One point of data re the expected impact of sanctions: the Moscow stock exchange is down 50% (!), which presumably means investors expect very serious consequences for the Russian economy, likely due to sanctions.
Yeah, that data point was extremely surprising to me. On the surface, it seems to imply at least one of three things:
Putin severely mispredicted the short-to-medium-term economic impact of the invasion
Investors are severely mispredicting the short-to-medium-term economic impact of the invasion
Putin thinks the invasion is worthwhile (at least for himself) even if it results in the sort of short-to-medium-term economic trainwreck which knocks stocks down by 50%.
I’d have considered all three of these quite improbable beforehand.
On the other hand, it could just be a short-term liquidity phenomenon, e.g. there was a bunch of foreign money invested in Moscow’s markets which had to exit due to Western sanctions (or expected to need to exit due to Western sanctions). If that’s the main driver, then now’s a good time to buy for anybody who has access to Moscow’s financial markets.
MOEX appears to now be down only 20% from pre-invasion price level. Still significant, though much less so than 50%. This follows a common pattern that I’ve seen anecdotally about stock prices following bad news: that the price drops precipitously immediately following the news, and then mostly recovers shortly thereafter. I remember seeing this pattern in the immediate aftermath of the Brexit vote, soon after it became mainstream to be concerned about the Coronavirus pandemic, and I think when Trump got elected. Not sure if this is somehow a real counterexample to the efficient market hypothesis, or if I’m overfitting or selectively remembering cases where the pattern holds.
Not sure if this is somehow a real counterexample to the efficient market hypothesis, or if I’m overfitting or selectively remembering cases where the pattern holds.
The EMH requires 0 cost of trading and 0 cost of information, and only requires that markets converge, not that they converge instantaneously.
Third option: this isn’t a counterexample to the efficient market hypothesis. EMH + counterexamples to overstated news[1] taking slightly longer to disseminate than the original news[1] nicely explains the effect.
One point of data re the expected impact of sanctions: the Moscow stock exchange is down 50% (!), which presumably means investors expect very serious consequences for the Russian economy, likely due to sanctions.
Yeah, that data point was extremely surprising to me. On the surface, it seems to imply at least one of three things:
Putin severely mispredicted the short-to-medium-term economic impact of the invasion
Investors are severely mispredicting the short-to-medium-term economic impact of the invasion
Putin thinks the invasion is worthwhile (at least for himself) even if it results in the sort of short-to-medium-term economic trainwreck which knocks stocks down by 50%.
I’d have considered all three of these quite improbable beforehand.
On the other hand, it could just be a short-term liquidity phenomenon, e.g. there was a bunch of foreign money invested in Moscow’s markets which had to exit due to Western sanctions (or expected to need to exit due to Western sanctions). If that’s the main driver, then now’s a good time to buy for anybody who has access to Moscow’s financial markets.
MOEX appears to now be down only 20% from pre-invasion price level. Still significant, though much less so than 50%. This follows a common pattern that I’ve seen anecdotally about stock prices following bad news: that the price drops precipitously immediately following the news, and then mostly recovers shortly thereafter. I remember seeing this pattern in the immediate aftermath of the Brexit vote, soon after it became mainstream to be concerned about the Coronavirus pandemic, and I think when Trump got elected. Not sure if this is somehow a real counterexample to the efficient market hypothesis, or if I’m overfitting or selectively remembering cases where the pattern holds.
The EMH requires 0 cost of trading and 0 cost of information, and only requires that markets converge, not that they converge instantaneously.
Third option: this isn’t a counterexample to the efficient market hypothesis. EMH + counterexamples to overstated news[1] taking slightly longer to disseminate than the original news[1] nicely explains the effect.
Forth option: [2]
read: information becoming public
This is a joke, to be clear.