Near-term Foresight and Frequent Trading

Would someone who knows tomorrow’s financial headlines today be a good day trader? In their September 2024 paper entitled “When a Crystal Ball Isn’t Enough to Make You Rich”, Victor Haghani and James White report results of “The Crystal Ball Challenge.” They ask 118 young adults trained in finance to trade the S&P 500 Index and 30-year U.S. Treasury bonds on 15 days with an initial stake of $50 (and up to 50X leverage), based on one-day-in-advance front pages of the Wall Street Journal with price data blacked out. The days are chosen randomly from: (1) first, all days in the top half of daily market volatilities; and then, (2) one third with employment reports, one third with Federal Reserve Bank announcements and one third random. They repeat the experiment with five highly experienced macro traders (head of trading at a top U.S. bank, founder of large macro hedge fund, senior trader at large macro fund, former senior government bond trader at a large U.S. primary dealer and former senior Jane Street trader). Using roughly 2,000 trades from these November 2023 experiments, they find that:

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