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Comment by tylerhou | Hacker News Reader

The long term effects of Brexit should already be priced in.

The expected long-term effects of each anticipated Brexit scenario weighted by the current perception of the likelihood of each should be, sure.

OTOH, as there is considerable and evolving uncertainty about even the short-term Brexit prospects (as in, will the UK leave, and if so when and on what terms), estimates of the likelihood of various long-term scenarios are likely to also be in considerable flux,even before considering potential evolution in estimates of the effects of each potential scenario.

“The market knows the future and has already completely priced it in” is disproved every time the market moves, but people still like to treat it as some kind of deep wisdom.

> “The market knows the future and has already completely priced it in” is disproved every time the market moves

Well at best you can know the future probabilistically. The fair price of flipping a coin and getting $2 on heads is $1, but once the coin is flipped, you have new information, and the fair price is either $2 (if it landed heads) or $0 (if tails).

I mean more counter examples are great but any one aware of NP=/=P should be able to call bullshit on market's predictive ability.

FWIW, someone took the time to formally state the case: "Markets are efficient if and only if P = NP", https://arxiv.org/abs/1002.2284

> any one aware of NP=/=P

Wait, someone finally proved P ≠ NP?

No, but it's generally understood to be very unlikely [0]. And if something as well studied as markets exhibited NP in P behavior we would have exploited it by now (FWIW, markets appear to be an efficient approximation algorithm like evolution is; approximation algorithms (like evolution) being something we use all the time to solve engineering problems).

[0] https://www.scottaaronson.com/papers/npcomplete.pdf

The yo-yo price of the Pound as no-deal Brexit has become more or less likely over the past few weeks demonstrates that Brexit is very much not priced in.

No-deal would be so damaging that the markets don't think it's going to happen, and that props up the Pound. So it takes a lot of political madness to convince the market that the worst is happening, and that's when the Pound starts plumbing historical depths. Then the madness recedes, and the Pound bobs back up again.

No one knows what Brexit actually is though. It's either not happening, kicking the can down the road till the UK manages to square the circle w.r.t. Northern Ireland [0] (i.e. the current deal), or crashing out with no deal causing days long waits at the ports of entry as inspections take place.

How do you price in all those disparate outcomes into the same price?

[0] UKs own requirements for Brexit are mutually exclusive 1) No customs union, 2) No Northern Ireland border, and 3) No border inside the UK. These three can't exist in the same deal. The only real way to properly Brexit would be to cut Northern Ireland lose or risk reigniting the Troubles by violating the Good Friday Agreement.

> No one knows what Brexit actually is though.

Then you can't make the claim that the pound will continue to devalue. The pound is volatile, but you can't make predictions about the long term value with certainty.

> The pound is volatile, but you can't make predictions about the long term value with certainty.

Something being priced in requires there to be at least some certainty about what will happen.

You can't price the future in. Only probabilities.

Stock options do the same, with a very flawed mathematics (assuming a random walk while having a fat tail distribution). Good luck.

Theoretically, the long term effects of everything ever should be priced in.

Brexit is a whole great big seething can of uncertainty. Just look at the last few years.

Look at the volatility of the pound. It's not moving with news about the long term effects of Brexit, it's moving with the short-term political news. The range of uncertainty is incredibly large: when, how, and whether Brexit happens is still up in the air.

Conditioned on Brexit actually happening, a prediction of a weaker pound is reasonable.

> The long term effects of Brexit should already be priced in.

Why on earth would that be when it has not come to pass yet?

Not so easy as the outcome is very hard to predict. Hard, soft or no brexit? Still up in the air.

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