Finally, the paper points out that a tax on short-term transactions would discourage inventory positioning and deliver larger profits to the “unsophisticated” investors. Aside from all the other objections, taxing all financial transactions for the tiny fraction that represent market maker inventory positioning trades with unsophisticated retail investors is wildly out of proportion.
I can’t think of any scheduled information releases of the type the paper considers. Earnings announcements and other big news are usually scheduled when the market is closed, or are done during trading halts. Government statistics released during the trading day affect thousands of securities, and no market maker is adjusting inventory positions in thousands of securities a few minutes before release.
But it is the absurdity of the paper’s policy arguments that lead me to suspect it is a signal. Economists who read the paper will laugh and dismiss it. Non-economists who read second-hand accounts will seize on a paper by a Nobel laureate that supports financial transaction taxes. Liberal economists can shut up, and let the progressives get a win on an issue that many of them think isn’t a bad idea — certainly not as crazy as modern monetary theory or $25 per hour minimum wage.
Aaron Brown is a former managing director and head of financial market research at AQR Capital Management. He is the author of The Poker Face of Wall Street. He may have a stake in the areas he writes about.