So much for Hollywood

Last year, the CFTC decided to allow trading in movie futures, enabling people to bet on how much major films will earn at the box office (either up or down) before they’ve been finished or even started for that matter.

Businessweek, May 5, 2010:

Even as lawmakers rail against impossible-to-understand toxic securities and Wall Street vows to clean up its act, the investing public continues to be inundated with new, exotic, and complex financial products.


Among the proposed offerings are plans to allow traders to bet on the success of blockbuster movies, an idea that has prompted opposition from some in Hollywood and the U.S. Congress. The exchange-traded fund industry is creating new ETFs at a rate of more than 100 per year, tracking everything from financial stocks to natural gas prices, many unsuitable for all but the savviest traders.

The plan was approved the next month and the consequences are being noticed now.  The Financial Times reports that the stock of Berkshire Hathaway, Warren Buffet’s company, is shooting up whenever Anne Hathaway’s name is mentioned in the press.  How is that possible?  70 percent of stock trades are now performed by computer algorithms–a practice known as high-frequency trading–that perform trades based on, among other things, searches for online news trends.

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