2/12/2018 The Economist: It Appears Market Conspiracy Theorists Were Right | Zero Hedge

The Economist: It Appears Market Conspiracy Theorists Were Right

by Tyler Durden
Sun, 02/11/2018 - 20:44

Three new recently published scientific papers seem to confirm what many have claimed for years: the "efficient markets" are not only inefficient - from an
informational standpoint - they are also badly rigged. Of the three papers, the Economist reports, one argues that well-connected insiders profited even from the
financial crisis, while the other two go so far as suggesting the entire share-trading system is rigged.

Unlike conventional insider trading cases - which traditionally require fortuitous tip-offs and extensive, expensive investigations, involving the examination of complex
evidence from phone calls, e-mails or informants wired with recorders - the papers make imaginative use of pattern analysis from data to find that insider trading is
probably pervasive, according to the Economist.

The approach reflects a new way of analyzing conduct in the financial markets. It also raises questions about how to treat behaviour if it is systemic rather than
limited to the occasional rogue trader.

The first paper starts from the private meetings American government officials held during the crisis with financial institutions. As discussed here years ago, what was
not made public at the time were critical details about the infamous TARP program (which incidentally was created and administrated by current Minneapolis Fed
president Neel Kashkari who paradoxically rages every day against bailouts of Too Big To Fail banks), notably how much money would be involved and how it would be
allocated. This mattered hugely as the very survival of some institutions was at stake; in the end, hundreds of billions of dollars were pledged. Knowing the structure
and scope of the bail-out in advance would have been a vitally important piece of information for investors during this period.

The paper examines conduct at 497 financial institutions between 2005 and 2011, paying particular attention to individuals who had previously worked in
the federal government, in institutions including the Federal Reserve. In the two years prior to the TARP, these people’s trading gave no evidence of
unusual insight. But in the nine months after the TARP was announced, they achieved particularly good results. The paper concludes that “politically
connected insiders had a significant information advantage during the crisis and traded to exploit this advantage.”

Invaluable advice for expats everywhere Internaxx

Advising the first China-UAE sovereign fund – King & Wood Mallesons HKTDC

Almost as if the Fed was working covertly with Wall Street to make insiders richer, at the expense of the middle class...

The other papers use data from 1999 to 2014 from Abel Noser - a firm used by institutional investors to track trading transaction costs - which covered 300 brokers,
and focused on the 30 biggest, through which 80-85% of the trading volume flowed.

"They authors found evidence that large investors tend to trade more in periods ahead of important announcements, say, which is hard to explain
unless they have access to unusually good information."

The brokers could acquire such information in several ways, of which the most innocent was that brokers “spread the news” of a particular client’s desire to buy or sell
large amounts of shares in order to create a market, much as an auction house might do for a painting. But - it is also possible, the papers suggest - and is much
more likely that banks give this information to favoured clients to boost their own business. Strengthening this argument is the finding that large asset
managers which use their own affiliated brokers do not lose out.

As The Economist summarizes, "as a result of the findings, large institutions can be both beneficiaries and victims of this sort of information leakage. But in general
they are net gainers. The real losers, the papers conclude, are retail customers and smaller asset managers."  And, of course, the broader investing public.

As for the punchline:

"Common to all the papers is the recognition that the public markets are, as conspiracy theorists have long argued, not truly public at all" and that
"changing the law to fix that may not even be feasible."

Which one can almost say is ironic, coming from a publication which is 26% owned by the Rothschild family.
***

The papers in question are:

"Political connections and the informativeness of insider trades" by Alan D. Jagolinzer, Judge Business School, University of Cambridge; David F. Larcker, Graduate
School of Business, Rock Center for Corporate Governance, Stanford University; Gaizka Ormazabal, IESE Business School, University of Navarra; Daniel J. Taylor, the
Wharton School, University of Pennsylvania. Rock Center for Corporate Governance at Stanford University, Working Paper No. 222.
"Brokers and order flow leakage: evidence from fire sales" by Andrea Barbon, Marco Di Maggio, Francesco Franzoni, Augustin Landler. National Bureau of
Economist Research, Working Paper 24089, December, 2017
"The Relevance of Broker Networks for Information Diffusion in the Stock Market" by Marco Di Maggio, Francesco Franzoni, Amir Kermani and Carlo Summavilla.
NBER Working Paper, No 23522, June, 2017.

67198  110 

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Comments

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Herdee • Sun, 02/11/2018 - 16:01 Permalink

3
1 Charles Nenner:

https://www.silverdoctors.com/gold/gold-news/charles-nenner-buy-gold-be…

50 ThirdWorldNut  Herdee • Sun, 02/11/2018 - 16:07 Permalink

0 Ah The Economist, the piece of rag that supported Iraq war, Bush and Obama. Three of the biggest disasters (until now) of this century. Plus biggest
cheerleader of globalization.

22 johngaltfla  ThirdWorldNut • Sun, 02/11/2018 - 16:14 Permalink

0 The Economist is a tad bit slow. With 2/3rds of all trading happening in dark pools, the market has been rigged long since the 08-09 debacle.
The problem is that the idiots who wrote this still believe there is a "market" when in fact it is a casino as the house wins 70% of the time. You
just have to know when to take it off the table and when to let it ride.

6 skbull44  johngaltfla • Sun, 02/11/2018 - 16:17 Permalink

0 Will wonders never cease. The mainstream media recognizing the obvious...

 
https://Olduvai.ca

SubjectivObject  skbull44 • Sun, 02/11/2018 - 16:29 Permalink

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j j , / /
4 the red-herring msm undreporting the obvious
0
would that be the roth bros e con no mist?

14 WTFRLY  SubjectivObject • Sun, 02/11/2018 - 16:37 Permalink

6 The scale of the Joomanji is becoming more clear to the naked eye. Markets have been j00-ed beyond control.

14 peddling-fiction  WTFRLY • Sun, 02/11/2018 - 16:41 Permalink

0 Rothschild rag confirms that markets are rigged.

A little rich for my taste.

Chuckle.

4 two hoots  peddling-fiction • Sun, 02/11/2018 - 16:54 Permalink

0 The Federal Reserve insider information, all levels and connections, is likely the most rabid of all wealth through advanced information.  Not
only policy decisions but leaks of speeches by the board members, presidents, advisory members, give themselves, their families and
influential friends constant advantage and profit.   

6 IH8OBAMA  two hoots • Sun, 02/11/2018 - 17:09 Permalink

0 The Economist is just another misleading liberal rag.  Read it at your own peril.
 

1 DownWithYogaPants  IH8OBAMA • Sun, 02/11/2018 - 17:13 Permalink

1 "liberal"..........well only when that's the direction our lourds the politically atheist benefit from that direction.

2 lloll  DownWithYogaPants • Sun, 02/11/2018 - 18:26 Permalink

2 Just when they were telling us not to believe in Conspiracy Theory.

5 Deep Snorkeler  two hoots • Sun, 02/11/2018 - 17:15 Permalink

1 America

a phony society of idiot piety,

where Wall Street grinds the last bits of gristle

from the bones of the middle class in a

giant criminal webwork of digital energy threads.

You have been brain-drained, dispossessed,

and left without any class consciousness.

0 Algo Rhythm  Deep Snorkeler • Sun, 02/11/2018 - 21:27 Permalink

0 Okay but we're still the best country in the world, the most free and #1 right?  /s

4 Juggernaut x2  peddling-fiction • Sun, 02/11/2018 - 17:04 Permalink

0 Confirming it? Or rubbing our faces in it?

3 peddling-fiction  Juggernaut x2 • Sun, 02/11/2018 - 17:15 Permalink

0 They are rubbing our faces in it. Like Soros saying so what about his Anti-Brexit involvement. These media bites are on purpose of course.
They are in the final stage before the jackboot.

3 Oldwood  peddling-fiction • Sun, 02/11/2018 - 17:59 Permalink

0 Its the blatancy of corruption is a clear warning, the fact that they feel no need to conceal it, even to the point of rubbing it in our faces.

If this holds, if there is no popular revolt against, it is our tipping point that tells them they have a free hand to do as they wish.....we
recognizing the corruption but also the extreme cost in stopping it. Souls sold cheaply.

1 peddling-fiction  Oldwood • Sun, 02/11/2018 - 18:16 Permalink

0 Doing nothing or acting upon this shamelessness, are both dead-end streets, mouse traps ready to be sprung.

Only true spiritual transcendence is the right direction, towards unbegotten God.

0 libertyanyday  peddling-fiction • Sun, 02/11/2018 - 23:11 Permalink

0 i dear say, rugged individualism seems to be in the cards

1 D.r. Funk  johngaltfla • Sun, 02/11/2018 - 16:35 Permalink

0 This guy is exceedingly close to truth precision. And as per my entry below.

"m a r k e t" :

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https://www.zerohedge.com/comment/11157407#comment-11157407

1 Potato Farmer  johngaltfla • Sun, 02/11/2018 - 17:10 Permalink

0 You mean useful idiots.

2 Saratoga  johngaltfla • Sun, 02/11/2018 - 18:15 Permalink

0 The market has been a  "casino" since its inception. This is not a new phenomena, just highly computerized.

0 BidnessMan  Saratoga • Sun, 02/11/2018 - 22:39 Permalink

0 If you don't know who the sucker at the poker table is, then  ......

13 dark fiber  ThirdWorldNut • Sun, 02/11/2018 - 16:17 Permalink

0 Yeah.  Apparently what is coming is going to be so bad that even a rag like the Economist wants to distance itself from.  As in see we warned
you, we had nothing to do with this.

2 two hoots  ThirdWorldNut • Sun, 02/11/2018 - 16:57 Permalink

0 It is not about the messenger, you're chasing the wrong rabbit here.

1 chestergimli  ThirdWorldNut • Sun, 02/11/2018 - 19:55 Permalink

0 A Rothschild rag.  They are sitting back and laughing at our wealthy US goys who are no longer as wealthy.  But you know the old saying, he who
laughs first, laughs last.

11 takeaction  Herdee • Sun, 02/11/2018 - 16:28 Permalink

0 THIS IS HUMAN NATURE.....it will never be fair and it will never change.  Move on.  If you had a chance to know what the next 10 cards were at
the Black Jack table would you play.....Of course you fucking would  ....all in.  Human Nature.  That is why they had to get away from a "Backed"
currency.  A "Backed" currency keeps things in check....we can't have that type of limitation.

0 nuerocaster  takeaction • Sun, 02/11/2018 - 21:21 Permalink

0 The US is the only place that obsesses over inside info. The real goal is exclusivity not perfection.

0 libertyanyday  takeaction • Sun, 02/11/2018 - 23:14 Permalink

0 and yet without a backed currency we know things will fail,..........what we have now is what you get.  Why do we implement our own destruction?

NVTRIC • Sun, 02/11/2018 - 16:04 Permalink

3
0 I was standing over him and I was yelling, "I TOLD YOU NOT TO GO THERE! I TOLD YOU NOT TO GO THERE!".

2 shovelhead  NVTRIC • Sun, 02/11/2018 - 18:50 Permalink

0 But just like in a cheesy horror movie...

They always go in there.

Sir SpeaksALot • Sun, 02/11/2018 - 16:04 Permalink

5
0 Veritaseum project will allow us having fair markets soon.

2 Dirtnapper  Sir SpeaksALot • Sun, 02/11/2018 - 16:13 Permalink

0 I can only wander if we can count on our fingers the number of ZHers know about VERI.

0 CatInTheHat  Dirtnapper • Sun, 02/11/2018 - 16:45 Permalink

0 Admittedly I do not, just learning.

1 Slarti Bartfast  Dirtnapper • Sun, 02/11/2018 - 17:18 Permalink

0 You prompted me to check for the first time in years.

It's moved along some.

Liquidity? Volume?

2 thisandthat  Sir SpeaksALot • Sun, 02/11/2018 - 18:13 Permalink

0 Funny, because I thought bashing Reggie over his Veritaseum posts was a sort of a local speciality, here at ZH, back then...

In the mean time...: https://www.coindesk.com/veritaseum-founder-claims-8-million-ico-token-…

francis scott … • Sun, 02/11/2018 - 16:05 Permalink

3
0                    The Economist's Motto:

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"OUR NEWS AND OPINIONS.  BETTER LATE THAN NEVER."

7 martydz  francis scott … • Sun, 02/11/2018 - 16:10 Permalink

0 They like to sound like they know what they are talking about.

4 francis scott …  martydz • Sun, 02/11/2018 - 17:11 Permalink

0 If conspiracy theorists are right, they are neither conspiratorial

nor theorists.  They are just more aware of the truth than 99%

of the worthless media, like The Economist, for example. 

commishbob • Sun, 02/11/2018 - 16:06 Permalink

6
0 <Shocked>

martydz • Sun, 02/11/2018 - 16:07 Permalink

4
9 It is all rigged. Doesn't change the fact that shepwave was the only analyst to say when the trend would turn like they do in their time cycle dayes.
NAILED IT SOWN

7 TheMexican  martydz • Sun, 02/11/2018 - 16:17 Permalink

0 LOL...
 

Sheepwave:

""Where intimacy with sheep can unleash your wave" 

3 alazybundy  martydz • Sun, 02/11/2018 - 16:35 Permalink

6 Their time cycles are used by all the major wall street players.    No one really knows about their ways and methods but they work.

2 Angry White Guy  martydz • Sun, 02/11/2018 - 18:29 Permalink

0 Shlepwave lmao

khnum • Sun, 02/11/2018 - 16:10 Permalink

19
0 The economist is a Rothschild rag so this admission of the blatantly obvious probably has a maleavalent motive

16 Implied Violins  khnum • Sun, 02/11/2018 - 16:16 Permalink

0 They want to expose the malfeasance of the central banks now that they own everything *because* of them, so that they can do away with them
"for the good of all" and then present us their solution: One World Bank and One World Currency. OSIT.

3 CatInTheHat  Implied Violins • Sun, 02/11/2018 - 16:48 Permalink

0 You are correct. I read an article not too long ago that gave a projection date as to the 'switch' to a one world government, out of Brussels,
scheduled for June 2018.

Looks like they are right on target.

3 Oldwood  CatInTheHat • Sun, 02/11/2018 - 18:06 Permalink

0 Progressives believe that the only reason for a program to fail is failing to go far enough, big enough. There is no "wrong" progressive policy,
and will easily blame its failure or destructive consequences on any one who holds them back.
Conservatives have understood this for decades, which is why they just voted in this massive budget. Anything less and they will get blamed for
economic downturn (but of course they will be blamed anyway).

4 desertboy  khnum • Sun, 02/11/2018 - 16:23 Permalink

0 The Economist is a psychophantic lapdog, the squirming and positioning of which allows us read the tea-leaves.

1 MusicIsYou  desertboy • Sun, 02/11/2018 - 16:47 Permalink

1 Yeah they're rubbing your face in their shit because they know you arent going to do anything about it. I have to admit I enjoy the way they rub
people's faces in their shit knowing you won't do anything about it. My favorite part of the whole thing is that once the financial decline comes
the National Rifle Association won't have the resources to purchase your socalled Bill of Rights and you'll have to either fight for your socalled
Rights or lose them. That will be my favorite part. Haha go look in the mirror you've got shit all over your face and you just wallow in it not
wiping it off just like a pig.

1 shovelhead  MusicIsYou • Sun, 02/11/2018 - 18:53 Permalink

0 You're drooling again.

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