We present a general methodology to incorporate fundamental economic factorsto our previous theory of herding to describe bubbles and antibubbles. We startfrom the strong form of Rational Expectation and derive the general method toincorporate factors in addition to the log-periodic power law (LPPL) signatureof herding developed in ours and others' works. These factors include interestrate, interest spread, historical volatility, implied volatility and exchangerates. Standard statistical AIC and Wilks tests allow us to compare theexplanatory power of the different proposed factor models. We find that thehistorical volatility played the key role before August of 2002. Around October2002, the interest rate dominated. In the first six months of 2003, the foreignexchange rate became the key factor. Since the end of 2003, all factors haveplayed an increasingly large role. However, the most surprising result is thatthe best model is the second-order LPPL without any factor. We thus present ascenario for the future evolution of the US stock market based on theextrapolation of the fit of the second-order LPPL formula, which suggests thatherding is still the dominating force and that the unraveling of the US stockmarket antibubble since 2000 is still qualitatively similar to (butquantitatively different from) the Japanese Nikkei case after 1990.
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