Indian and Pakistani stock markets

Right now the Indian market is up a small amount for the week, of course that may change.

I know you all love to yelp that markets don’t predict well (not what markets do!…that word “predict” is loaded) and that stock markets did not predict WWII, etc.  The lack of an Indian market reaction here is fully consistent with the fact that prediction is very hard.  Investors might simply be unsure which priors to update, and thus prices haven’t changed much.  That is consistent with the work of Philip Tetlock, also indicating that prediction is very hard.  So this kind of market result does not have to conflict with the best knowledge we have from political science and the other social sciences.

The Pakistan stock exchange, by the way, is down a few percentage points but not seeing massive carnage.

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In the last decade, Mexico essentially had a civil war in its northern states and yet the economy grew by double digits. Not clear why we would expect a localized war in Kashmir to impact Indian economic growth.

you say "not clear why we would expect a localized war in Kashmir to impact Indian economic growth."
mebbe because the two countries have nuclear weapons?

Obviously that would not be a localized war.

All I'm saying is, if I am in investor in India, and I think that there is likely to be a small war in Kashmir, it does not follow from that that I would also think that Indian companies would suddenly become less profitable. The fact that there is no motion in the Indian stock market does not mean that investors don't think the situation in Kashmir will get worse.

obviously you cannot make the assumption that a small war starting in kasmir will stay small because a nuclear war between Pakistan and india is considered by a lotta folks to be the most likely scenario for a nuclear war

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The stated position of India, is that they would be prepared to carry out a military ground incursion into Pakistan, if India felt that the terrorism threat was severe enough. The stated position of Pakistan is that they would be prepared to use tactical nuclear weapons, if India executed an invasion. If such events were to occur, it could prove very problematic for the region, to put it mildly.

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Indian food is very spicy. With nukes, even spicier. They know heat, those guys.

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Here's a good summary of the Indian stock market: https://www.investopedia.com/articles/stocks/09/indian-stock-market.asp
A couple of items from the summary may help explain the relative calm. First, the total capitalization of the firms listed is reflected in a small fraction of the total number of firms listed. Second, there are ceilings on investment in particular firms, with different limits for different sectors. Third, participation in the stock market by foreigners is permitted, but there aren't that many foreigners who have chosen to invest or Indian firms that are using ADRs (American depository receipts) or GDRs (global depository receipts) to access offshore investors. Anyway, wars and rumors of wars should ye not be troubled: for all these things must come to pass, but the end is not yet (Matthew 24:6).

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Most of the tension causing events that happened today took place after Indian stock market closed down. So tomorrow may be the day of reaction.

Though one hopes that tomorrow will not be a day of carnage, and of course, that is not referring to the markets.

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I hope commercial flights are safe, not itchy fingers as in Ukraine. The air space over Pakistan + India is the route to fly from Europe to South East Asia and Australia =/

The comparison of air traffic a month ago and today https://twitter.com/flightradar24/status/1100680452195733504

It is indeed curious that the stock price of the regional air carriers from India which are diverting flights is not affected ( IndiGo, Jet Airways, Spice Jet).

Pakistan government has shutdown all its airport apparently. Indian govt. ordered the same, but it is withdrawn as of now.

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"unsure which priors to update": I've become increasingly fed up with this sort of silly affectation. Do grow up and use commonplace English for commonplace notions.

>>I've become increasingly fed up

Is there a reason Dr. Cowen should give a rat's behind what you think about his writing style on his own blog?

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He's an economist, these kinds of affectations are all he really has.

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Please give us a commonplace English example of this commonplace notion.

The best I can do is: "Given new information, it appears that some of my previous beliefs on this subject are in conflict. I wonder which I need to modify."

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"the best knowledge we have from political science and the other social sciences": I suppose that does demonstrate the disadvantage of commonplace English. It can reveal when a thought is threadbare.

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> Investors might simply be unsure which priors to update, and thus prices haven’t changed much.

They might update, but I'm not sure the priors are really that relevant.

Suppose the world has two states: State A in which everything's fine and both rupees and stocks are worth something, and State B in which there is nuclear war and both rupees and stocks are worthless. Why should an increase in the probability of state B change the relative value of rupees vs stocks?

Doesn't look like the rupee to the dollar has done much despite the increase in likelihood of state B

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By yelp, I assume you mean state facts that contradict your unfounded belief that events like this affect stock market behavior.

The bigger and more important that Tyler gets, the more I am amazed he lets his comment section continue. I guess he's hoping one of us will be a diamond in the rough.

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There's been border skirmishes on and off for the past 3 years, at least. So far none of what has happened is too far out of the ordinary, so it's no surprise that the stock markets treat it as such.

I just checked Google News, and it's the #3 story, which is what I would expect for your assessment.

Meanwhile, Ryan Seacrest has broken up with his girlfriend.

I hope the American stock exchanges handle this well.

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It is probably misplaced focus to chasten us, or investors, or markets, or Twitter about what might seem to all of us a distant and unnecessary conflict.

I suspect that we all hope those distant folk calm down and don't let things get out of hand.

And "hope" is realistically the only lever we have to pull.

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Maybe we should apply Samuelson's famous quote about the US stock market to this.

He said that the stock market had forecast ten of the last seven recessions.

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Rules of Acquisition:

34. War is good for business.
35. Peace is good for business.

It's easy to get them confused.

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Indian stocks all seem to have weirdly low dividend yield, plus the tax withholding. I'm puzzled why prices are so high there and have been for a decade? It's super weird to me as a value investor. Anyway I suspect the answer is, Indians bid up prices of their country's stocks because there are so few stocks/opportunities and they have outbound capital controls in place? I don't know the Indian stock market but the low yield of their stocks is a huge red flag to me, a signal to stay away.

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A good thread on MAD, and India and Pakistan.

https://twitter.com/ProfTalmadge/status/1100800852607016960

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"I know you all love to yelp that markets don’t predict well (not what markets do!…that word “predict” is loaded) and that stock markets did not predict WWII, etc. [...] prediction is very hard. So this kind of market result does not have to conflict with the best knowledge we have from political science and the other social sciences. "

Right, which is why many of us are puzzled when you cite stock market movements, or lack thereof, as something to pay attention to when we're trying to evaluate current events and what they mean for the future.

It's been awhile, quite a few months, since you've done this but IIRC you did it frequently during Trump's campaign for the White House as well as other earlier events though I forget which ones, maybe Brexit or Greece or Obamacare legislation. We yelped then, and would yelp now: why are you bringing stock market prices into a discussion about Kashmir, Trump, ACA, etc.?

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