I think what Unnamed says is the most important observation:
I’d bet on 6. I have information that the market doesn’t have, and my information points to 6 as the answer, so the market is underpricing 6 (compared to how it would price 6 if it had all the information).
Any time you have private information that the market doesn’t have you should bet to move the market in the direction of your information. The difficult question is how much you should bet.
This is the general problem of a mixture of experts when all you have are the predictions but not the information on which the predictions are based (at least for the market). I don’t think there is a real answer to that until you input more information into the system.
Any time you have private information that the market doesn’t have you should bet to move the market in the direction of your information. The difficult question is how much you should bet.
I don’t think that’s true. If it would be true I don’t think most mutual fund managers would underperform the SAP 500. A mutual manger might get some superficial information about stocks he invests in that take actual research.
I think what Unnamed says is the most important observation:
Any time you have private information that the market doesn’t have you should bet to move the market in the direction of your information. The difficult question is how much you should bet.
What information do they have?
This is the general problem of a mixture of experts when all you have are the predictions but not the information on which the predictions are based (at least for the market). I don’t think there is a real answer to that until you input more information into the system.
We want P(side | I_them, I_me)
We have P(side|I_them), P(side|I_me)
The latter don’t give the former.
I don’t think that’s true. If it would be true I don’t think most mutual fund managers would underperform the SAP 500. A mutual manger might get some superficial information about stocks he invests in that take actual research.
Mutual fund managers have incentives other than maximizing expectation of price. OPM.
Also, they likely overestimate the value of their privileged information.