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A Note on the Impotence of the Efficient Market Hypothesis
No one who makes a living trading really cares about EMH, but I’m not sure why failure to predict under EMH is that surprising. Markets do more discounting than predicting. That’s part of the reason why stocks are volatile — the last data point tends to be extrapolated into perpetuity. It is [...]
What Does Gold Hedge Against?
“Not inflation”, the gold critics will shout, in one of their go-to arguments. This is what we hear from CNBC’s Mark Haines at every possible chance: since 1980, gold has not kept up with the CPI and so shouldn’t be used as an inflation hedge. One would point out to Mark that this is [...]
Paul Krugman Tries to Foist Specious Argument in Tobin Tax Debate.
It was a nice try but short term financing wasn’t a root cause of the crisis. Highly leveraged, incompetent financing, along with a host of agency problems and too little, not too much, trading share most of the blame. Since “nobody knows anything” about the future, how will forcing longer term [...]
It wasn’t about the predictions.
Let’s not confuse media visibility with utility. Aside from the depressed Obama-to-win prices on one exchange, prediction market and polling aggregation results for the 2008 election were essentially the same using squared errors. Despite his insane schematics, Emile Servan-Schreiber has a good point about capturing the interest of the public, something that nerdy [...]
InTrade offers an explanation of strange trading.
Intrade has made a statement on the unusual trading that many have noted and alleged to be manipulative. The statement suggests that the price action is mostly attributable to a single firm, a hedger “using our markets in good faith and in the ordinary course of their business.”
The first company that comes to mind [...]
The gamble of downplaying manipulation
Whether it is GOP bias, manipulation, or simply confident well-funded traders, there is some agreement that the Intrade presidential markets have been affected by “non-informational” trading. To be clear, this is not a condemnation of Intrade. The exchange’s liquidity and trader diversity are hamstrung by archaic laws in the U.S., the continuation of [...]
Positives for prediction markets
Satyajit Das, in his 2006 book:
Dealers on exchanges charge clients a fixed commission to trade; the cartel of dealers means that clients have no choice other than to deal through them. The dealers are fierce advocates of competition except where it affects them.
In the OTC markets, dealers are more creative — they ensure that [...]
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