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Loonies Under Your Bed: Misdirected Attention and the Diluted Value of Stock Market Reports

Arthur Lupia (), Cassandra Grafstrom, Yanna Krupnikov, Adam Seth Levine, William MacMillan () and Erin McGovern

MPRA Paper from University Library of Munich, Germany

Abstract: Many people pay attention to media reports of the US stock market’s performance. Using a data-based thought experiment, we cast the market’s recent highs and lows in an unusually unattractive light. The result matters because the economic and political factors that make it relevant are likely to continue. Using research in economics and psychology, we explain why so many investors and media reports are blind to the unattractive interpretation. To mitigate the blindness’ harmful consequences, we propose an alternate way of presenting stock market information. The alternative is easy to implement and can help citizens draw important inferences from the attention they already pay to financial reports. The word “loonies” refers to Canadian dollars, which play a key role in our analysis. Loonies are not causal of any of the key relationships in our analysis, but provide a useful device for making a broader point about key US asset values.

Keywords: stock market; money illusion; fiscal policy; information; learning; exchange rate (search for similar items in EconPapers)
JEL-codes: A20 E21 E52 (search for similar items in EconPapers)
Date: 2007-09-13
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