Mains: PECOTA and moving markets

From SABR member Rob Mains at Baseball Prospectus on February 7, 2017:

You shouldn’t bet on baseball.

OK, now that we’ve got that out of the way let’s talk about Wall Street, which some of you probably think of the same way as betting on baseball. One of the sayings you hear about Wall Street is “the market is a discounting instrument.” In other words, the price of a single f stock, like Apple, or a bunch of stocks, like the 30 that make up the Dow Jones Industrial Average, is a reflection of investors’ expectations of the future, discounted back to today. Apple closed at $129.08 on Friday because investors expect it to deliver a stream of earnings and dividends, relative to inflation, to make it worth $129.08 as of 4:00 pm EST on Friday, February 3, 2017.

News can change the outlook. If Apple announces a better-than-expected product launch, investors will increase their expectations of future earnings, and the stock will likely move up. If the government decides to slap a tariff on iPhones made in China, future earnings will be imperiled and the stock will likely move down. I use the word likely because as Joaquin Andujar would say, youneverknow. Some news moves markets, some news doesn’t.

The same is true of betting markets. If there’s a downpour the morning of a horse race, it’ll move the betting markets. Bets on horses known to run well in mud will go up in price and those on horses that prefer a dry surface will go down. If a key player for a football team gets injured during practice before a game, the odds on that game will change. Some news moves markets.

Read the full article here:

Originally published: February 7, 2017. Last Updated: February 7, 2017.