The usual dodge here is to make "the money" a trader deploys proportional to the gap between the current price and their estimate, and so dodge this question completely: Dan Davies: "The 'Manski Bounds'.... How surprisingly little information you can extract from prices.... All the price tells you is that half the money thinks the true value is more than that and half thinks it's less. It doesn't tell you how much more or how much less. I think this matters a lot when you're trying to analyse fast moving markets like TRY or BTPs. Most of the people selling are selling because their guess about true value has moved a long way, not because the price has moved and they switched from the bid to the offer..."
#shouldread
