nds now or at any point in the future. But because earnings are an excellent predictor of the future value of the firm and, thus, of expected capital gains. Put more plainly: the higher the earnings, the higher the market valuation of the firm, the bigger the willingness of investors to purchase the shares at a higher price, the higher the capital gains. Again, this may not be a causal chain but the correlation is strong. This is a philosophical shift from "rational" measures (such as fundamental analysis of future income) to "irrational" ones (the future value of share-ownership to various types of investors). It is a transition from an efficient market (all new information is immediately available to all rational investors and is incorporated in the price of the share instantaneously) to an inefficient one (the most important information is forever lacking or missing altogether: how many investors wish to buy the share at a given price at a given moment). An income driven market is "open" in the sense that it depends on newly acquired information and reacts to it efficiently (it is highly liquid). But it is also "closed" because it is a zero sum game, even in the absence of mechanisms for selling it short. One investor's gain is another's loss and all investors are always hunting for bargains (because what is a bargain can be evaluated "objectively" and independent of the state of mind of the players). The distribution of gains and losses is pretty even. The general price level amplitudes around an anchor. A capital gains driven market is "open" in the sense that it depends on new streams of capital (on new investors). As long as new money keeps pouring in, capital gains expectations will be maintained and realized. But the amount of such money is finite and, in this sense, the market is "closed". Upon the exhaustion of available sources of funding, the bubble tends to burst and the general price level implodes, without a floor. This ...
