What leads to change in share prices ?

I know in these times it may not be the right question to ask. The share prices seem to be changing due to any news for instance, Bear Stearns had little to do with India but markets have crashed.

Coming back to some fundamentals, we know share prices are equal to the discounted value of future cash flows. So, it is mainly two things- cashflows and discount rate.

I came across this excellent speech from John Cochrane (of Chicago University). The main idea is:

In the early days, the “expected” part took center stage: Researchers focused on the “efficient” incorporation of information into prices. Since the early 1980s, however, our focus has been much more on the “discounted” part.

What led to this shift - the research which discovered anomalies didn’t correct as per expectations.

Empirical discoveries forced this shift.  Pretty much any time we see information, we find that it is quickly reflected in market prices. But prices also move a lot (over time and across securities) when there is no cashflow information.  Every expected-return anomaly turns out to correspond to a source of common movement.  Even the momentum stocks rise or fall together.  These are just the sort of observations that suggest variation in discount rates, i.e. expected returns, or risk premia. 

So it is discount rate that changes often leading to the changes in share prices. The share prices change as everyone has his own discount rate which in turn is is influenced by many factors like overall market conditions, personality (high or low risk averse), job profile (if he is an equity analyst/follower), mental conditions (happy/sad/stressed) etc.

This is also in line with findings of behavioral finance. I doubt whether Cochrane advocates BF. Though with Richard Thaler at Chicago, the effect seems to be happening.