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> 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.

by 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.
  - kasey_junk 14y ago
    That is far and away the most pedantic form of the efficient market hypothesis I've ever heard. No one in academia or the industry actually believes that everyone always has access to the exact same information at the exact same time. A hedge fund manager who has decided to unload a huge position but has not acted on it yet would cause your definition of the hypothesis to no longer hold. This was never the intent and if it were it could only exist in some perverted Platonic cave of a market. In the real world, this showed a very efficient market. 2 pieces of public information were consumed nearly as fast as they could be produced and the correct prices in the market were reflected. This is what the real application of an efficient market would look like. As far as what does stability have to do with it, your central premise was that the modern equities market was not stable and was not to the benefit of an "average investor". None of this was proven by today's event and was in fact largely disproven. Stability was not jeopardized and the average investor was not impacted by what could have been a malicious attempt to game the system or could have been a juvenile prank, either way it largely didn't matter.

by lutusp 14y ago

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.
- kasey_junk 14y ago
  That is far and away the most pedantic form of the efficient market hypothesis I've ever heard. No one in academia or the industry actually believes that everyone always has access to the exact same information at the exact same time. A hedge fund manager who has decided to unload a huge position but has not acted on it yet would cause your definition of the hypothesis to no longer hold. This was never the intent and if it were it could only exist in some perverted Platonic cave of a market. In the real world, this showed a very efficient market. 2 pieces of public information were consumed nearly as fast as they could be produced and the correct prices in the market were reflected. This is what the real application of an efficient market would look like. As far as what does stability have to do with it, your central premise was that the modern equities market was not stable and was not to the benefit of an "average investor". None of this was proven by today's event and was in fact largely disproven. Stability was not jeopardized and the average investor was not impacted by what could have been a malicious attempt to game the system or could have been a juvenile prank, either way it largely didn't matter.