is the magic card singles market efficient?

[perm]

What I mean by that, do prices instantly reflect all publicly available information?

In the real world, financial markets are efficient in this sense. A stock price will instantly reflect any new information that the public has.

my question is, does this apply to the market for mtg singles? I am inclined to say yes.

If wizard announces the banning for tarmogoyf in legacy, which is effective in 6 months, then the price of tarmogoyfs will drop to nearly what it will be and should be at in 6 months. I say nearly because it won't be 100% discounted to that price because there will still be players who want tarmogoyf within the 6 months before banning.

So what do you all think?

[ramanujan]

I am inclined to say no. Standard cards do not reflect the rotation until right near the rotation. Extended was all about a 15 dollar rare that gave landtypes to lands in play. The card should be worth about one dollar when it rotates out.

[sigfig8]

This is a great question, and I've thought about it many times in the past. I personally think there are many local inefficiencies in Magic. For example, even though information is publicly available, many people are ignorant to such information for days and even weeks. When Frost Titan instantly became a 20$ card, I spoke to a handful of people at my local hobby shop and they were valuing Forst Titan at 5$ and I had to correct them. Similarly, another example I recently experienced was on Sword of Fire and Ice. I traded for it at 25$, and the next week at FNM I saw that it was a 50$ card. So clearly there are opportunities on the order of at least a week if not more.

Part of the driver of this phenomenon is that not all people a) look at SCG prices daily and b) use popular internet sites for their pricing. If people are using sites like blacklotusproject.com and Apathy House, those sites often take a couple weeks to catch up with changing prices.

In short, I've come to the conclusion that the Magic market is NOT efficient.

Here's my question along these same lines. Do you think there are arbitrage opportunities in Magic? That is, can cards be obtained in one place (a local shop, ebay, etc.) and sold/traded at another place (SCG open, local shop) for immediate profit?

[ramanujan]

Arbitrage exists quite often because IRL stores frequently price with stickers. This is not always true but it does happen. In addition, there are quite a few buy it now auctions on ebay at any given point in time. If there is a move in price that puts the new price above the previously high priced buy it now auctions, then arbitrage opportunities exist. Arbitrage is significantly reduced by the transaction costs for collectibles in general.

Arbitrage of course exists in the markets as well, but machines do a lot of the legwork of finding it, leaving the normal investor unable to get thier slice of the arbitrage pie.

[perm]

There are market returns on buying cases and selling singles, just like there are market returns in real life (i've done it) but I doubt there is any arbitrage to be done besides successful speculation or ripping people off

[ramanujan]

All arbitrage is some form of ripping people off. Arbitrage is a free meal. A classic example is getting a loan at a rate less than a guaranteed rate on a treasury. Free money is then obtained by buying the treasury and paying back the loan and interest with the payment from the treasury at expiration, netting the difference in the payment. There are many other common examples with options when put call parity is not achieved, arbitrage can also be present when something like the S&P 500 does not accurately reflect all of the market movements of its pieces. I believe that high frequency traders are known to expose the latter form of Arbitrage.

Successful speculation is not arbitrage.

[perm]

Arbitrage isn't ripping people off, because any place that arbitrage is applied as a word isn't supposed to be a fun/hobby game :P I would feel bad for ripping someone off a card, but not a financial instrument if you get what I mean.


Speculation is absolutely arbitrage, it is just arbitrage between periods of time.

[ramanujan]

How is speculation arbitrage. What are you getting for free? You are not guaranteed to not lose when you speculate. Arbitrage may have a variable payout, but it has no potential for loss. Speculating certainly has the potential for losses. I am an authority on that fact, unfortunately.

arbitrage (ˈɑːbɪˌtrɑːʒ, ˈɑːbɪtrɪdʒ)

— n
finance
a. the purchase of currencies, securities, or commodities in one market for immediate resale in others in order to profit from unequal prices

[Koby]

I would say no, because the card singles market is not based on supply & demand alone. Other factor, such as the Hotness factor, as well as playability and utility also factor in.

I think i wonder described it as such:
Price = Rarity * hotness ^2 * foil factor * Top8 recently

Hotness factors into the cool factor such as foreign language, whereas Top8 factors the impulse- demand side. The equation isn't necessarily quantitative, but it seems to work for certain foil markets.

eBay helps to make the market liquidible, but whenever I go to visit all I see are jacked up B.I.N. auctions which defeat the purpose. I suppose it creates a market place, rather than a market. I would also not credit the MTG singles market as efficient when over half the participants engage in price fixing. See CF vs Troll & Toad vs Starcity, or an even more blatant example on FMC.

[GGoober]

Isn't hotness factor just another form of supplyxdemand?

I.e. foils are much lower in supply, and demand is much higher, hence the high price, the same way Jap foils is less available than english foils in the states, and demand (from history of the game) is much higher i.e. our conceived notion that jap foils are hot imply that we demand those to a large extent.

[Mr.C]

The paper market, at least, is very inefficient, as you cannot buy and flip instantly.

Arbitrage is a cute name for taking advantage of someone. Nothing wrong with that, in finances or buying and selling magic cards; information is out there.

[sigfig8]

I'm not sure arbitrage is necessarily indicative of cheating someone. A good example may be considering all the European Magic players buying singles from ebay. There must be some fraction of the time when someone in Spain gets a good deal on an ebay auction, and proceeds to trade/sell it for Euros. Introducing currency conversions into the equation does make things more complex.

Here's an example closer to home: if you scour ebay frequently enough, you'll find Badlands at about 30-35$. CFB is buying these at 45 bucks! So I could easily get some arbitrage action going in this situation. And I would argue no one is getting taken advantage of. The ebay seller SET his price, at which he would be happy with selling the card. And CFB set their buy price at a number they are happy with.

[Malchar]

Arbitrage isn't exactly cheating someone. The amount of money you would gain from the transaction is balanced by the fact that you have extra information, which is not something you get for free. i.e. you spend time looking around for different prices and networking with people, and the payoff is that you can take advantage of arbitrage.

Anyway, in my experience I find that the mtg market is very near efficient. Obviously small local game stores won't have ideal prices, but if you shop online it's almost always efficient.

[perm]

Arbitrage is not cheating someone at all, it takes something from where where it is less valued to somewhere it is more valued, there's not much more to it than that. It's just that in magic the gathering, its considered a friendly game, and its not nice to rip people off.


How is speculation arbitrage. What are you getting for free? You are not guaranteed to not lose when you speculate. Arbitrage may have a variable payout, but it has no potential for loss. Speculating certainly has the potential for losses. I am an authority on that fact, unfortunately.

arbitrage (ˈɑːbɪˌtrɑːʒ, ˈɑːbɪtrɪdʒ)

— n
finance
a. the purchase of currencies, securities, or commodities in one market for immediate resale in others in order to profit from unequal prices

How are you an authority? I am have a degree in economics and I practice arbitrage. I import from countries with different PPP and markets for certain goods to the country I live. Posturing isn't going to get you anywhere, and arbitrage certainly isn't "getting something for free", it corrects inefficiencies. Take a breath and stop trying to look like a bigshot, man. Risk arbitrage is a type of speculation, except dealing with risk and time.

[ramanujan]

Dude,

I am not trying to look like a big shot. I am an authority on loosing in the speculating on magic cards game. I was trying to be funny. Sorry that I came off sounding like a big shot.

Risk arbitrage involves purchasing a stock of a company that is currently for sale as a whole to another company, after there is agreed upon purchase price, at a price less than the agreed upon company purchase price. If the deal falls through, you can lose. However, risk arbitrage was not the word we were talking about, it was arbitrage. If you read the definition of the word arbitrage again you will see the word immediate. Risk arbitrage does not involve immediate transactions, which I believe is your point. In a strict sense, risk arbitrage is then not arbitrage. Lets go with your interpretation anyway, risk arbitrage is a member of the set arbitrage, and lets see if speculation of magic cards is arbitrage.

I have said that successful speculation in magic cards is not arbitrage. Speculation on magic cards is certainly not risk arbitrage. I will defend this in a response later this evening if you wish. Are you stating that because risk arbitrage has some small degree of inherent speculation, often hours or just minutes, that all speculation is arbitrage?

I was only trying to illustrate what arbitrage is. I believe that you were mistaken on your use of the word arbitrage in your first few posts, especially when you declared that successful speculation is arbitrage. I don't know why you stated your credentials. There are many people here with credentials, and your credentials will not change the definition of the word arbitrage, nor whether speculation on magic cards counts as arbitrage. Not that it makes one ounce of difference to the discussion but I would tell you my credentials if you asked nicely.