Stock and bond prices exhibit considerable randomness or ‘noise’ unrelated to
identifiable economic fundamentals. This includes exaggerated price swings caused
by disproportionate changes in market sentiment and speculative activity. Recent
examples of market movements provide ample evidence of the extent to which markey prices can move, particularly in thin markets, without economic justification.Reading this, it remined me of the European Commission's notion of 'virtual/excess' liquidity at the core of its rather radical FTT proposals. Also of the 2013 FTT critique from the private repo lobby:
Concepts such as [...] ‘virtual liquidity’ have no little or no foundation in academic research, regulatory analysis or market experience.
The side of the fence clearly matters.