The stock market reacted to today’s defeat of the bank bailout bill with an unusually big decline. Yet the news wasn’t much of a surprise to people watching Intrade, whose contract BAILOUT.APPROVE.SEP08 was trading around 20% all morning. Why did the stock market act as if it was a big surprise?
\nDid Intrade traders make a lucky guess not based on adequate evidence? Did they have evidence that the stock market ignored? Could the stock market have priced in an 80% chance of the bill being defeated (if so, that would seem to imply that passage would have caused the biggest one-day rise in history)? Could the stock market have been reacting to other news which just happened to coincide with the House vote? (It looks like the market had a short-lived jump coinciding with news that House leaders hoped to twist enough arms to reverse the vote, but I wasn’t able to watch the timing carefully because I was at the dentist).<\/p>\n
It seems like one of these must be true, but each once seems improbable.<\/p>\n
Arnold Kling, whose comments<\/a> on the bailout have been better than most, was surprised<\/a> that the bill failed.<\/p>\n I covered a few of my S&P 500 futures short positions at near the end of trading, but I’m still positioned quite cautiously (I made a small profit today).<\/p>\n","protected":false},"excerpt":{"rendered":" The stock market reacted to today’s defeat of the bank bailout bill with an unusually big decline. Yet the news wasn’t much of a surprise to people watching Intrade, whose contract BAILOUT.APPROVE.SEP08 was trading around 20% all morning. Why did the stock market act as if it was a big surprise? Did Intrade traders make […]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"footnotes":"","jetpack_publicize_message":"","jetpack_is_tweetstorm":false,"jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":false,"jetpack_social_options":{"image_generator_settings":{"template":"highway","enabled":false}}},"categories":[17,18],"tags":[],"class_list":["post-258","post","type-post","status-publish","format-standard","hentry","category-if","category-investing"],"jetpack_publicize_connections":[],"jetpack_featured_media_url":"","jetpack_sharing_enabled":true,"jetpack_shortlink":"https:\/\/wp.me\/p80O1l-4a","_links":{"self":[{"href":"https:\/\/bayesianinvestor.com\/blog\/index.php\/wp-json\/wp\/v2\/posts\/258","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/bayesianinvestor.com\/blog\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/bayesianinvestor.com\/blog\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/bayesianinvestor.com\/blog\/index.php\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/bayesianinvestor.com\/blog\/index.php\/wp-json\/wp\/v2\/comments?post=258"}],"version-history":[{"count":1,"href":"https:\/\/bayesianinvestor.com\/blog\/index.php\/wp-json\/wp\/v2\/posts\/258\/revisions"}],"predecessor-version":[{"id":614,"href":"https:\/\/bayesianinvestor.com\/blog\/index.php\/wp-json\/wp\/v2\/posts\/258\/revisions\/614"}],"wp:attachment":[{"href":"https:\/\/bayesianinvestor.com\/blog\/index.php\/wp-json\/wp\/v2\/media?parent=258"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/bayesianinvestor.com\/blog\/index.php\/wp-json\/wp\/v2\/categories?post=258"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/bayesianinvestor.com\/blog\/index.php\/wp-json\/wp\/v2\/tags?post=258"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}