By Donald J. Boudreaux
http://www.pittsburghlive.com/x/pittsburghtrib/opinion/colum...
The price of stock can be affected by a lot of things, like the Fed interest rates, otehr stock prices, housing, etc.
If stockholders suddenly think they can get a better ROI on housing than in NASDAQ (not the case anymore, but bear with me) they'll take their money out of NASDAQ and put it in housing. Even if the NASDAQ companies did not change over the course of these events, their prices still dropped for a rational reason: investors could get a better deal elsewhere.
The NASDAQ might have dropped because the general economy looked bad, so US consumers might buy fewer goods from NASDAQ companies.
The reason I disagree with classical economics is that it very often gets things wrong, and can only predict major trends after they have happened - which is not much of a prediction.
I think that economists need to break away from the classical models and see the economy for what it is: a chaotic system. Start lookig at emergence, negative and positive feedback loops, etc.
This, however, is clearly not the case if you look at the data.
Last tuesday the NASDAQ fell by (if i remember correctly) 3%. Since stock price is a direct product of valuation a lot of companies were supposedly worth 3% less than they had been the day before. And none of them came out with any devastating news, fired employees, or had any other problems: they were the exact same companies as the day before, yet their value had dropped markedly.
This clearly shows that markets are not rational...
Markets are like any other endeavors involving humans: driven by fear, greed, stampeding and other human emotions.