We think investor sentiment is a very important factor in the pricing of risk assets. Robert J. Shiller has written extensively about how emotions play a roll in the pricing of risky assets. For those that would like to read his work entitled "Fashion, Fads & Bubbles in Financial Markets" click here. It is easy to forget that there is a difference between price and value. Price is what you pay and value is what you get. Ultimately it is people who buy and sell financial assets. When the consensus is negative, the crowd sells stocks. When the consensus is bullish, the crowd buys. What causes people to flip-flop between optimism and pessimism is a matter of debate.
