The Limping Bull 4.1

The argument here isn't that economic data is not factored into securities prices. Because it is. However, information with little or remote economic consequence is overweighted in investors' decisions.

Look, maybe the collective mind that is the market actually has moods. And because geopolitical elements have such an impact of the Market one could almost predict future events by gauging the mass of all investors’ sentiment. How about that? Yes, I know: it’s a stretch. But wait, wait. Before you dismiss this whole post as ridiculous add a touch of inside information that circulates in certain classes of investors. The Pentagon thought it was a good theory.
They came up with “Terrorism Futures” to help predict terrorist strikes. The scheme was aborted a day after the proposal was made public. The Policy Analysis Market (PAM) program would allow individuals to invest money on the probability of terrorist attacks. No wonder it was a short-lived plan. Can you imagine adding Terrorism Futures to your portfolio? That's certainly volatile material. Speculators and gamblers would have loved it. But the Senate wasn't impressed. It is a very sinister idea; particularly coming from a government agency.

Now putting the moral issue aside, I can't help admiring the initiative. They went to the trouble of elaborating a trading program for the grotesquely-named scheme. It was a good idea. Actually, I should say it would have been an interesting experiment. The results could have proved something about investors behaviour. Indeed the fact that they seriously considered implementing such a plan demonstrates that the Market is thought to capable of sensing or foreseeing major events.

Do you think the Market sensed 9/11 attacks?

I know. This is rather sinister but it shows that there is much more at work than Beta, risk free rate and market return. University could have done more to develop student critical view of finance.

Posted by Editor on Monday, December 06, 2004 at 1:22 PM | Permalink