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Play *Jeopardy* at MarginalRevolution
...shorting requires a [margin] deposit at zero interest rate, that is the key here...
That's my email answer to the question I receive most frequently these days. Who can state the question?
Posted by Tyler Cowen on July 26, 2008 at 02:45 PM in Political Science | Permalink
Comments
Why isn't everyone who thinks that the high price of oil currently observed is due to a bubble putting their money where their mouths are by shorting the black gold?
Posted by: Ammianus at Jul 26, 2008 2:55:19 PM
Why at online betting markets such as Intrade do the implied probabilities of alternative outcomes, such as the identify of the next president, add to more than 100%?
Posted by: Richard Squire at Jul 26, 2008 3:26:56 PM
Perhaps the point is that short selling is more common when interest rates are low?
Posted by: stan at Jul 26, 2008 3:41:00 PM
and the required margin is the entire exposure, not some figure based on marking to market.
I think Richard Squire has it, and a special case is asking why one sees prices of a few cents per dollar for extremely unlikely events.
Posted by: jonm at Jul 26, 2008 3:46:51 PM
Is short-selling a factor in the current economic downturn?
Posted by: David at Jul 26, 2008 3:52:52 PM
Close Richard, but I think it's a simpler version: Why don't the combined probabilities of McCain and Obama to be President add up to 100% on Intrade?
Posted by: Joel W at Jul 26, 2008 4:00:24 PM
Who are three women who have never been in my kitchen?
Posted by: dan at Jul 26, 2008 4:42:04 PM
Even closer, Joel, but the actual question is:
Why are the probabilities of Clinton, Romney, Gore, Huckabee et al. to be their party's nominee (or even president) still so far from zero?
Posted by: A student of economics at Jul 26, 2008 4:44:02 PM
Why can we still have bubbles even if short selling is allowed?
Posted by: Keith at Jul 26, 2008 5:10:13 PM
What is, should I be wait longer before I enter the market/purchase a home?
Posted by: Shaun at Jul 26, 2008 5:15:26 PM
What is buying using FannieMae or FreddieMac?
Posted by: Matt at Jul 26, 2008 5:29:25 PM
you can still have bubbles because people like me don't have capital...
the fools have strong hand...with your pension money no less...
Posted by: c8to at Jul 26, 2008 5:31:55 PM
dan: Cleopatra, Nefertiti, & the Queen of Sheba.
Ammianus: Why no oil shorts? Smart money does not bet when the deck is loaded. There aint no "free" in the current market for oil futures. There are more shills and proposition players at the table than you can shake a stick at. Some of them will get theirs, and some won't. On the flipside, why don't you go long on the price of oil staying above $100 over the next couple of years? Let us know how you do, when you get your computer out of hock, that is.
Posted by: Jason Armstrong at Jul 26, 2008 5:38:41 PM
dan: Cleopatra, Nefertiti, & the Queen of Sheba.
Ammianus: Why no oil shorts? Smart money does not bet when the deck is loaded. There aint no "free" in the current market for oil futures. There are more shills and proposition players at the table than you can shake a stick at. Some of them will get theirs, and some won't. On the flipside, why don't you go long on the price of oil staying above $100 over the next couple of years? Let us know how you do, when you get your computer out of hock, that is.
Posted by: Jason Armstrong at Jul 26, 2008 5:39:47 PM
FYI most ISDA agreements specify interest on USD collateral at fed effective flat. That doesn't negate the original answer, but it might divide instutions & private individuals incentives.
Posted by: nick at Jul 26, 2008 6:04:42 PM
"the fools have strong hand...with your pension money no less..."
Best...line...ever.
Posted by: Keith at Jul 26, 2008 6:45:49 PM
Why does the human heart long for what it cannot have?
Posted by: tom at Jul 26, 2008 7:45:47 PM
I'll take "Why did SemGroup fail" for $1000 please.
(I mean in addition to the unpaid Hooters tabs)
Posted by: Climateer at Jul 26, 2008 8:11:09 PM
What does shorting require, and what is the key here?
Posted by: josh at Jul 26, 2008 8:28:13 PM
What is the air speed velocity of an unladen swallow?
Posted by: Please don't kill me at Jul 26, 2008 8:31:50 PM
African or European Swallow?
Posted by: Arty at Jul 26, 2008 8:58:40 PM
If speculators are the cause for high oil prices, rather than actual supply shortages, why are not more people selling short?
Posted by: DJB at Jul 26, 2008 9:46:17 PM
Don't the oil futures markets have symettrical margin requirements for both the shorts and the longs?
Posted by: stubydoo at Jul 26, 2008 10:54:49 PM
Why isn't naked shorting more prevalent?
Posted by: philosophymajor at Jul 26, 2008 11:02:30 PM
Oil (likely guess)
Presidential Futures (another great guess)
Housing (good application but doesn't quite seem to fit)
...but Josh, has the best question so far! Full Credit.
"What does shorting require, and what is the key here?"
Posted by: Jeff at Jul 27, 2008 12:53:10 AM
Q = "Hey Tyler, how ya' doin'?"
Or, how can a market still behave irrationally if there are plenty of individuals who claim to recognize it.?
Posted by: Andrew at Jul 27, 2008 3:03:36 AM
Why do kids love the taste of Cinnamon Toast Crunch?
Posted by: Sune at Jul 27, 2008 4:55:13 AM
Why is there a spread between the Fed interbank overnight funds rate and the discount window?
Banks are required to keep money with the Fed, which pays zero interest. As well as being used to regulate the money suply, these are form of margin deposits, being a proportion of the money created by the banks, to prevent bank runs. The discount window, however, allows interest bearing assets, such as Treasury securities, to be used as collateral.
Posted by: Timothy at Jul 27, 2008 9:53:57 AM
it's got to be about the presidential futures. Which is why it's tagged "political science." Wouldn't it be tagged with "economics" if it was about oil/spec trading?
Posted by: at Jul 27, 2008 10:34:53 AM
Sune: ROTFLMAO
Posted by: Roger Sweeny at Jul 27, 2008 11:47:54 AM
On Intrade, why is the "Hillary becomes President" contract trading at a higher valuation than the "Hillary becomes Democratic nominee"?
(Hint: Expiration dates. Although it's hard not to like "because she plans to kill Obama post-convention".)
Posted by: Nemo at Jul 27, 2008 12:03:58 PM
"Why are the SEC's new short-selling restrictions unnecessary and what market mechanism makes them so?"
Posted by: Geoff Hamilton at Jul 27, 2008 1:21:27 PM
I give up. What's the answer?
Posted by: Michael F. Martin at Jul 27, 2008 8:20:39 PM
I give up. What's the answer?
Posted by: Michael F. Martin at Jul 27, 2008 8:20:57 PM
Are there bootleggers at work in the push for anti-speculation regulation, or just Baptists?
Posted by: bjartur at Jul 28, 2008 10:16:43 AM
Why can't i roll over short positions indefinitely, only stopping when the price has come down to make my original trade profitable?
Posted by: sr at Jul 28, 2008 12:25:59 PM
sr - sounds right to me
Posted by: Dave McDougall at Jul 28, 2008 2:49:51 PM
This is the reason that inTrade markets are not totally rational (percentages not adding to 100%, etc).
Posted by: Bernard Gordon at Jul 28, 2008 3:04:40 PM
I think the inTrade comments make sense in that margin is held for the potential losses as cash and apparently does not have a return. Futures traders hold margin accounts with interest bearing securities like treasury bills. The economic cost, however, is a negative return on the margin account, so the real interest rate is not zero.
A seller of treasury futures notes and bonds would hold margin in treasury securities. The sale would be a short and the margin would be a long. At the moment the trade is entered the margin rate would be zero for equally risky securities.
The key might be the debauching of currency that will eventually impair the value of treasury holdings. Traders can bet against treasuries with a zero net cost margin holding. The key may also relate to inter-exchange spread transactions like between treasury notes futures and agency notes (Fannie Mae, etc.) or Eurodollar futures. The margin interest rate would net against the holding cost (on both sides of the spread depending on the holding cost used).
Posted by: SA at Jul 28, 2008 10:45:38 PM
Naked short selling?
Posted by: luke at Jul 29, 2008 12:24:45 PM
I'll play double jeopardy for my full bankroll Alex (well if you'll pay me interest).
Why is there still a bid price on Al Gore to win the Democratic party nomination on Intrade? Why don't hedge funds swoop in and make tons of money on these already decided events?
Posted by: roland at Jul 30, 2008 4:46:23 AM
You know, in Jeopardy, they eventually reveal the correct question. This feels like a long commercial break.
Posted by: mpkomara at Jul 30, 2008 8:10:33 AM
