I think the big Ethereum move in May 17 was a great example of this. Evidently many people thought earlier that the price should be higher, but “the market can stay irrational longer than you can stay solvent.” So you had a building of steam before it finally shot up.
However I’m not sure to what extent these are actual epistemic issues as you hypothesize, or just an artifact of small fractions of smart money.
One example that caused me to think about these things was when in Feb or so of 2015, Elon tweeted out that there was going to be a new product announcement in March (I think this ended up being for the PowerWall—don’t remember exactly). The stock price jumped something like 1% in one minute. And it was the same minute as the tweet. So it seemed clear that the market had reacted to the news.
Except it wasn’t news. Elon had said basically the same thing on the earnings call a couple of weeks before.
You might argue that the fact that he also tweeted it out made it more likely that it was actually going to happen. But enough more likely that the change in EV was worth 1% of the whole company? I was very skeptical that that could be the case.
But taking into account that the price change had been so rapid, it made me think that perhaps it was just from trading bots that were using his twitter feed as a price signal. But if that were the case, shouldn’t the price come back down once humans analyzed and realized that this wasn’t actually news?
Well, not necessarily. The fact that there were people willing to buy up on the tweet is information too. There’s so much reflexivity involved that it seems very hard to tell in the short term exactly what the price should be. And so even if the price changes for a dumb reason, that doesn’t necessarily mean it should go back to the old price.
(Again, just my impression. Actual traders or HFT programmers might have a different story to tell.)
I think the big Ethereum move in May 17 was a great example of this. Evidently many people thought earlier that the price should be higher, but “the market can stay irrational longer than you can stay solvent.” So you had a building of steam before it finally shot up.
However I’m not sure to what extent these are actual epistemic issues as you hypothesize, or just an artifact of small fractions of smart money.
One example that caused me to think about these things was when in Feb or so of 2015, Elon tweeted out that there was going to be a new product announcement in March (I think this ended up being for the PowerWall—don’t remember exactly). The stock price jumped something like 1% in one minute. And it was the same minute as the tweet. So it seemed clear that the market had reacted to the news.
Except it wasn’t news. Elon had said basically the same thing on the earnings call a couple of weeks before.
You might argue that the fact that he also tweeted it out made it more likely that it was actually going to happen. But enough more likely that the change in EV was worth 1% of the whole company? I was very skeptical that that could be the case.
But taking into account that the price change had been so rapid, it made me think that perhaps it was just from trading bots that were using his twitter feed as a price signal. But if that were the case, shouldn’t the price come back down once humans analyzed and realized that this wasn’t actually news?
Well, not necessarily. The fact that there were people willing to buy up on the tweet is information too. There’s so much reflexivity involved that it seems very hard to tell in the short term exactly what the price should be. And so even if the price changes for a dumb reason, that doesn’t necessarily mean it should go back to the old price.
(Again, just my impression. Actual traders or HFT programmers might have a different story to tell.)