Unexpected news effects markets. An unanticipated rise in interest rates or an unforeseen decline in payroll numbers can be expected cause sharp movements in stock and bond markets. In theory the size of that movement should be determined by the total effect of the unexpected event on corporate profits times the unexpectedness of the event occurring.

The fact that there are two degrees of freedom here allows pundits to spin an entire career arguing over whether or not a move was truly devastating or just really unexpected.

Intrade, however, should change that. For example, the Bernanke confirmation contract is trading right now at 97%. The cloture vote is scheduled for 320pm. If Bernanke passes cloture then he is essentially assured to be reconfirmed.

Thus we ought to see a movement in the markets today at 320pm which tells us how much eliminating that 3% of uncertainty is worth.

Its not exactly the case that Bernanke’s confirmation should be worth 33 times the movement that we see. There is so value in certainty itself and the Intrade market is somewhat thin. However, it should be a good rough approximation.

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