Mar

3

FED interest rate decisions are often associated with the SPY.

1) Interest rate decrease –> Increase in SPY

2) Interest rate increase –> Decrease in SPY

Polymarket has a market for FED decisions. Could a combination of Long SPY & Polymarket contracts (betting on rates increasing) provide some kind of arbitrage opportunity?

Larry Williams responds:

This not correct Interest rate hikes are bullish for stocks—most the time. [See chart below.]

William Huggins writes:

the most important issue with any arbitrage situation is the volume at price is not unlimited, meaning there is a functional "size" to the exploit. my intuition is that such inefficiencies can persist for structural reasons until that size crosses some operator's threshold at which point they trade it until it holds back against the efficient exploit horizon. i don't know what the market depth is like on polymarket but i also suspect the liquidity that such a trade would count on could evaporate such faster than SPY.

Asindu Drileba asks:

[Larry's] pattern indicates:

- Rate increases -> Stock Market up

- Rate decrease -> Stock market down

But for longer periods i.e several subsequent days after.

Since the Polymarket contracts actually expire (resolve) on the day of the announcement. I was thinking this was a strategy that would close on the day of rate announcements. Are stocks also mostly bullish *on the same day* for announcements of a rate increase? (and vice versa)


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