The Boom-Bust Cycle is Not a Greed-Fear Cycle

Source: Foundation for Economic Education
by Peter Jacobsen

“If you ever find yourself on the business section of CNN’s website, you’ll notice a peculiar thing on the top of your screen. There you’ll find a small ticker labeled ‘Fear and Greed Index.’ The ticker invites a simple question. ‘What emotion is driving the market now?’ … the site says, ‘the Fear & Greed Index is a compilation of seven different indicators” and “tracks how much these individual indicators deviate from their averages compared to how much they normally diverge.’ Unfortunately, armed with this information, it’s clear that the Fear and Greed Index isn’t any good for understanding markets at all. There are fundamental problems with both the underlying theory and the measurement of the index.” (06/23/22)