But in this case, Tyler is wrong, Eigen is wrong, our intuitions are wrong. That is because the market is a not an algorithm that spits outputs based on statistical inputs. If you change the way you calculate inflation, there is no reason to suggest it will change market prices.
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Market prices are a forward-looking schedule of predictions, based on information aggregated from innumerable actors. If you believe in markets at all, you should think that they *already* outperform bureaucratic statistical measurements.
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At the extreme, this is obvious. If Venezuela admits that inflation is actually a teensy bit higher than its cooked stats claim, the Bolivar does not suddenly tank. Everyone already knew that real inflation was higher than reported.
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At the mundane, it is obvious. If you have a better way to measure soybean volumes, it does not necessarily translate into an advantage in predicting soy futures. If it does, the only way to arbitrage it may literally be to start your own international commodities trading firm.
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But wait! Don't markets respond to CPI and other BLS statistics? Doesn't that mean market participants are using these data as inputs to make predictions?
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Sort of. The inputs are useful in coordinating government policy with market participants. In that sense, they are "accurate"; they accurately reflect what the government will base policy on.
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Thus, having a better theory for calculating inflation still doesn't necessarily get you any alpha.
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Replying to @PurpleWhale12 @leepavelich and
hmm want to think about this a bit but i havent slept in 36h so its a little tough my kneejerk response is that "the market" isnt necessarily a useful aggregate concept here, perhaps markers eventually roughly coordinate but not all at once and not all actors
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Replying to @eigenrobot @PurpleWhale12 and
im not gonna be able to get much more granular than this in my condition sadly
grasping at the wisps of more coherent thoughts but theyre out of my reach right now
im not confident your right but i think your argument is good regardless!1 reply 0 retweets 3 likes -
Replying to @eigenrobot @leepavelich and
You sir are a class act. Even on low sleep!
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