Oct

3

I think the dynamics of the market now are the following:

If the market goes down a lot, then people become convinced that Obama will lose, and so the market recovers.

If the market goes up a lot, then people worry that Obama will survive the election, so the market goes down again.

These ideas explain (in retrospect, of course) the range-bound market over the past couple of months, with typical daily swings of 30 or more points, yet bound within the range (until today) from 1100 to
1200.

The equations are:

dM/dt = epsilon1 - k1 * dO/dt

dO/dt = -k2*dM/dt +epsilon2

M = the market level
O = perceived probability that Obama will win
epsilon1 and epsilon2 are "noise" k1 and k2 are positive constants


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