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New Revealing paper on High Frequency Trading
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Re: New Revealing paper on High Frequency Trading
#12The only function of economic forecasting is to make astrology look respectable. -- J K Galbraith:
What is the relevance of the quote? Near as I can tell, the article is not engaging in economic forecasting, they are simply looking at historical data.
(Note: I haven't read all of the paper, so please correct me if the details involve forecasting.)
Re: New Revealing paper on High Frequency Trading
#13Earlier quoted context omitted.
Indeed, I wonder if anyone has done a literature survey to detect whether economics academics ever manage to state contrary conclusions to general market sentiments? For example, whether anyone was warning of the dangers of the pricing models used for CDOs etc. a few years back.
No time to make some search right now, but I remember a few people pretend having known and spoken about the CDO dangers a few years before the crisis. Roubini is one them, but there is still a discussion going on whether he really foresaw it. If you look at economic research in Europe, you'll see many other opinions, like about the importance of the state, or alternative economic models. You'll probably find studies…
There are a number of people who foresaw the problems brewing in the CDO market. The book "The Big Short" by Michael Lewis provides a detailed portrait of a number of them. As usual, even when someone knows that the generally accepted wisdom is bunk, no one listens.
Another comment that comes to mind is from Warren Buffett, who famously called derivatives "weapons of financial mass destruction" years before the recent blow up.
Re: New Revealing paper on High Frequency Trading
#14Earlier quoted context omitted.
No time to make some search right now, but I remember a few people pretend having known and spoken about the CDO dangers a few years before the crisis. Roubini is one them, but there is still a discussion going on whether he really foresaw it. If you look at economic research in Europe, you'll see many other opinions, like about the importance of the state, or alternative economic models. You'll probably find studies…
There are a number of people who foresaw the problems brewing in the CDO market. The book "The Big Short" by Michael Lewis provides a detailed portrait of a number of them. As usual, even when someone knows that the generally accepted wisdom is bunk, no one listens. Another comment that comes to mind is from Warren Buffett, who famously called derivatives "weapons of financial mass destruction" years before the recen…
While I completely agree that Burry foresaw the collapse of the housing bubble, Buffet didn't.
Buffet never described derivatives as creating a housing bubble. Buffet's problem with derivatives is that they make accounting tricky and fraud easier. But have no fear! Moodys (which Buffet owns about 20% of) will distill the complex accounting down to a simple letter rating. If Moodys calls a derivative "AAA", you know it's safe.
Snark aside, this was not a prediction of a housing bubble. CDO's did exactly what everyone thought they would do. They behaved like AAA securities for as long as the beliefs underlying them held true ("housing never goes down").
Re: New Revealing paper on High Frequency Trading
#15The only function of economic forecasting is to make astrology look respectable. -- J K Galbraith:
What is the relevance of the quote? Near as I can tell, the article is not engaging in economic forecasting, they are simply looking at historical data. (Note: I haven't read all of the paper, so please correct me if the details involve forecasting.)
I would agree. HFT strategies are unlikely to have anything to do with 'economic' forecasting - even in the short term. They are about order-book and micro-market dynamics.
Re: New Revealing paper on High Frequency Trading
#16Scientific papers about politically controversial topics that involve billions of dollars of money flowing around in firms that can potentially hire the author later, need to be taken with a grain of salt. A large grain of salt. Sad but true. You can't trust science papers about politically controversial, money-impregnated topics the way you can almost sorta sometimes trust science papers about completely noncontrove…
These conclusions, however, are also consistent with about 70 or more years of economics investigation by members of the austrian school. In fact, is whole economic cycle, that ended in 2008 was predicted by austrians in specific in 2001 and in general as far back as the 1920s.
So, this isn't just some single paper with an unexpected conclusion. It is important also because it supports an understanding of economics that is under constant political attack in our society.
Re: New Revealing paper on High Frequency Trading
#17Scientific papers about politically controversial topics that involve billions of dollars of money flowing around in firms that can potentially hire the author later, need to be taken with a grain of salt. A large grain of salt. Sad but true. You can't trust science papers about politically controversial, money-impregnated topics the way you can almost sorta sometimes trust science papers about completely noncontrove…
These conclusions, however, are also consistent with about 70 or more years of economics investigation by members of the austrian school. In fact, is whole economic cycle, that ended in 2008 was predicted by austrians in specific in 2001 and in general as far back as the 1920s. So, this isn't just some single paper with an unexpected conclusion. It is important also because it supports an understanding of economics t…
...is whole economic cycle, that ended in 2008 was predicted by austrians in specific in 2001...
[Citation needed.]
Re: New Revealing paper on High Frequency Trading
#18At least in the abstract this study doesn't seem to differentiate between market making and more agressive HTF strategies, furthermore the firms involved and strategies they are running aren't listed. The potential bias in both these factors is enormous. Given there is significant empirical evidence that at least some HFT strategies have involved market manipulation and in one notable example, the temporary total destabilisation of the entire market I'm extremely dubious as to the origins and motivations behind this paper and the data used.
That the author appears to run a high-freq quant fund hardly helps: http://www.linkedin.com/pub/jonathan-brogaard/22/b04/b60
Re: New Revealing paper on High Frequency Trading
#19The only function of economic forecasting is to make astrology look respectable. -- J K Galbraith:
What is the relevance of the quote? Near as I can tell, the article is not engaging in economic forecasting, they are simply looking at historical data. (Note: I haven't read all of the paper, so please correct me if the details involve forecasting.)
Part of the point is that it is looking at historical data, and that most academic economics results look at historical data, and historical data does not, for example (as I understand it), enable predictions of the crashes of 1929 or 2008.
This paper is fundamentally talking about "normal" trading conditions, and the continuing danger is that results like this will be used to bolster the contention that HFT is in fact a good thing, whereas when the market crashes it might be an incredibly bad thing.
I'm not saying it is or it isn't, I'm just saying that there seem to be a lot of assumptions that aren't being made explicit, those assumptions might not be valid, and when they're not valid, all predictions go out the window.
Hence the quotation.
I should add that perhaps this is no surprise. A claim I've seen made is that the information economists need to be accurate is fundamentally undiscoverable. Hence the article I lunk to earlier:
Re: New Revealing paper on High Frequency Trading
#20Earlier quoted context omitted.
No time to make some search right now, but I remember a few people pretend having known and spoken about the CDO dangers a few years before the crisis. Roubini is one them, but there is still a discussion going on whether he really foresaw it. If you look at economic research in Europe, you'll see many other opinions, like about the importance of the state, or alternative economic models. You'll probably find studies…
There are a number of people who foresaw the problems brewing in the CDO market. The book "The Big Short" by Michael Lewis provides a detailed portrait of a number of them. As usual, even when someone knows that the generally accepted wisdom is bunk, no one listens. Another comment that comes to mind is from Warren Buffett, who famously called derivatives "weapons of financial mass destruction" years before the recen…
I was more thinking of a review of academic publications to see how coupled they are to the finance industry.