Fear: the enemy of a market
Another interesting article on the shakeup (or shakedown) of modern economic theory. It's blindingly obvious in hindsight. The concept that the market will always settle on a fair price is based on the assumption there is always a buyer willing to buy and seller willing to sell. When individuals are too scared to participate in the market then the market collapses. This is partially the reason why the stock exchanges/regulators have been turning a blind eye to apparent market manipulation by quant trading applications. The quants are providing the market with liquidity. Computers don't get spooked; people do.
This entry was posted on Thursday, September 17, 2009 at 10:17 PM. You can follow any responses to this entry through the RSS 2.0. You can leave a response.
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