Price Discovery Quotes

'Reinventing the Bazaar,' by John McMillan, is a great and fun introduction to the wild variety and importance of markets throughout history and around the world. I finally understood how a Middle Eastern souk actually works economically and how to compare that to modern-day telecom-spectrum auctions. I love that book.

AIG’s failure was possible because of the sweeping deregulation of over-the-counter (OTC) derivatives, including credit default swaps, which effectively eliminated federal and state regulation of these products, including capital and margin requirements that would have lessened the likelihood of AIG’s failure. The OTC derivatives market’s lack of transparency and of effective price discovery exacerbated the collateral disputes of AIG and Goldman Sachs and similar disputes between other derivatives counterparties. AIG engaged in regulatory arbitrage by setting up a major business in this unregulated product, locating much of the business in London, and selecting a weak federal regulator, the Office of Thrift Supervision (OTS).

The bitcoin protocol is about mining bitcoin, not pricing bitcoin. There is nothing in the protocol about establishing a market price for bitcoin; you need a market for that, but what if all the exchange markets are shut down?

Market prices are always wrong.

In the world I've known most of my life, old stories quickly lose their power over capital markets and get replaced by new surprises. That which everyone fixates on gets priced into the stock market quickly and can't drag on.

Commodity exchanges have a lot of advantages. One, you are helping transparency. Two, they are not political. It's institutional building. It can survive any environment, in theory.

An open, competitive, and liberalized financial market can effectively allocate scarce resources in a manner that promotes stability and prosperity far better than governmental intervention.

The generally accepted view is that markets are always right -- that is, market prices tend to discount future developments accurately even when it is unclear what those developments are. I start with the opposite view. I believe the market prices are always wrong in the sense that they present a biased view of the future.

During my Ph.D. program, I became interested in the informational structure of markets that turned into the work on signaling, which was the part of my early work that was recognized for the Nobel Prize, but it was not really a subject at the time.

Fundamental analysis seeks to establish how underlying values are reflected in stock prices, whereas the theory of reflexivity shows how stock prices can influence underlying values

Prices are important not because money is considered paramount but because prices are a fast and effective conveyor of information through a vast society in which fragmented knowledge must be coordinated.

The main reason why it is profitable to establish a firm would seem to be that there is a cost of using the price mechanism. The most obvious cost of 'organizing' production through the price mechanism is that of discovering what the relevant prices are.

I don't entirely reject the idea of efficient markets. It needs updating.

When you look at a commodities market you need hedgers and speculators. If you don't have one, you don't have a market. That's how it works.

The thing about markets, and I think the thing people don't understand about that, is markets are not kind, but they're very efficient. So when the marketplace determines an inefficiency in the system, it corrects that, and a market system that's left alone will reward good behavior and punish bad behavior.

Market design is about understanding the details of markets in sufficient detail so that we can help fix them when they are broken.

We should rely on the markets to move on their own.

I had always been interested in markets - specifically, the theory that in financial markets, goods will trade at a fair value only when everyone has access to the same information.

Markets are self-regulating only because some brave investors are prepared to bet against the market trend.

We take the traditional value investor's process and just flip it around a little bit. The traditional value investor asks 'Is this cheap?' and then 'Why is it cheap?' We start by identifying a reason something might be mispriced, and then if we find a reason why something is likely mispriced, then we make a determination whether it's cheap.

In well-functioning markets, price equals opportunity cost. Meaning that the proper way to price out and charge us for things is to charge us what those resources could otherwise have produced. This is a lesson the Soviet Union never learned at all, and the rest is history.

We are headed toward 'perfect capitalism,' when the laws of supply and demand become exact, because everyone knows everything about a product, service or customer. We will know precisely where the supply curve meets the demand curve, which will make the marketplace vastly more efficient.

In a free market capitalist system, 'price signals' are everything. Prices are determined by buyers and sellers in the free market, and these prices are broadcast from the exchanges, reaching all corners of the economy - where they are used to transact business.

I'll always understand the Schadenfreude aspect to short-selling. I get that no one will always like it. I'm also convinced to the deepest part of my bones that short-selling plays the role of real-time financial watchdog. It's one of the few checks and balances in the market.

The one thing about markets is that they do not give any advance notice. If they did, they would be arbitraged away.