5th July 2013: Egypt Event Arbitrage

I have a shelf of international security books I acquired in 2005-11 as I was developing possible PhD topics. When the Egyptian Army deposed President Morsi this week I thought of my secondhand copy of John Samuel Fitch’s The Military Coup d’etat As Political Process: Ecuador, 1948-1966 (Baltimore, MD: John Hopkins University Press, 1977). I thought about a Political Islam course I took with Shahram Akbarzadeh in 2006, and the military’s role in Egypt’s history. Then I looked at the financial markets for event arbitrage opportunities I had missed. Two weeks ago, the Market Vectors Egypt Index ETF (NYSEARCA: EGPT) had predicted a political change, and then rallied after news of the coup d’etat, in a trend-following pattern. The Dow Jones Egypt Total Stock Market Index (EGP) had risen, whilst the Egyptian pound $EGP had fallen against the $US dollar. Someone has read Andrew Busch’s World Event Trading: How to Analyze and Profit from Today’s Headlines (Hoboken, NJ: John Wiley & Sons, 2007) and ‘shorted’ Egypt’s currency cross-rates. Alternatively, this might all be a case of Nassim Nicholas Taleb’s narrative fallacy.