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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

#71

Post by xapata »

vasilipupkin wrote: post #70
xapata wrote: post #67

Earlier quoted context omitted.

There have been others. Plus there's some enjoyable literature if you're curious. Mark Buchanan has a nice blog and some links. The gist of it is that in the low latency space the ratio of players to possible strategies is too high.

if yoi try to tie low latency or algorithmic strategies to volatility, you need to be able to explain multiple years of really low volatility despite all those strategies going on.

Low volatility according to what measure? I don't keep up with the literature anymore, since around 2010/2011, but it'd surprise me if we entered some new regime. Googling for "flash crash" turns up many more examples than just the one you mentioned from 2010.

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

#72

Post by nostrademons »

gnopgnip wrote: post #66
nostrademons wrote: post #19

Earlier quoted context omitted.

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…

There is an underlying presumption here that US stock market and investors live in the US, or are otherwise correlated with US demographics. Historically this is not true. International investors make up a sizeable part of the investors, and within the US investors the very wealthy are a disproportionate part of the market.

The same phenomena is playing out throughout the developed world and even in much of the developing world, though. Europe has even lower birthrates than the U.S, China had a huge baby boom in the 50s and 60s followed by a huge baby bust in the 80s under the One Child Only policy, and Japan has been in this situation since the 90s.

What would reverse this, internationally, is if the high-youth countries of Latin America, the Middle East, sub-Saharan Africa, and rural India could be rapidly integrated into the global economy. There are large political, cultural, and educational barriers to this, though.

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

#73

Post by nostrademons »

anongraddebt wrote: post #28
nostrademons wrote: post #19

Earlier quoted context omitted.

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…

"...a smaller working-age population supporting a larger dependent population..." This describes Japan for the past decade or so, right? Also, are you saying the standard of living would regress back to the 90's/80's/etc., or that growth in the standard of living would be curtailed significantly?

It'd depend on industry. We wouldn't suddenly lose the technological advancements of the last 40 years - we'd still have cheap TVs, cheap computers, mobile phones, the Internet, etc.

However, sectors where productivity hasn't risen that fast - like health care, elder care, mental health services, natural resources, etc. - will encounter sharply rising prices as there are too few workers to provide services to everyone who needs them. The market is a way of allocating resources to those who are willing to pay the most - so those with resources will still be able to afford them, but will end up liquidating a lot of their investments for it, while those without assets will just have to go without. In the process, the exodus of cash from financial markets to health & elder care will drag down asset prices in general. It'll be a good time to put money into the market, but a bad time to have money already in it.

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

#74

Post by jm__87 »

ctlby wrote: post #41
jm__87 wrote: post #22

Earlier quoted context omitted.

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.

Yes, perhaps I should have chose my words more carefully. When more people want to buy than sell, prices rise. When more people want to sell than buy, prices fall. The exact details of how this happens vary from market to market but in general this is how it works. For every trade there has to be a buyer and a seller. The imbalances occur in the buy and sell orders.

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

#75

Post by ctlby »

module0000 wrote: post #68
ctlby wrote: post #41

Earlier quoted context omitted.

> 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.

The person you're replying to is telling you the truth - imbalanced delta for buyers or sellers means rising or falling prices. There is no magical equilibrium, and if there was, there would be no profit. To explain it a step further... at this moment in time, every private and institutional investors stopped selling APPL...I can still buy a share, likely thousands of them... from the market participants that are alw…

> There is no magical equilibrium

Your understanding is exactly backwards. Market makers provide the "magical equilibrium" by bridging supply and demand across time.

> and if there was, there would be no profit.

Wrong again. Even with infinite shares on the bid/ask, there's still a spread for market makers to collect.

More generally, what exactly do you think your comment proves? If a retail investor buys the sole 100 shares at top-of-book, the price (mid) moves up, but there's one buyer and one seller. Where's the "delta"? And if a big hedge fund buys 100,000 shares from 10 market makers... 100,000 shares demanded and 100,000 shares supplied. Magic!

You're arguing against an accounting identity. I know what you're trying to say: what moves prices is relative eagerness of buyers and sellers. You're just too inexperienced to be able to explain it.

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

#76

Post by ctlby »

ironSkillet wrote: post #69
ctlby wrote: post #41

Earlier quoted context omitted.

> 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.

The "market" is more complex than a single stream of matching buy and sell orders at specific price levels. For any given asset, there is an "order book" containing the quantities market participants are willing to buy/sell at various price levels. Lots of people coming in to buy at "the market price" eats away at the selling side of the order book, raising the market price level.

Perhaps buyers nibble at the ask. Perhaps a big order slams through. Or perhaps the posted liquidity is canceled without any trading having happened. Whatever the case, the number of shares sold is exactly equal to the number of shares bought.

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

#77

Post by ctlby »

jm__87 wrote: post #74
ctlby wrote: post #41

Earlier quoted context omitted.

> 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.

Yes, perhaps I should have chose my words more carefully. When more people want to buy than sell, prices rise. When more people want to sell than buy, prices fall. The exact details of how this happens vary from market to market but in general this is how it works. For every trade there has to be a buyer and a seller. The imbalances occur in the buy and sell orders.

But to a first approximation, the numbers are the same! If anything, some of the biggest moves happen when a single (big) buyer or seller is active. It’s all about the prices participants are willing to trade at, not an imbalance of one group vs another.

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

#78

Post by anongraddebt »

nostrademons wrote: post #73
anongraddebt wrote: post #28

Earlier quoted context omitted.

"...a smaller working-age population supporting a larger dependent population..." This describes Japan for the past decade or so, right? Also, are you saying the standard of living would regress back to the 90's/80's/etc., or that growth in the standard of living would be curtailed significantly?

It'd depend on industry. We wouldn't suddenly lose the technological advancements of the last 40 years - we'd still have cheap TVs, cheap computers, mobile phones, the Internet, etc. However, sectors where productivity hasn't risen that fast - like health care, elder care, mental health services, natural resources, etc. - will encounter sharply rising prices as there are too few workers to provide services to everyon…

I'm just trying to get a bit more precise.

You're saying that the rate of growth in the standard of living would be curtailed, and that the degree of curtailment would be sector dependent? If so, then I definitely agree.

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

#79

Post by jm__87 »

ctlby wrote: post #77
jm__87 wrote: post #74

Earlier quoted context omitted.

Yes, perhaps I should have chose my words more carefully. When more people want to buy than sell, prices rise. When more people want to sell than buy, prices fall. The exact details of how this happens vary from market to market but in general this is how it works. For every trade there has to be a buyer and a seller. The imbalances occur in the buy and sell orders.

But to a first approximation, the numbers are the same! If anything, some of the biggest moves happen when a single (big) buyer or seller is active. It’s all about the prices participants are willing to trade at, not an imbalance of one group vs another.

I would think it depends on what scale you're looking at. It is pretty obvious that if one guy takes out a large chunk of the order book of one security, over the course of seconds, on only one side of the market, the price is going to move. If we're talking about the S&P 500 dropping over the course of a few months, I think it is accurate to say that those who want to sell are outnumbering those who want to buy.
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