Tuesday, April 23, 2013

@AP hack: the stock market did not "plunge"

According to all press outlets, the stock market "plunged" today due to @AP getting hacked and reporting explosions at the White House. In fact, stock prices didn't change much at all. Below I've graphed today's S&P 500 stock price. As you can see, it's a flat line hovering within 1% of 1580.





So how does the press create a story that it plunged? By changing the baseline. Instead of using '0' as the baseline, they use a baseline of '1560'. This magnifies the change for dramatic purposes. It makes the graph look like the following:
This looks scary indeed, but it's not true. Yes, the @AP hack had a noticeable effect on stock prices, but not necessarily an important effect.

Let's look at it from another perspective, the ^VIX volatility index. As you can see, today was the least volatile of the past five trading days. In addition, the brief event related to @AP is only barely noticeable, and unremarkable compared to volatility later in the day.


5 comments:

Anonymous said...

In a market dominated by bots trading on fractional intra-second price movements 1% in such a short time is enormous. Even for humans it is 10% of the way towards hitting a circuit breaker.

Any sufficiently complex bot will know this, and since almost all HFTs like to close flat, merely approaching a circuit breaker increases the likelihood that a sell-off may happen. It's still a big deal

Brad Edmondson said...

I agree that this is potentially an overblown story, but s single actor who knows the timing of a "noticeable" change of this sort can still make a lot of money--which means someone else loses money.

In other words, there might be an incentive to plant this type of "reverse insider information" into a trusted news source to capitalize on a market movement that's relatively small, but large in absolute terms.

ffcode said...

Why stock market is covered extensively even on tech blogs? there is nothing related to the real technology that takes place but whenever an incident happens stock market health is reported first, why such an acute covering?

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