Understanding Ponzi Schemes
Posted on December 20, 2008 - Filed Under Markets | Leave a Comment
Charles Ponzi (actually Carlo Ponzi, from Lugo, Italy, in the province of Ravenna) was living in Boston in 1918 and looking for a way to make money. Then he discovered an apparent arbitrage possibility. He could buy an international postal reply coupon (an IRC) in Italy that allowed him to buy a US stamp for [...]
Read More..>>Price Anomalies at Intrade
Posted on November 3, 2008 - Filed Under Markets | Leave a Comment
I wrote an article for Intrade showing that candidates with similar polling data have different Intrade prices, available here.
Read More..>>Intrade Prices and the Bradley Effect
Posted on October 29, 2008 - Filed Under Markets | Leave a Comment
I wrote an article about the “Bradley Effect” and Intrade prices, available here. I found that Intrade traders do not seem to believe that the black candidate (in this case, Sen. Obama) will get a smaller percentage of the vote on Election Day than he is getting in the polls.
Read More..>>Understanding Volatility (the Vix)
Posted on October 23, 2008 - Filed Under Markets | Leave a Comment
Stock prices go up and down every day; volatility is an attempt to measure how much prices vary. In this article I explain the VIX, a specific measure of market volatility. But first I will briefly review a little statistical theory (defining volatility) and then I address the specifics of the VIX (readers who understand [...]
Read More..>>Understanding the TED Spread
Posted on October 16, 2008 - Filed Under Markets | Leave a Comment
The TED spread (see here for recent quotes) is the difference between the three-month Treasury Bill interest rate and the three-month LIBOR interest rate, that is, the TED spread measures the degree of riskiness of the bank lending market. Increases or decreases in this spread are viewed by market participants as indicating the degree of [...]
Read More..>>Understanding Political Futures Markets
Posted on August 22, 2008 - Filed Under Markets | Leave a Comment
At typical financial markets, traders make a market in financial instruments, such as corporate equity, government bonds and currencies. But there are markets in many other items ranging from commdities (such as wheat and frozen pork bellies) to more conceptual items such as hurricanes or the number of jobs reported on the monthly Employment report. [...]
Read More..>>Understanding Stock Market Indexes (and Index Trading)
Posted on August 6, 2008 - Filed Under Markets | Leave a Comment
Thousands of individual stocks trade every day on various stock markets around the world. There are a number of stock indexes that track the movements of stock markets.
The simplest stock indexes (for example, the Dow Jones Industrial Average (DJIA) in the US) are price-weighted indexes. To calculate the value of the index you add up [...]
Understanding Short Selling
Posted on July 25, 2008 - Filed Under Markets | Leave a Comment
If you think that the value of a stock will rise, you can buy the stock and sell it later when the price is higher. If you think that the value of a stock will fall, the situation is a bit more complicated. One way to bet on a falling stock price is [...]
Read More..>>Why GE stock fell so much on Friday April 11
Posted on June 24, 2008 - Filed Under Markets | Leave a Comment
Last Friday (April 11), General Electric Corp (GE) announced that quarterly earnings were $0.43 per share, or about $4.3 billion. This would seem to be fairly good news; the number was down a bit from profits a year ago, when quarterly earnings were $0.44. Yet the \stock price dropped by almost 13%; largely in response [...]
Read More..>>How do traders lose so much money?
Posted on June 24, 2008 - Filed Under Markets | Leave a Comment
Every few years there is a story of a trader who loses huge amounts of money; most recently, Jerome Kerviel at Soc Gen, but there were many before him. The magnitude of these losses is a great mystery: how can one person lose Euro 5 billion? Didn’t someone realize that there was a problem when [...]
Read More..>>