crisis and became too fearful to stay in the market. This tale focuses on the success of market believers, who were wonderfully rewarded for their prescience. As I pointed out in a column in August, the popularity of this narrative led to a situation in which many people became aware that the market has gone up enormously, and it has most likely heightened sensitivity to the possibility of human fallibility and of correction now that the market has been dropping.

Most economists generally do not refer to such popular stories or assess their emotional appeal. The same is true for most historians, but the Yale historian Ramsay MacMullen is something of an exception. In his remarkable book, “Feelings in History: Ancient and Modern” (Regina Books, 2003), he wrote: “History is feeling. It is feelings that make us do what we do; and feelings can in fact be read. But the reading of them requires writers and readers to join their minds in ways that have long been out of fashion among students of history.”

Professor MacMullen tries to convey to the reader the feelings people had long ago when they were inspired or dejected. He says he believes this will help us understand history at a deeper level. One emotional story loaded with moral value leads to another, in his retelling. As an example, he gives us the tale of the murder of the abolitionist editor Elijah Lovejoy by a pro-slavery mob in 1837. That story motivated John Brown, helping to lead years later to his revolt and capture and hanging in 1859. And those events created another widely recounted emotional story that helped to lead to the Civil War and, eventually, abolition. Such popular stories are serious matters. They can lead to revolutions, or to market collapses.

Those who care about the stock market will surely be living through a new sequence of stories this year, including the four that I have enumerated here. Whether these narratives have a cascading effect, leading to further price decreases and yet more negative stories, is one possibility. But only time will tell us how the stories go.

ROBERT J. SHILLER is Sterling Professor of Economics at Yale.

席勒專欄 4個悲慘故事 讓股市哭了

年初股市重挫以來，我們聽到不少「故事」。投資人突然間願意接受股市將大幅回檔、甚至經濟衰退的可能性。

最熱門的故事之一，是中國經濟與股市。中國之前投資過當，影子銀行問題嚴重，房市「鬼城」處處等都遭到放大。

在西方國家，這些故事還遭到情緒性渲染，把中國的錯誤，與西方的樂觀看法、愛國主義及競爭意識來相互對比。

這類故事其實誇大了中國經濟對美國股市的重要性，因為近年來美國對中國出口額僅占國內生產毛額成長率的0.6個百分點。然而一旦以故事為基礎的想法得以開展，便沒有多少人真正關心實際的經濟數據。

第二個故事，則是今年第一周股市表現創下最糟紀錄。強調「新年」此一時機，使市場空頭氛圍更濃，雖然「新年」其實並無特別意義，因為「新年」只是一項人為的因素，天主教、猶太教、穆斯林及中國都有自己的新年，強調新年只是為了讓整個故事更加有感而已。

但這些感覺已產生實質影響，令人回想起2000年初的股市大跌，當時西方國家都在慶祝千禧年。這種說法其實相當無稽，且真正的「千禧年」是從2001年才開始。真正重要的是2000年初時美股的長期本益比達到1881年最高水準，道瓊指數於2000年元月14日創歷史高峰後便大幅下跌。

第三個故事則是油價爆跌。不久前頁岩石油增產還被美國人普遍視為驚人成就，不幸的是現在整個故事已被顛覆，這些「英雄」拚命增產的結果使油價重挫。

還有第四個故事，即美國股市從2009-14年已大漲2倍。我去年8月時就曾指出，許多人都知道股市已上漲太多，對利空非常敏感，如今股市果然大幅回檔。

大部分經濟學者都未提到上述的故事，或認真評估這些故事的情緒吸引力。

但這些故事的重要性，取決於人們對故事的感覺，並引發情緒性的反應；既能夠催生革命，也能夠使股市崩跌。

關心股市者今年必然將經歷一連串的新故事，其中包括上述提到的四個故事。

這些故事是否會產生重疊性的效應，造成股市進一步下跌，並引發更多新的負面故事，都有可能；究竟如何，只有時間才能夠證明。

作者Robert J. Shiller是2013年諾貝爾經濟學獎得主

原文參照：
http://www.nytimes.com/2016/01/24/upshot/how-stories-drive-the-stock-market.html

2016-01-27．經濟日報．A6．國際．編譯任中原