In Markets, Crystal Balls Lose to the Many Quiet Voices
A trading experiment about the value of knowing tomorrow’s headlines holds important clues to good decision-making.
Surprising markets.
Photographer: Michael Nagle/Bloomberg
Victor Haghani, James White and Jerry Bell of Elm Partners Management conducted a fascinating experiment to investigate the value of getting tomorrow’s headlines today, and the trading acumen of finance students. The results may suggest to some that finance courses need an upgrade, but to me the study is interesting because of what it says about good decision-making.
The researchers picked 15 Wall Street Journal headlines from the last 15 years, blacked out the security price returns, and had 116 finance students trade $50 of real money, betting on stock and bond index returns over the day before the headlines. You can play the game yourself — but no real money — here.
You may remember a 2016 experiment by Elm Partners in which 61 finance students were allowed to make real-money bets on biased coin flips. The headline message of the earlier study and this one is the same: Finance students are poor traders. Despite having tomorrow’s headlines to shape their trading, only 62 of the 116 made any money at all, and the median profit was only $1.11.