If this is true, it is a serious issue that can jeopardize the whole idea of fair markets and much more. The question is: Are there people that can see into the future and as a result profit from future market moves at the expense of those who do not have that ability?
There were a few posts recently in popular trading forums about recorded occasions of sudden and unexplainable rises in options volume just before unscheduled news announcements. Although this is usually attributed to insider trading, some have alluded to the possibility of some market participants experiencing precognition, which, according to Wikipedia, “is a type of extrasensory perception that would involve the acquisition or effect of future information that cannot be deduced from presently available and normally acquired sense-based information or laws of physics and/or nature.”
Before even starting to discuss this fascinating issue, there are at least two important questions that must be answered:
1. Does the future in the markets exist before it is created by market participants?
2. Are the effects of anticipatory behavior wrongly attributed to precognition?
1. To argue that events in the market can be predicted before they are created is equivalent to arguing that the market is a movie that is replayed in front of us, free will does not exist in the markets and, by extension, in the world. I have no time to discuss in detail such argument because it could take days or even months, but I will argue that such a hypothesis must be declared false a priori solely on the basis that it is absurd. A hypothesis can also lead to various paradoxes, which in turn provide strong evidence that it is absurd. However, the past, present and future may intermingle only for short intervals of time, like a few days, without this leading necessarily to a block universe where free will is impossible. More about this is below.
2. It is only natural that market participants anticipate moves in securities. The market is an anticipatory system. When I studied System Theory at a Ph.D. level, we were taught a weird class of systems called anticipatory. The output of such systems at time t depends on future values of their input at (t+T). Thus, these systems anticipate their future input and act accordingly at present time. Similarly, some market participants may be correctly anticipating or forecasting the price movement of some securities. I claim that given a large number of market participants, there will always be a small subset of them that will correctly anticipate important unscheduled new events and profit from them via options, solely based on probability.
However, precognition for very short intervals of time, like just a few days in advance, cannot be conclusively eliminated. I think it deserves some further research and I plan to start a study soon that will involve a group of people to whom I will teach a few principles that may enable them to predict news events in the market about 3 – 5 days in advance with high probability. Another objective of the study will be to devise strategies such that unscheduled news releases cannot be anticipated as high-probability events by any group of traders, even a small one. This is certainly a much more interesting angle of the whole issue, i.e. how to make future news releases unknowable in advance even to those who experience precognition.
