5 ms·

> In what possible way did this impact the "average investor" (whoever that is)? The average investor, of which there are millions, can't react quickly to mark

by lutusp 14y ago

> In what possible way did this impact the "average investor" (whoever that is)? The average investor, of which there are millions, can't react quickly to market changes. They're in a mutual fund or another similar investment that moves glacially if at all to market changes, and that's generally a good thing (on the premise that buy & hold is a good thing). So there really is an average investor. And he really can't exploit fast market changes. > It seems to show a pretty stable market to me. Yes, but if this scenario is true, it represents an exploitation of a weakness in market information (some people have information that others don't), so it's an undermining of the premise of an efficient market.

kasey_junk 14y ago
Mutual fund and etf investors would have only been impacted by this event if they tried to liquidate at the precise time today that the market had this aberration. That is a vanishingly small % of people. For every other average investor they wouldn't have even noticed this by looking at their portfolio. They shouldn't be paying attention to daily swings in the dow anyway, more or less minute by minute ones. I'm not sure what "scenario" you are talking about but the linked wsj article mentions that people reacted to a public tweet and just as quickly corrected itself after public statements from the white house. No insider information has been proven to be part of that. The rampant and irresponsible speculation about this being some big short sell plot on this forum doesn't mean that the market behaved incorrectly. In fact, in reality it behaved exactly correctly. As soon as the hoax was uncovered the dow returned to it's correct level. Showing stability.
- lutusp 14y ago
  > The rampant and irresponsible speculation about this being some big short sell plot ... No one said that. I said it could be used that way, not that is was. > doesn't mean that the market behaved incorrectly. Any time someone exploits knowledge that isn't public, it's an exploitation of a market weakness. If someone takes a position in a stock with the intent of bad-mouthing its competitors or releasing false information, he's exploiting a market weakness. Some exploitations of private knowledge are merely bad behavior, and some, like insider trading, are illegal. All of them represent weaknesses in the market because all investors don't have the same chance to benefit. > In fact, in reality it behaved exactly correctly. As soon as the hoax was uncovered the dow returned to it's correct level. By your reasoning, pump & dump proves that the efficient market hypothesis is at work in the market. I don't think so. It only proves that some investors can game other investors. Taken to its extreme, if someone was able to game the market consistently like this, day in and day out, businesses would recognize that they were being cheated and would refuse to raise capital using equities. This is why the SEC is so aggressive about locating and punishing examples of this class of behavior. > Showing stability. By that reasoning, if we have the same number of bank robberies on Wednesday as on Monday, we've proven that things are stable.
  - kasey_junk 14y ago
    But where was the non-public information? Where was the gaming? Without proof of those things all speculation about insider information is moot. Pump-and-dump's are specific types of gaming the system. There is no proof this was that. The only thing we know is that a news source incorrectly reported bad news. The market responded to that bad news in the way we would expect and then when it was obvious that it was a hoax corrected itself. That is a stable system. It would have been proof of an instable system if either A) the market moved for some incomprehensible way or B) did not correct for obviously bad behavior. The market took all public information into account and corrected itself quickly. Precisely as we would expect in an efficient market.
    - lutusp 14y ago
      > But where was the non-public information? The fact that the Tweet's content was false was non-public information for a short time, just long enough to see the market begin a plunge. Obviously whoever posted the false Tweet knew it was false, and they could have exploited that fact (not to say anyone actually did this), while other people were reacting to it as though it were true. > Where was the gaming? See above, and use your head. A pump and dump always pivots on the fact that the perpetrator knows what he's saying is false. > Without proof of those things all speculation about insider information is moot. Feel free to change the subject. We have already established that this is a hypothetical discussion. > It would have been proof of an instable system if either A) the market moved for some incomprehensible way or B) did not correct for obviously bad behavior. What does stability have to do with it? The topic is exploitation of predictable market moves, not unpredictable ones. Obviously a hacker could (in principle) anticipate, and act on, a coming market drop on news of an attack on the White House. > Precisely as we would expect in an efficient market. According your thesis, insider trading is impossible because the market will magically adjust to differences in information. If this were true, the SEC wouldn't care about insider trading. The fact that the SEC does care, demonstrates that your position is wrong, and that the market can be gamed. A market cannot be efficient unless everyone has access to the same information. This is how the efficient market hypothesis is defined. And again, the SEC does what it can to assure that people can't exploit non-public information. The reason? It undermines confidence in the market's fairness and would ultimately cause businesses to avoid equities as a funding source.

by lutusp 14y ago

kasey_junk 14y ago

Mutual fund and etf investors would have only been impacted by this event if they tried to liquidate at the precise time today that the market had this aberration. That is a vanishingly small % of people. For every other average investor they wouldn't have even noticed this by looking at their portfolio. They shouldn't be paying attention to daily swings in the dow anyway, more or less minute by minute ones. I'm not sure what "scenario" you are talking about but the linked wsj article mentions that people reacted to a public tweet and just as quickly corrected itself after public statements from the white house. No insider information has been proven to be part of that. The rampant and irresponsible speculation about this being some big short sell plot on this forum doesn't mean that the market behaved incorrectly. In fact, in reality it behaved exactly correctly. As soon as the hoax was uncovered the dow returned to it's correct level. Showing stability.

lutusp 14y ago
> The rampant and irresponsible speculation about this being some big short sell plot ... No one said that. I said it could be used that way, not that is was. > doesn't mean that the market behaved incorrectly. Any time someone exploits knowledge that isn't public, it's an exploitation of a market weakness. If someone takes a position in a stock with the intent of bad-mouthing its competitors or releasing false information, he's exploiting a market weakness. Some exploitations of private knowledge are merely bad behavior, and some, like insider trading, are illegal. All of them represent weaknesses in the market because all investors don't have the same chance to benefit. > In fact, in reality it behaved exactly correctly. As soon as the hoax was uncovered the dow returned to it's correct level. By your reasoning, pump & dump proves that the efficient market hypothesis is at work in the market. I don't think so. It only proves that some investors can game other investors. Taken to its extreme, if someone was able to game the market consistently like this, day in and day out, businesses would recognize that they were being cheated and would refuse to raise capital using equities. This is why the SEC is so aggressive about locating and punishing examples of this class of behavior. > Showing stability. By that reasoning, if we have the same number of bank robberies on Wednesday as on Monday, we've proven that things are stable.
- kasey_junk 14y ago
  But where was the non-public information? Where was the gaming? Without proof of those things all speculation about insider information is moot. Pump-and-dump's are specific types of gaming the system. There is no proof this was that. The only thing we know is that a news source incorrectly reported bad news. The market responded to that bad news in the way we would expect and then when it was obvious that it was a hoax corrected itself. That is a stable system. It would have been proof of an instable system if either A) the market moved for some incomprehensible way or B) did not correct for obviously bad behavior. The market took all public information into account and corrected itself quickly. Precisely as we would expect in an efficient market.
  - lutusp 14y ago
    > But where was the non-public information? The fact that the Tweet's content was false was non-public information for a short time, just long enough to see the market begin a plunge. Obviously whoever posted the false Tweet knew it was false, and they could have exploited that fact (not to say anyone actually did this), while other people were reacting to it as though it were true. > Where was the gaming? See above, and use your head. A pump and dump always pivots on the fact that the perpetrator knows what he's saying is false. > Without proof of those things all speculation about insider information is moot. Feel free to change the subject. We have already established that this is a hypothetical discussion. > It would have been proof of an instable system if either A) the market moved for some incomprehensible way or B) did not correct for obviously bad behavior. What does stability have to do with it? The topic is exploitation of predictable market moves, not unpredictable ones. Obviously a hacker could (in principle) anticipate, and act on, a coming market drop on news of an attack on the White House. > Precisely as we would expect in an efficient market. According your thesis, insider trading is impossible because the market will magically adjust to differences in information. If this were true, the SEC wouldn't care about insider trading. The fact that the SEC does care, demonstrates that your position is wrong, and that the market can be gamed. A market cannot be efficient unless everyone has access to the same information. This is how the efficient market hypothesis is defined. And again, the SEC does what it can to assure that people can't exploit non-public information. The reason? It undermines confidence in the market's fairness and would ultimately cause businesses to avoid equities as a funding source.