What Moves Stock Prices: Another Look

Abstract

In 1989, Culter, Poterba, and Summers published an article examining the extent to which ex post movements in aggregate stock prices could be attributed to the arrival of news. They concluded that most of the 50 largest movements in the S&P 500 could not be matched with any convincing explanation for why future profits or discount rates might have changed. Since 1989, there has been an explosion in information technology, enhanced market regulation, and stock-trading innovation, as well as the introduction of new, equity-related financial products. The author explores whether Culter, Poterba, and Summers’s conclusion still holds, and reports that it is intact. If anything, the mystery has deepened, because the size of unexplained market movements has grown.