During the second half of the $1990$s$,$ not only did stock prices skyrocket, but the Cyclically Adjusted Price$-$Earnings $($CAPE$)$ ratio also increased significantly. Why might rising CAPE levels have been a strong indicator of speculative activity in the markets?

Group of answer choices

As CAPE levels rose, they reflected an increasing disconnect between stock prices and the underlying long$-$term earnings of companies, signaling that investments were becoming more speculative and less based on fundamental financial performance.

Higher CAPE levels demonstrated a decrease in stock market volatility and risk, indicating that the market was becoming safer and less speculative, which encouraged more conservative investment strategies.

Rising CAPE levels indicated a strong and stable economic foundation, suggesting that the high stock prices were fully justified by the underlying corporate earnings and were not indicative of speculative behavior.

The increase in CAPE was a result of heightened market liquidity and interest rates dropping, factors that traditionally reduce speculative trading by providing more accurate pricing information.