Comments on: “Noise Trader Risk In Financial Markets” http://stevereads.com/weblog/2008/01/22/noise-trader-risk-in-financial-markets/ Books and policy from an endlessly curious perspective Mon, 08 Mar 2010 16:04:17 +0000 http://wordpress.org/?v=2.9.2 hourly 1 By: Stephen Laniel’s Unspecified Bunker » The proposed Yahoo! buyout and the efficient markets hypothesis http://stevereads.com/weblog/2008/01/22/noise-trader-risk-in-financial-markets/comment-page-1/#comment-5646 Stephen Laniel’s Unspecified Bunker » The proposed Yahoo! buyout and the efficient markets hypothesis Tue, 12 Feb 2008 01:05:35 +0000 http://stevereads.com/weblog/?p=4034#comment-5646 <p>[...] course the EMH is probably not true, and the market has priced stocks in decidedly irrational ways for long periods. At the same time, winners really do systematically overpay. I seem to recall a part of [...]</p> [...] course the EMH is probably not true, and the market has priced stocks in decidedly irrational ways for long periods. At the same time, winners really do systematically overpay. I seem to recall a part of [...]

]]> By: Tony B http://stevereads.com/weblog/2008/01/22/noise-trader-risk-in-financial-markets/comment-page-1/#comment-5607 Tony B Fri, 25 Jan 2008 02:34:41 +0000 http://stevereads.com/weblog/?p=4034#comment-5607 <p>I've actually been working with my employer's version of the Black Box for the better part of a year. They really are, for lack of a better term, an off-the-shelf appliance. In this case, it was designed by a consulting company that only our higher order executives know the name of, as it's supposed to be highly secret. No doubt this is because said company has designed similar systems for Banks A and B and Brokerage Houses C and D but in the interest of "competitive advantage" isn't allowed to mention who their customers are.</p> <p>The most interesting thing I have noticed in these last several months is that the only thing we've been working on is decreasing the latency of the data received by the Box and increasing the execution speed of the trades it generates. We don't touch the Box itself, at all. I take this to mean that the only real advantage any particular company's Black Box can generate over their competitors is to be the fastest to react and execute. Since they're all doing nearly exactly the same thing, the one that does it first will win. We've started paying exorbitant sums to actually have our applications hosted inside the exchange in order to get latency times down into the tens of microseconds range.</p> <p>One claim that the secretive contractors made, and that the almighty wiki seems to support, is that algorithmic trading is now responsible for a near majority of all trades on the exchange. Since hearing that, I've only referred to the Black Box as Skynet or WOPR. I'm not sure if I should be disappointed that nobody in my group understands either reference.</p> I’ve actually been working with my employer’s version of the Black Box for the better part of a year. They really are, for lack of a better term, an off-the-shelf appliance. In this case, it was designed by a consulting company that only our higher order executives know the name of, as it’s supposed to be highly secret. No doubt this is because said company has designed similar systems for Banks A and B and Brokerage Houses C and D but in the interest of “competitive advantage” isn’t allowed to mention who their customers are.

The most interesting thing I have noticed in these last several months is that the only thing we’ve been working on is decreasing the latency of the data received by the Box and increasing the execution speed of the trades it generates. We don’t touch the Box itself, at all. I take this to mean that the only real advantage any particular company’s Black Box can generate over their competitors is to be the fastest to react and execute. Since they’re all doing nearly exactly the same thing, the one that does it first will win. We’ve started paying exorbitant sums to actually have our applications hosted inside the exchange in order to get latency times down into the tens of microseconds range.

One claim that the secretive contractors made, and that the almighty wiki seems to support, is that algorithmic trading is now responsible for a near majority of all trades on the exchange. Since hearing that, I’ve only referred to the Black Box as Skynet or WOPR. I’m not sure if I should be disappointed that nobody in my group understands either reference.

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