Posts filed under “Quantitative”
Bloomberg Echoes looks at the history of computer driven snafus:
When machines replace seasoned traders and market makers, mistakes can occur at dizzying speed. It happened with the notorious “flash crash” on May 6, 2010, and again on Aug. 1 this year, when software at Knight Capital Group Inc. (KCG) malfunctioned, triggering unintended trades and leading to a $440 million loss for the company.
Ironically, Knight Capital Group was originally known as a market maker, with trading specialists who oversaw trades on each side of a security to ensure the market functioned in an orderly and efficient manner. The company’s troubles once again show the extent to which Wall Street now relies on algorithmic programs to execute its trades, for better or worse.
Although many in the financial world have expressed concerns that a new era of automated finance is destabilizing the markets, algorithmic trading isn’t new — it’s almost as old as computers themselves . . . Algorithmic trading soon evolved into nanotrading. In the signal extraction world, a second is an eternity. An algorithmic-trading facility located within a block or two of the New York Stock Exchange (NYX)’s servers could see trade data a millisecond sooner than a trading facility half a state away. A modern computer can execute millions of calculations in that millisecond. Such signal theory and nanotrading soon required that humans were all but removed from trade execution.”
The entire article is worh reviewing.
History of Algorithmic Trading Shows Promise and Perils
Bloomberg, August 8, 2012
Must read article in Spetember edition of Wired Magazine on How Wall Street Got Addicted to HFT. In light of the JKnight Trading snafu, Wired decided to post it on line earlier than suual. Here is an excerpt: “Faster and faster turn the wheels of finance, increasing the risk that they will spin out…Read More
Whenever I have no idea about some event, rather than hypothesize some half-assed theory, I prefer instead to go to the pros who know their area of expertise better Thus, for the the Knight Trading glitch, I direct your attention to Nanex: Knightmare on Wall Street On August 1, 2012, starting at market open (9:30 EDT), our…Read More
No sooner does this morning’s “Uncertainty” piece go up when someone emails me this “quantified” version of uncertainty. The claim is made that “Nick Bloom and Scott Baker of Stanford University and Steve Davis of the University of Chicago” have figured out how to measure uncertainty: Sadly, no. This is merely an index…Read More
What a piece of work is a man, how noble in reason, how infinite in faculties, in form and moving how express and admirable, in action how like an angel, in apprehension how like a god! the beauty of the world, the paragon of animals—and yet, to me, what is this quintessence of dust? Man…Read More
Back in the beginning of the year, I mentioned that Mebane Faber and I were exploring updating his Spring 2007 Journal of Wealth Management paper titled “A Quantitative Approach to Tactical Asset Allocation.” (He is the Chief Investment Officer of Cambria Investment Management). As we discussed back earlier, Meb reviewed a simple timing model — the…Read More
Every year since 1989, Merrill Lynch surveys a few 100 institutional investors using a broad variety of quantitative, valuation, process and modeling questions. Their responses get summarized in a 39 chart, 27 page report. You can get a sense of the depth and breadth of the report in just a few charts — but overall,…Read More
> Today, I want to bring a simple analysis to your attention. It is based upon the chart of GDP versus the total stock market valuation: Another measure bodes worse, however. That’s a comparison of the total value of U.S. shares with the yearly output of the U.S. economy (see chart). The stock market is…Read More
By using predictive analytics, Target doesn’t just track when customers buy sheets, they know what customers are doing between the sheets. The Word – Surrender to a Buyer Power The Colbert Report Get More: Colbert Report Full Episodes,Political Humor & Satire Blog,Video Archive Wednesday February 22, 2012