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 Originally Posted by Poopadoop
Is there an economic model that predicts, even retrospectively, what the stock market will do?
What I mean is if you plug into this model variables a through z, things like 'a =reducing regulations', or 'b =cutting taxes' , etc., can that model predict with some sort of accuracy how these things affect the stock market?
Nope. Stocks behave like a random walk. Rational expectations says current perceptions adjust for future expectations. The efficient market hypothesis says that stock prices adjust for all available information. Nobody can predict stock values, probably because not all possible new information can be adjusted for. Economists talk like the experimental data is solid on this. It would be with things like if test subjects know the value of a stock they hold will be less tomorrow, they sell today at a higher price. Probably the reason we can't predict prices is because prices change on information instead of changing on change in price, if that makes sense. And we can't fully model all the information that will be relevant a minute or a day or a month from now, so we can't predict stock prices.
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