Chicago Boy WV forwards an AP article that confirms what we all know: equity markets are thin and whippy because volume is down, and volume is down because everyone is waiting for the war.
– This NYT article discusses a report (pdf link) by a pair of economic researchers who think that war in Iraq is likely to have a significant negative effect on world stock markets. This goes against conventional wisdom that markets will rally in response to the war, but (therefore?) I think these guys may be right. It’s noteworthy that the researchers base their inferences on data from Tradesports.com, an Irish online betting exchange that I discussed in previous posts (here and here). The researchers argue that the Tradesports.com contracts may be more reliably predictive than are those on the respected Iowa Electronic Markets:
The Saddam Security is in fact more widely and frequently traded than the typical contract on the Iowa market. Wall Street is over-represented among market participants, and evidence from a variety of sources suggests that these data do in fact reflect underlying war probabilities.Here’s an article about similar research one of the co-authors did on elections. One of the more interesting sentences:
Wolfers, an assistant professor of economics who as a youth worked for a bookmaker in his native Australia, followed a hunch about the predictive power of betting markets in forecasting the outcome of political elections.So much for abstract theorizing.