The following chart shows the percentage change in price and the percentage change in the dividends for the S&P 500 index. Prices fluctuate significantly more than dividends. If stock prices are supposed to be an optimal predictor of the present value of dividends, then they should not move around as much if the true fundamental values implied by dividends are steady. That is prices move too much to be justified by subsequent movements in dividends. Some argue that this excess fluctuation is due to sentiment and is a sign of market inefficiency. Provide a rational explanation as to why we may observe high fluctuation in prices compared to dividends that would be consistent with market efficiency. 0.5 04 0.3 0.2 0.1 0 -0.1 -0.2 -0.3 -0.4 -0.5 }}} Change in Price Change in Dividends 2017 The following chart shows the percentage change in price and the percentage change in the dividends for the S&P 500 index. Prices fluctuate significantly more than dividends. If stock prices are supposed to be an optimal predictor of the present value of dividends, then they should not move around as much if the true fundamental values implied by dividends are steady. That is prices move too much to be justified by subsequent movements in dividends. Some argue that this excess fluctuation is due to sentiment and is a sign of market inefficiency. Provide a rational explanation as to why we may observe high fluctuation in prices compared to dividends that would be consistent with market efficiency. 0.5 04 0.3 0.2 0.1 0 -0.1 -0.2 -0.3 -0.4 -0.5 }}} Change in Price Change in Dividends 2017