Political arbitrage is a trading strategy which involves using knowledge or estimates of future political activity to forecast and discount security values. For example, the major factor in the values of some foreign government bonds is the risk of default, which is a political decision taken by the country's government. The values of companies in war-sensitive sectors such as oil and arms are affected by political decisions to make war.
Legal trading must be based on publicly available information. However there is a grey area involving lobbyists and market rumours. Like insider trading there is scope for conflicts of interest when political decision makers themselves are in positions to profit from private investments whose values are linked to their own public political actions.
Famous quotes containing the word political:
“What drivel it all is!... A string of words called religion. Another string of words called philosophy. Half a dozen other strings called political ideals. And all the words either ambiguous or meaningless. And people getting so excited about them they’ll murder their neighbours for using a word they don’t happen to like. A word that probably doesn’t mean as much as a good belch. Just a noise without even the excuse of gas on the stomach.”
—Aldous Huxley (1894–1963)