The model’s use helped create the price patterns the model predicted

Evidence

Nevertheless, the availability of convenient material implementations of the Black-Scholes-Merton model (notably Black’s “sheets”), and their use to identify arbitrage opportunities particularly opportunities for “spreading” most likely had the effect of reducing discrepancies between empirical prices and the model, especially in the econometrically crucial matter of the flat-line relationship between implied volatility and strike price. As was noted in chapter 6, there was thus a homology between the way the model was tested econometrically and options market practices based on the model. Use of the model does indeed seem to have helped to create patterns of prices consistent with the model. — Donald MacKenzie, An Engine, Not a Camera, 1154

Categorization

• XREF: This is the core empirical pay-off of the Barnesian performativity thesis — links to the homology argument from chapter 6, and to the wider performativity literature (Callon, MacKenzie’s own claims in ‘An Engine, Not a Camera’). — connects to: Barnesian performativity means models create the price patterns they describe — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 148; The model’s assumptions became more realistic as markets restructured around it — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 741; Market conditions moved toward the model’s assumptions partly because of the model itself — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 1155 (+4 more)
• DEEPTHINKING: The central, paradigm-shifting observation: a model validated econometrically only works because market practice built on the model converges to the model’s predictions — testing and market-making become the same activity.

Broader Connections

• Market conditions moved toward the model’s assumptions partly because of the model itself #corroborates (0.95) — Donald MacKenzie, An Engine, Not a Camera, 1155
• A market model can shape markets actively rather than merely describing them #expands (0.90) — Donald MacKenzie, An Engine, Not a Camera, 1165
• Using a model can make markets conform less well to it. #contradicts (0.85) — Donald MacKenzie, An Engine, Not a Camera, 92
• Market actions based on efficient-market models can create anomalies those models cannot explain #expands (0.80) — Donald MacKenzie, An Engine, Not a Camera, 1166