According to Keynes, movements in stock prices:
A) follow a random walk.
B) reflect rational valuations of underlying economic fundamentals.
C) result when new information becomes available.
D) are often driven by irrational waves of optimism and pessimism.

Question

Quizplus · Accepted Answer

Keynes believed that stock prices are often driven by waves of irrational optimism and pessimism rather than rational valuations of underlying economic fundamentals. He argued that market participants can become overly optimistic or pessimistic, leading to stock prices that are not justified by economic fundamentals.

According to Keynes, Movements in Stock Prices