Physicists have long noted that observing some phenomena actually changes their nature. In finance, the equivalent is known as Goodhart’s law, after the British economist Charles Goodhart, who in 1975 argued that once a measure becomes a target, it loses the very properties that made it a good gauge to begin with.
—Robin Wigglesworth in the FT: ‘How a volatility virus infected Wall Street‘
“When a measure becomes a target, it ceases to be a good measure.”
— Goodhart’s law – Wikipedia
Continue reading Goodhart’s law
All this low volume and low volatility is having an impact on the stock trading business. It doesn’t matter the markets are near new highs. If no one is trading, or everyone is moving to passive investing, well, that is a big problem.
Trader Talk: What happened to all the volume and volatility? – April 20, 2017, at 10:28 PM
Bond investors want creditworthy companies, and stock investors want growing companies, but convertible arbitrage investors want volatile companies, because volatility increases the value of an option.
Happy Meals and Glass-Steagall, April 7, 2017, at 11:03 AM