> At one time, the stock market was closed at night and yet market indices often changed dramatically, even without a single share being traded. A hundred years ago, the Dow might close one day at 243 and open the following morning at 227, reflecting bearish overnight news. In that case, it is fairly obvious that the market moves on new information, not trading activity. To the extent that trading activity has any impact on prices, it is due to what the trading reveals about information held by various participants in the market.
Markets open using an auction: before the market opens, a bunch of bidders declare the price/qty they’re willing to buy at, a bunch of sellers declare the price/qty they’re willing to sell at, and at the moment the market opens, a single multi-party transaction happens immediately at the implied market clearing price. That transaction is special: it’s not attributed to any particular buyer or seller in transaction data feeds, and typically has a tick volume 1000x (or more) higher than the median tick volume during trading hours.
It may appear that markets are opening at different levels merely on new information, and new information absolutely affects it, and that market jump may not appear to move like the typical brownish motion of active markets… but that opening price is nonetheless the result of buying and selling.
OK, but the bids and asks that are established in this closed-over-night market are themselves based on something. And since trading activity is not going on, they are not based on trading activity. I think that's the article author's point, which seems to make sense.
It doesn't prove that trading is not (also) based on trading activity when the market is not closed.
Yes and no. There's a distinct auction that runs and it is a distinct event and has its own rules. Eg 5 mins (idr exactly, it's been 6 years for me) before the opening cross you can no longer cancel auction orders, post-only. At the open, they run an opening match of all the auction orders, THEN normal trading begins.
Author in comments:
Fair point. I suppose I decided to use the term tautology for the same reason I embrace "[liberalism=]neoliberalism", to defend a term that is often unfairly maligned.
This seems to me like Ideology disguised as Tautology.
"Saving = Investment" is an accounting identity and not a causal law.
He shifts by implying that 'saving' drives 'investment'. In accounting even unsold inventories are forced into the 'investment' bucket.
Tautologies are useful to detect errors in reasoning, but not necessarily in actual policy.
The problem with tautologies is that usually the context where they are useful is very small.
As an example, lets use Equation of Exchange and Cambridge Equation. Defining "Money" (M in the equation) has become nearly impossible when there are so many liquid assets and instruments that act money like. Central banks can't reliably measure or control a single "quantity of money" in a way that reliably links to GDP. And because it's not causal model, just an equation, it does not explain anything interesting. All interesting questions are causal.
It would help if the variables were defined somewhere near their point of use. Economists may have dedicated uses for P & Y as well known (to them) as π, but to the casual reader they are...just letters?
“The logic of the world, which is shown in tautologies by the propositions of logic, is shown in equations by mathematics.” Wittgenstein in Tractatus Logico Philosphicus (6.22)
Honestly I think any economic minister, such as the chancellor in the UK should be required to read this. It's amazing in a time when they champion growth, without understanding these relationships.
> At one time, the stock market was closed at night and yet market indices often changed dramatically, even without a single share being traded. A hundred years ago, the Dow might close one day at 243 and open the following morning at 227, reflecting bearish overnight news. In that case, it is fairly obvious that the market moves on new information, not trading activity. To the extent that trading activity has any impact on prices, it is due to what the trading reveals about information held by various participants in the market.
Markets open using an auction: before the market opens, a bunch of bidders declare the price/qty they’re willing to buy at, a bunch of sellers declare the price/qty they’re willing to sell at, and at the moment the market opens, a single multi-party transaction happens immediately at the implied market clearing price. That transaction is special: it’s not attributed to any particular buyer or seller in transaction data feeds, and typically has a tick volume 1000x (or more) higher than the median tick volume during trading hours.
It may appear that markets are opening at different levels merely on new information, and new information absolutely affects it, and that market jump may not appear to move like the typical brownish motion of active markets… but that opening price is nonetheless the result of buying and selling.
OK, but the bids and asks that are established in this closed-over-night market are themselves based on something. And since trading activity is not going on, they are not based on trading activity. I think that's the article author's point, which seems to make sense.
It doesn't prove that trading is not (also) based on trading activity when the market is not closed.
Do you mean traders set up buy or sell orders and they get matched when market opens? That's... Just how markets work normally?
Yes and no. There's a distinct auction that runs and it is a distinct event and has its own rules. Eg 5 mins (idr exactly, it's been 6 years for me) before the opening cross you can no longer cancel auction orders, post-only. At the open, they run an opening match of all the auction orders, THEN normal trading begins.
Tautologies are beautiful and helpful because they help people and are full of beauty.
Thank you
Trying to reword your joke to one more aligned with TFA's:
NGL, I made use of following tautologyBeauty is truth, truth beauty,—that is all Ye know on earth, and all ye need to know.
https://www.poetryfoundation.org/poems/44477/ode-on-a-grecia...
Author in comments: Fair point. I suppose I decided to use the term tautology for the same reason I embrace "[liberalism=]neoliberalism", to defend a term that is often unfairly maligned.
This seems to me like Ideology disguised as Tautology.
"Saving = Investment" is an accounting identity and not a causal law. He shifts by implying that 'saving' drives 'investment'. In accounting even unsold inventories are forced into the 'investment' bucket.
Tautologies are useful to detect errors in reasoning, but not necessarily in actual policy.
The problem with tautologies is that usually the context where they are useful is very small.
As an example, lets use Equation of Exchange and Cambridge Equation. Defining "Money" (M in the equation) has become nearly impossible when there are so many liquid assets and instruments that act money like. Central banks can't reliably measure or control a single "quantity of money" in a way that reliably links to GDP. And because it's not causal model, just an equation, it does not explain anything interesting. All interesting questions are causal.
"All interesting questions are causal." I like that punchline !
It would help if the variables were defined somewhere near their point of use. Economists may have dedicated uses for P & Y as well known (to them) as π, but to the casual reader they are...just letters?
Math is nothing but tautologies.
“The logic of the world, which is shown in tautologies by the propositions of logic, is shown in equations by mathematics.” Wittgenstein in Tractatus Logico Philosphicus (6.22)
And what the author goes and shows are equalities, not tautologies.
If a stock tanks is it sellers with info selling to market makers? So a sell off.
Honestly I think any economic minister, such as the chancellor in the UK should be required to read this. It's amazing in a time when they champion growth, without understanding these relationships.
I love a good tautology like Clarke's "Any sufficiently advanced technology is indistinguishable from magic", but sometimes enough is enough!
Sufficiently quits. He is doing too much work in that sentence.