Efficient-markets theory helped legitimate options trading that regulators had long banned

Evidence

A key role in undermining this kind of opposition to options was played by economics. During the 1960s, price data and the computer power to analyze them came together with key conceptual innovations. Economists postulated that stock price movements could be modeled with reasonable accuracy as random walks and that the U.S. stock market was “efficient” (responded to all publicly available information). In this burgeoning literature, increasing attention was paid to the valuation of options and similar derivatives. — Donald MacKenzie & Yuval Millo, Constructing a Market, Performing Theory, 62

Categorization

• XREF: Core performativity thesis: economic theory enabling the very market it describes, linking to the sociology-of-science literature. — connects to: Efficient-markets and random-walk theory legitimized options against their scandalous reputation. — Donald MacKenzie & Yuval Millo, Constructing a Market, Performing Theory, 62; The Black-Scholes theory reframed options trading as legitimate efficient pricing rather than gambling.; Consulting economists reframed options as legitimate investor strategy for regulatory approval — Donald MacKenzie & Yuval Millo, Constructing a Market, Performing Theory, 63 (+8 more)

Related

• Efficient-markets and random-walk theory legitimized options against their scandalous reputation. (similarity 0.92)
• Black-Scholes theory erased the stigma of options as gambling (similarity 0.87)
• Economic theory succeeded in derivatives markets partly by making markets conform to it (similarity 0.87)
• Consulting economists reframed options as legitimate investor strategy for regulatory approval (similarity 0.87)
• Fairer option pricing let 1970s exchanges prosper where predecessors failed (similarity 0.86)
• The Black-Scholes theory reframed options trading as legitimate efficient pricing rather than gambling. (similarity 0.86)
• The Black-Scholes model legitimized options trading by rebutting gambling stigma (similarity 0.86)
• Academic theory directly motivated the creation of the organized options exchange (similarity 0.86)
• Black-Scholes legitimized options despite fitting prices only approximately (similarity 0.85)
• Economic theory, not trader demand, forged the proposal for the stock-options exchange (similarity 0.84)
• Economists’ endorsement legitimated derivatives markets that regulators viewed as gambling (similarity 0.84)
• 1960s economists reframed stock options as rational and desirable despite Wall Street’s dismissal (similarity 0.84)
• Economic theory helped restore legitimacy to banned financial derivatives (similarity 0.84)
• Option theory infrastructure allows derivatives markets to exist at current scale (similarity 0.83)
• Option pricing theory did not describe markets but remade them in its own image (similarity 0.83)

Broader Connections

• Efficient-markets and random-walk theory legitimized options against their scandalous reputation. #corroborates (0.95) — Donald MacKenzie & Yuval Millo, Constructing a Market, Performing Theory, 62
• The Black-Scholes theory reframed options trading as legitimate efficient pricing rather than gambling. #expands (0.90)
• The Black-Scholes model legitimized options trading by rebutting gambling stigma #corroborates (0.90) — Donald MacKenzie, An Engine, Not a Camera, 703
• Black-Scholes theory erased the stigma of options as gambling #corroborates (0.90) — Donald MacKenzie & Yuval Millo, Constructing a Market, Performing Theory, 100
• Economic theory helped restore legitimacy to banned financial derivatives #corroborates (0.85) — Donald MacKenzie & Yuval Millo, Constructing a Market, Performing Theory, 9
• Economists’ endorsement legitimated derivatives markets that regulators viewed as gambling #corroborates (0.85) — Donald MacKenzie, An Engine, Not a Camera, 1135
• Consulting economists reframed options as legitimate investor strategy for regulatory approval #expands (0.80) — Donald MacKenzie & Yuval Millo, Constructing a Market, Performing Theory, 63
• Academic theory directly motivated the creation of the organized options exchange #expands (0.80) — Donald MacKenzie, An Engine, Not a Camera, 651
• US securities regulators viewed options trading with extreme hostility into the 1970s #qualifies (0.75) — Donald MacKenzie & Yuval Millo, Constructing a Market, Performing Theory, 61
• Fairer option pricing let 1970s exchanges prosper where predecessors failed #expands (0.75) — Donald MacKenzie, An Engine, Not a Camera, 1158
• Selling options on held stocks was argued to violate the efficient-market hypothesis. #complicates (0.70) — Donald MacKenzie, An Engine, Not a Camera, 1552