The news

I’m constantly learning about new ways to look at things when reading one of my favorite sites, Overcoming Bias.

A recent post has me thinking a lot about what the stock market actually is.

Speculators were blamed for rising oil prices a few months back, but not for recent falling oil prices. Short-selling speculators were recently blamed for falling stock prices, and actually banned for a few weeks, but no one proposed banning buying speculators two years ago when stocks were rising. Now Steven Pearlstein of the Post wants to close financial markets for a week:

The author of this post, Robin Hanson, goes on to describe the stock market as a new outlet in which stock prices, and the market as whole, merely informs us about the future prospects of companies.

Aside from times when firms issue stock or buy it back, stock trades do not change a firm’s total capital; they just gives us news about its future prospects. Sure some of of these stock “reporters” can have incentives to mislead us, but newspaper reporters can also have incentives to mislead us. Systems for detecting and punishing misleading reporters are far stronger and more effective in financial markets than in newspapers.