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Are You With the Dumb Money or the Smart Money?
Market observers often divide investors into “smart money” and “dumb money.” Our research shows there may be a way to figure out which group you are in. The first place to look is prices, which reflect the interaction of smart money and dumb money and may contain valuable information about the proportion of either in the market. In other words, the price knows which category we belong to. The trick is to extract that information. Consider a simple example of a simple market: betting on a horse race. Say there are two horses, A and B. And there are two types of bettors, smart money and dumb money. We place our ... (full story)