Why an Expected Event Can Move Markets

Why has the stock market sold off and bond market rallied so hard after Obama won re-election? All the state-level polls indicated that the president held a narrow but consistent lead in most of the key battleground states. Intrade had the odds of his winning at over 60% for the two weeks or so before the election. So while the outcome was hardly certain, the market is reacting as though the result is a surprise.

So why would the markets react so severely to a known event? Aren't markets supposed to be a forward-discounting mechanism? The answer to this puzzle is the key to understanding how to trade and anticipate events going forward....576 more words left in this article. To read them, just click below and try Real Money FREE for 14 days.

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