Markets overprice both risk on the way up AND resolution on the way down

Pre-registration before analysis report

Original intuition: Markets overprice both risk on the way up AND resolution on the way down.

Two observations that made me change my mind:

• Current prices may already be pricing in expensive inventories, not current market prices.
• The uncertainty of the resolution path means smart money is probably hedged, not directional.

These observations undercut the symmetric overshoot mechanism. The weights below reflect that update.

Before doing the analysis, my probability weights across hypotheses:

• H1 (sentiment overshoot): 20%. Original intuition, now lower confidence. Predicts large σ stretches with fast reversion.
• H2 (positioning dominance): 35%. Updated intuition. Dealers and market makers hedged, not directional; spread behavior tracks positioning data more than sentiment.
• H3 (fundamentals still driving): 10%. Feels too generic given the macro context.
• H4 (macro factor dominance): 25%. Consistent with the consensus. One common factor (likely geopolitical premium) overrides others temporarily, meaning spread compression and fewer setups, not larger stretches.
• H5 (cointegration breakdown): 10%. Statistical pair relationships fail rolling cointegration tests

Posting these before analysis. Will update based on actual results.