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Behind the Market Swoon: The Herdlike Behavior of Computerized Trading

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Re: Behind the Market Swoon: The Herdlike Behavior of Computerized Trading

#41

Post by ctlby »

jm__87 wrote: post #22
ajross wrote: post #9

Earlier quoted context omitted.

How is that any different from previous bear markets? I swear I remember reading the same analysis in 1987 after the crash. Human behavior (even human-programmed behavior) is pro-cyclic. Everyone wants the same stuff and makes the same decisions with the same input. I don't see anything notable about this market cycle as compared with previous ones at all, only the jargon is changing.

Not really sure what your point is. Cycles always happen for the same technical reason - more buyers than sellers lead to rising prices and more sellers than buyers lead to falling prices. Understanding what leads to these imbalances in buying and selling is the more interesting and more difficult part and the details tend to be a bit different for every cycle. Most people find these details interesting and for some…

> more buyers than sellers lead to rising prices and more sellers than buyers lead to falling prices

That's not how any of this works. Every share bought is a share sold by some counterparty. Buyers and sellers are always in equilibrium.

Re: Behind the Market Swoon: The Herdlike Behavior of Computerized Trading

#43

Post by rdlecler1 »

Markets are moving much faster but we’re still using the same scale on the x axis (time). We’ve seen a 4,000 point drop so far but if that occurred over a one year period we would have called it a recession. However if the market recovers in the next few months we’ll interpret this as the continuation if a 10-year bull market.

Re: Behind the Market Swoon: The Herdlike Behavior of Computerized Trading

#44

Post by Agathos »

m0j0e wrote: post #40

Clifford Asness sums up my feelings about this article pretty well: https://twitter.com/cliffordasness/status/107775763347229900...

I also appreciated one of the first replies: "Didn't hear many complaints about robots on way up"

Re: Behind the Market Swoon: The Herdlike Behavior of Computerized Trading

#45

Post by TomMckenny »

lordnacho wrote: post #30

Former fund manager here. Yes, there is herdlike behaviour. But why? Here's a little story about my investment career. I once hired a guy for a fund I was partner in. He was a proper old school equity investor. He'd fly around the world to different countries and visit businesses. He'd think about each country's prospects, each industry, and each company. He'd meet withe the CEOs and look them in the eye, and ask the…

As an aside...

>the computers are doing what? Looking at a variety of information and judging what will happen

Probably but not necessarily. That code which is explicitly understood and written explicitly to weigh information to choose outcomes certainly is.

But were complex neural networks are extensively involved, they become a black box. In markets where gains could be maximized by cooperation, those systems that find ways to cooperate with other systems outside their organization will eventually be chosen and become the dominant. Chosen purely from their ability to get better results.

Even if completely isolated, signaling is not impossible. A straight forward technique would be to use transactions to communicate in the same way bridge players do.

So potentially software could outperform humans for at least two reasons: better and faster analysis of data. But also doing things humans are unable.

Re: Behind the Market Swoon: The Herdlike Behavior of Computerized Trading

#46

Post by chiefalchemist »

cs702 wrote: post #6

As the article points out, passive funds, which have become a dominant force in the stock market, own the same stocks as everyone else in the same proportion. When passive funds as a group have net outflows, all their holdings must be reduced in roughly the same proportion. But passive funds as a group cannot reduce their holdings by selling stocks to each other! It's impossible to take water out of a boat by scoopin…

That almost sounds like a Ponzi Scheme, of sorts

Realize it doesn't meet the true technical definition, but more the idea of passing the buck (so to speak) and someone getting hit pretty hard, in an inevitable / unavoidable sorta way. Also, because this also (to me) feels less like investing and more like a timing game.

Re: Behind the Market Swoon: The Herdlike Behavior of Computerized Trading

#47

Post by WalterBright »

nostrademons wrote: post #19
cs702 wrote: post #6

As the article points out, passive funds, which have become a dominant force in the stock market, own the same stocks as everyone else in the same proportion. When passive funds as a group have net outflows, all their holdings must be reduced in roughly the same proportion. But passive funds as a group cannot reduce their holdings by selling stocks to each other! It's impossible to take water out of a boat by scoopin…

A lot of the attention on the stock market is focused on the short term (i.e. panic sells or a flight to safety in reaction to quick emotional events), but I wonder what happens when this dynamic plays out in the long term. Right now, the pool of people putting money into the market has been steadily increasing as Millenials enter the workforce. Boomers are retiring, but not really in large numbers yet, so the overal…

> the peak of the Boomer years will soon start entering retirement soon (~2020)

Boomers were born 1945-1960, meaning in 2020 they'll be 60-75. They started retiring long ago.

Re: Behind the Market Swoon: The Herdlike Behavior of Computerized Trading

#48

Post by CoolGuySteve »

TomMckenny wrote: post #45
lordnacho wrote: post #30

Former fund manager here. Yes, there is herdlike behaviour. But why? Here's a little story about my investment career. I once hired a guy for a fund I was partner in. He was a proper old school equity investor. He'd fly around the world to different countries and visit businesses. He'd think about each country's prospects, each industry, and each company. He'd meet withe the CEOs and look them in the eye, and ask the…

As an aside... >the computers are doing what? Looking at a variety of information and judging what will happen Probably but not necessarily. That code which is explicitly understood and written explicitly to weigh information to choose outcomes certainly is. But were complex neural networks are extensively involved, they become a black box. In markets where gains could be maximized by cooperation, those systems that…

In my experience as a quant dev for various traders , neural networks are almost never used for trading, or if they are they're very limited in their application.

But many traders will claim their use because they are obtuse and impressive sounding.

One PM once described it as "machine learning in the streets, linear regression in the sheets".

Re: Behind the Market Swoon: The Herdlike Behavior of Computerized Trading

#49

Post by eej71 »

Agathos wrote: post #44
m0j0e wrote: post #40

Clifford Asness sums up my feelings about this article pretty well: https://twitter.com/cliffordasness/status/107775763347229900...

I also appreciated one of the first replies: "Didn't hear many complaints about robots on way up"

Nor does the "blame the robots" thesis explain 2017.
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