Dr. Alan O'Sullivan

They didn't expect it.

Year after year, they were surprised up to 22 on this thing.

So that's just a description.

But the more interesting thing for this paper then was that, hmm, that's totally opposite than what we see in bonds.

That's a mean reverting expectation.

Bond investors don't get excited when years fall to record low and we have therefore very high valuations in bond markets.

They get worried.

They get worried of mean reversion, whereas equity investor after 10 bullish years, they get more bullish.

So that contrast is

was interesting.

And then I was thinking, why would that be?

And one thing I checked, whether that was consistent with historical data of last 100 or 200 years.

No, if anything, there's opposite pattern of sort of decadal mean reversal and continuation in stocks and bonds.

To me, the best explanation is a very naive one, but it seems to work, which is that basically bond investors tend to be forward-looking because we quote yields, we think about yields, and once you think about yields, that anchors you rationally.

When the yields are very low, you don't become very bullish.

Whereas with equities, we tend to quote prices and we talk about past performance.

And after strong past performance, we can get more excited and become more bullish.

And that is sort of leading, I think, then to this kind of extrapolative bias.

Again, happy to hear other explanations from other people, but no reader has yet come up with something better than that.

I think there is something in that.