In search of the origins of financial fluctuations: the inelastic markets hypothesis | Hugonweb Annotated Link Bibliography

Gabaix, X. and Koijen. In search of the origins of financial fluctuations: the inelastic markets hypothesis. NBER Working Paper, 2021.

I found it via an article in The Economist: Is passive investment inflating a stockmarket bubble? by Buttonwood.

It describes how $1 invested in a broad-market index increases the price of the index by $3 to $8, and that this is due to inelasticity in the market due to most participants just buying and holding.

Also interesting is that $1 of stock buybacks leads to $\approx$ $2 of increase in stock price.

The important part for future research is that their financial model is dependent on easily-tracked flows of money in/out of the market, rather than e.g. sentiment.