Fannie Mae (FNM) and Freddie Mac (FRE) Stocks Climbs
Fannie Mae (FMN) and Freddie Mac (FRE) stock rose sharply on Monday. The volatility has left analysts stumped. Usually penny stocks react to market news, which theoretically augments the future value of the company represented in the current price of the stock. No recent news has been released on Fannie and Freddie Mac's $100 billion debt to the public sector.
Much more likely, analysts said, is that investors are using the companies' stocks as a way to gamble on overall market trends.
The inexplicable rise in stocks gives another blow to the efficient market hypothesis (EMH) of rational economics. For years economists who believe in the EMH have been protecting their ideas, but now with the recent destruction of macroeconomic creditability new theories are arising; Behavioral economists are now filling this void with new explanations.
Economists like George Akerlof and Robert Shiller describe these movements as positive feedback loops of market psychology. In their book Animal Spirits they describe the ability of irrational thought to drive stock prices. While technical analysis is not necessarily a new concept, the ability to intertwine modern macroeconomic principles with a complex mixture of psychological concepts sheds new light on irrationality in markets.